Life Insurance Classification in the English
|Life Insurance Classification in the English|
Literature The English literature handles categorization in a much more practical way even compared to the above discussion. The volume CII (Chartered Insurance Institute), that – in a certain sense – serves as an official curriculum in England, discusses life insurance under the title “Basic types of long-term insurance policy”95: “..., as a brief revision and introduction to those policies, you might find it useful to think about the vast range of policies as falling in one of the sections of the pie chart below.
Investment Sickness Insurance Life Assurance Some of the policies you will encounter will fall easily into one of these sections, being entirely either life insurance, sickness insurance, or investment-based, but others may fall under two or even all three sections. Consider the following examples, and decide where each of them could most appropriately be placed in that chart.
• term assurance
• endowment assurance
• whole of life policies
• permanent health insurance
The Site gives the following solutions:
• term assurance = pure life insurance,
• endowment assurance = minor part life assurance, major par investment,
• whole life = major part life assurance, minor part investment,
• permanent health insurance = totally health insurance,
• annuity = important type of assurance, but cannot place it in the diagram. He also remarks that: “Finally, you will probably be aware of a number of other types of contracts not mentioned above, such as “critical illness policies” (being partly sickness insurance, partly savings, and also usually partly life insurance) and “long term care” (sickness insurance).” The volume „Life Insurance”96 of imposing size, that has a history of a century doesn't deal with the categorization of life assurance in a comprehensive way. As an introductory remark it says that “The simplest form of life insurance protection is yearly renewable term (YRT) insurance.”97 It gives the following definition of this type of insurance: “Yearly renewable term life insurance provides coverage for a period of one year only, but guarantees the policy owner the right to renew (i.e., continue) the policy even if the insured suffers poor health or otherwise becomes un insurable. Each year’s premium pays the policy’s share of mortality costs for the year. The renewal premium rate increases each year to reflect the annual rise in death rates as age advances.” After this the author considers the discussion of premium payment types to be most important. He only returns to the categorization in a later chapter (“Overview of types of life insurance”)98: “As suggested in Chapter 2, life insurance policies can be constructed and priced to fit a myriad of benefit and premium-payment patterns. Historically, however, life insurance benefit patterns have fit into one or a combination of three classes:
• Term Life Insurance
• Endowment Insurance
• Whole Life Insurance” He also mentions that: “Another class of insurance issued by life insurers is annuities… Most annuities are savings instruments designed to first accumulate funds and then systematically to liquidate the funds, usually during one’s retirement years. The above life insurance classification scheme remains valid today, although it is not always possible to determine at policy issuance the exact class into which some types of policies fall. As discussed in Chapter 6, some policies permit the policy-owner flexibility effectively to alter the type of insurance during the policy term, thus allowing the policy to be classified as to form only at a particular point. For presentation purposes, these flexible forms of life insurance are discussed as if they were an additional classification, even though all can properly be placed (at a given point in time) into one or a combination of the three traditional classes.” The following discussion is also interesting. Term assurance and endowment assurance appear in the same chapter, as sub-chapters, but the Whole Life, the “Flexible-premium Life Insurance Policies” (the 6th chapter) and the “Annuity and Special-Purpose Policies and Benefits” received separate main chapters. Concerning endowment assurance it declares that “There are two ways of viewing endowment insurance: in terms of (1) the mathematical concept, and (2) the economic concept. Mathematical Concept. The insurer makes two promises under endowment insurance: (1) to pay the face amount if the insured dies during the endowment period, and (2) to pay the face amount if the insured survives to the end of the endowment period. The first promise is identical with that made under a level term policy for an equivalent amount and period. The second introduces a new concept, the pure endowment. A pure endowment promises to pay
the face amount only if the insured is living at the end of a specified period; nothing is paid in case of prior death. Pure endowment insurance is not sold as a separate contract in the United States. It is said that few people are willing to risk the apparent loss of all premiums paid in the event of death before the end of the endowment period. … Economic Concept. Another analysis of endowment insurance, the economic concept, divides endowment insurance into two parts: decreasing term insurance and increasing savings. The savings part of the contract is available to the policyowner through surrender of or loan against the policy.” Chapter 6. mostly discusses the Universal and the Variable Universal Life type assurances. It is interesting that Life Insurance, Theory and Practice, that was also published in America a few years earlier, has also lived many publications and is also a thick book – although splits assurances into similar groups – doesn’t define the same categories as Black and Skipper. In the chapter “Basic Types of Life Insurance Policies”101 it writes the following: “Life insurers issue numerous types of life insurance contracts. Many of the policies are special combinations or variations of what are often considered to be the basic forms of life insurance: term, whole life, and universal life.” The authors insert here in a footnote that: “Life insurers also write annuities … Some persons like to argue semantically that annuities are the only form of true life insurance as they insure persons against outliving their income. These persons argue that what is called life insurance should be called death insurance as it insures a person against loss caused by death.” The very beginning of the chapter emphasizes that two important variations must be remembered: the insurances called variable life and variable universal life. The authors handle “other” life assurances in a separate chapter (“Product Diversification and Special Purpose Policies”). They find that many types of new insurances have been introduced in the ‘70s and ‘80s that give the customer many new options. This had the effect that „In recent years, the diversification trend has resulted in some blurring of the demarcation lines that traditionally distinguished the various types of financial institutions. Most observers predict that further breakdowns in institutional distinctions will occur as diversification continues.”102 The first special purpose insurance it discusses is the endowment insurance. „Although once considered to be one of the basic forms of life insurance, endowment coverage has declined drastically in popularity in recent years, partly due to the development of more flexible products, such as universal life. During 1984, less than half of 1 percent of all new ordinary insurance purchased was endowment coverage.”103 Funny, that although both books have the title “Life Assurance”, both discuss health insurance and different kinds of welfare plans in full detail without considering them conceptually as life assurance.
Ref: JÓZSEF BANYÁR: LIFE INSURANCE