Life assurance is a contract between an insurance policy holder, normally the life assured and an insurer or assurer. The Insurer promises to pay a designated beneficiary or beneficiaries the sum assured in exchange for a premium, upon the death of an insured person.
The contract may include other events such as terminal illness or critical illness. Any of the insured events can also trigger payment. The policy holder pays a premium, either regularly or as one lump sum in exchange for the benefits stipulated in the contract with the Insurer.
Life policies are legal contracts between the insurer and the insured, and the terms of the contract describe the extent and limitations of the insured events. Specific exclusions can be written into the contract to limit the liability of the insurer. Common exclusions that are normally detailed in life assurance contracts are claims relating to suicide, fraud, war, riot, and civil commotion.
Most life insurance companies have diversified their products into retirement products such as annuities.
Life-based assurance contracts fall into two major categories:
- Protection policies – designed to provide a benefit, typically a lump sum payment, in the event of an insured event taking place. A common form of a life based protection policy is term insurance.
- Investment policies – the main objective of these policies is to facilitate the growth of capital through regular or single premiums. Common forms of investment policies are whole life, universal life, and variable life policies.
Life Assurance premiums paid by a policyholder are not deductible from taxable income, although premiums paid via an approved pension fund registered in terms of the Income Tax Act are permitted to be deducted from personal income tax.
The benefits arising from life assurance policies are generally not taxable as income to beneficiaries (in the case of approved benefits, these fall under retirement or withdrawal taxation rules from SARS). Investment returns within the policy will be taxed within the life policy and paid by the life assurer depending on the nature of the policyholder (whether natural person, company-owned, untaxed or a retirement fund).
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