Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.
Definitions in IFRS 17 Insurance contracts
Life insurance business – All life insurance contract and life investment contract business conducted by a life insurer.
Life insurance contract – An insurance contract, or a financial instrument with a discretionary participation feature, issued by a life insurer.
Life insurance liability – A life insurer’s net contractual obligations under a life insurance contract.
Life insurer – An entity operating under a Life Insurance Act (or similar act. law or rule) in the domicily country and similar entities operating outside that country.
Life investment contract – A contract which is not an insurance contract but is issued by life insurers, and gives rise to a financial asset and financial liability. An investment contract cannot be a contract exempted from the definition of an insurance contract.
Life investment liability – A life insurer’s net contractual obligations under a life investment contract which arise under the financial instrument component of a life investment contract.
Life reinsurance contract – A life insurance contract issued by one insurer (the reinsurer) to compensate another insurer (the cedant) for losses on one or more contracts issued by the cedant.
Policy liability – A liability that arises under a life insurance contract or a life investment contract including any asset or liability arising in respect of the management services element of a life investment contract.
Term life insurance contracts – Term life insurance, also known as pure life insurance, is life insurance that guarantees payment of a stated death benefit during a specified term. Once the term expires, the policyholder can either renew for another term, convert to permanent coverage, or allow the policy to terminate.
Universal life insurance contracts – Universal life insurance is permanent life insurance with an investment savings element and low premiums like term life insurance. Most universal life insurance policies contain a flexible premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).
Life insurance business
Life insurance business
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