THE ROLE, CONCEPT AND MAIN TYPES
OF LIFE INSURANCE
KEY WORDS
Transfer between funds Asset Fund
Unit Linked Life Insurance Accumulated Units
Accident Insurance Conditional Annuity
Accidental Death Term Insurance
Accidental Disability Annuity
Sickness Insurance Beneficiary
Maturity Initial Sum Insured
Insurance Term Initial Units
Insured Event Term Insurance
Sum Insured Hospitalisation Daily Allowance
Insurance Benefit Critical Illness
Insured Term Fix Insurance
Age of Insured Surgery Benefit
Table of injuries Pension Insurance
Pure Endowment Insurance
with Premium Refund at Death Sum Insurance
Whole Life Insurance Critical Illness, Dread Disease
Health insurance Disability Waiver of Premium
Unit Disability Annuity
Offer Price Policyholder
Life Insurance Policy Endowment Insurance
Top-up Payment Bid Price.
In the following sections of the book we will take the life insurance from the earlier
mentioned solutions that facilitate the planning of the life cycle, and discuss it in more
detail. First we will try to find the concrete situations of life and the concrete types of
life insurance that can be used to achieve individual (in some rarer cases organisational)
goals. The following discussion focuses primarily on the product, briefly mentioning
the most important institutional specialities, and at the same time referring to the
changes that both are currently undergoing.
Financial Needs
The change in demand for financial – and within this life insurance – products has its
own logic, that the insurance companies have to follow both on the sales and on the
product development side. The most important elements of this logic:
As people are becoming wealthier, new financial needs arise, and these needs
are differentiating – parallel to the differentiating society. (It has to mention, that
an opposite tendency also appears: because of the economic development some
earlier financial needs – e.g. the need for cheque-book – are ceasing, respectively
certain groups of the society are merging.)
Parallel to the enrichment of people, their financial literacy is developing
(because they have more and more possibility to deal with finance and to observe
the problems), and consequently:
» They also understand more the functioning of life insurance, and they have
a growing need for more comprehensible products (so in a certain sense
demand is gradually shifting from traditional to modern life insurance).
» Needs are becoming more differentiated, which requires more and more
individually fit products49.
Because of enrichment and competition the certain consumers’ comfort and
demand level is increasing, and this way they are less satisfied by only the
product itself, they expect a complex solution to problems. They respect much
less the argument that “my competence as an insurer ends here, seek the advice of
other kinds of institutions with your further problems”.
As a counter tendency, other consumers – parallel with they rising financial
knowledge – would like more and more simple and basic financial products out
of which they are able to mix the product mixture they need.
With the integration of financial areas it is much more difficult to define what
exactly life insurance is. Due to integration, the competition of other financial
institutions (banks, brokers, mutual funds) is becoming more definite, but at the
same time new opportunities open up for insurance companies, they won’t be
locked up as much into a relatively narrow field of action.
Behind the change in consumer demands – e.g. the change in demand for financial
products – we can discover a kind of order. We see the same order in the specialisation of
institutions on different financial areas. Retail banks are specialised in handling mostly
daily, short term financial affairs, that is, in handling cash flows, deposit collection (also
short term), that is logically connected to these, and consumer loans (again short term),
The Relation of Life Insurance with Other
Insurances, the Nature of Life Insurance Risk, The
Characters of a Life Insurance Contract
Let’s look at what life insurance is, and what distinguishes it from other types of
insurance.
We gain the definition of life insurance50 from the general definition of insurance. We
get its specialities if we delimit it from other insurance types. The delimitation can be
of several aspects. In the following we will analyse the relation and differences of life
insurance and other insurances in the following aspects:
- the insured event,
- the character of claim and reimbursement,
- the specialities of reserving.
The term “life”-insurance itself is partly correct, but partly euphemistic, since
primarily those insurances are called life insurance, where the insured event is related
to the death of the insured. This – given by the nature of the matter – can be exactly of
two kinds: - the incurrence of death,
- the non-incurrence of death.
More precisely the possible life insurance events can be phrased as - death as an insured event, if the death of the insured happens during a pre-
determined term, - living through a term as an insured event means that death doesn’t happen
during a certain pre-determined time-period.
