Thread: Why is Life Insurance considered as a contract of Assurance?

Assurance means the security for compensation.Under the contract of insurance,the compensation is paid by insurer on happening of an event.
For example,
In case of Fire Insurance,the compensation is given only when insured suffers a loss due to fire.But in case of Life Insurance,the compensation is paid irrespective of happening of an event.In Life Insurance,the compensation is paid either on death or on expiry of a specific time period whichever comes earlier.Since payment of compensation is assured by the Insurance Company that is why contract of Life Insurance is considered as a contract of Assurance.

There are life insurance products, called Term Assurance, where the money is payable only on the happening of prescribed event, i.e. death. In case the insured survives the term of insurance, no money is payable. However, even such products are in the nature of assurance only.

Life Insurance products fails to satisfy the law of subrogation, one of the fundamental principle of insurance. Under normal insurance, in case of the happening of the event, whatever is left of the property gets transferred to the insurer (scraps, burnt stocks, stolen vehicle subsequently recovered etc). But in case of life insurance, such transfer of property (i.e. the body of the deceased) is not possible.

Also, while in case of general insurance, the property is subject to valuation by valuers, the exact value of the life of an individual can never be measured. It is supposed to be infinite. Hence, the insurance co. does not provide insurance for the value of the life, but merely assures to pay a pre-defined sum.

It is for the same reason that while only a single insurance cover (for a specified purpose) is possible for general insurance, a person can take as many life insurance covers as he want.

Hence, while in case of general insurance contract, the word used is "sum insured" in case of life insurance contract the word used is "sum assured"