The term ‘ordinary life ‘ is used to distinguish the normal life assurance policies from industrial use assurance. The main distinguishing feature between the two is that in ordinary life assurance, premiums are paid through banks or by check off system while in industrial life premiums are collected by agents from the homes and offices of the policy holders. There are three main classes of ordinary life assurance.
These are discussed below.
Term Assurance
Term assurance is the simplest and oldest form of assurance and provides for payment of the sum assured on death, provided death occurs within a specified term. Should the life assured survive to the end of the term, then the cover ceases and no money is payable. This type of cover is inexpensive. It is suitable for young married people earning low incomes. The aim is to provide reasonable reasonable sum for their spouses in the event of their own death.
Endowment
This is a policy where the sum assured is payable in the event of death within a specified period of years say 10, 15 or 20 years or at the end of any specified period which is known at the maturity death. Its purpose is to provide financial benefit for the policy holder after maturity or provide financial protection for the dependents in case the life assured dies while the policy is still in force.
Pure Endowment
A pure endowment however does not provide any life cover. It is a simple contract that pays out maturity value at the date specified if the life assured is alive.
Whole Life Assurance
The sum assured is payable on the death of the assured whenever it occurs. Premiums are payable through out the life of the assured or until the retirement of the assured. Although premium payments may cease at retirement, the policy will still be in force and if the assured dies later the policy will provide the benefit to the assured’s representatives.