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What is a Life Risk Policy
Is a contract in terms of which a person, in return for a premium. undertakes to—
provide policy benefits upon, and exclusively as a result of a life event; or
pay an annuity for a period;
and includes a reinsurance policy in respect of such a contract;
Whole life risk policy
In terms of the contract the insurer covers the life of the life insured for as long as he lives. There is
no actual maturity date. The contract will end as soon as the life insurance is paid out.
Term risk policy
The insurance is taken out for a specified term. The policy will expire as soon as the term has run
out.
Insurance Risk?
In insurance terms, risk is the probability that a claim event might take place before the end of the
contractual term. Simply put: What are the chances that the life insured might die before the end of
the term?
On the one hand, there is the client that represents the risk. This risk has to be quantified as well
as is humanly possible. On the other hand there is the insurer that is accepting the risk. His cost for
accepting the risk also has to be calculated.
It is not possible to know when or if a claim event will take place. But in order for the insurer to
calculate the risk he’s taking on, he has to make certain assumptions. He has to calculate what the
probability of risk is that the life insured brings into the risk pool. And this probability must be based
on scientific evidence. Scientific evidence such as real experience and statistics from the industry.
Each life insured is underwritten individually in order to determine an appropriate risk profile as a
basis for calculating his probable risk. The insurer then accepts the risk at a price which according
to his calculations reflects the true risk represented.
Risks that can be covered by long term insurance policies
Provision for loss of life: Life cover
Provision for loss of ability to earn an income: Disability cover
Provision for loss of ability to function normally due to injury or illness: Impairment Cover
Provision for serious illness: Severe Illness cover
Provision for serious injury or loss of use of limbs: Accident Cover