Categorisation of Life Insurance

The study of life insurance is an applied science. Its subject, life insurance has been created based on practical considerations centuries ago (or thousands of years ago – according to other opinions) and it has developed by practical challenges, not theoretical discoveries.

 Because of this, the theory also tried to follow and reflect these challenges and did not aim at the axiomatic structure of the “classical” sciences (primarily mathematics and physics) that serve as examples to other sciences. This way – although it would seem as a necessary first step and basic requirement – there is no widely accepted common categorisation of life insurance, but it changes from author to author, is strongly inferior to the later matter, and usually gives an ad-hoc impression. Now let’s look at a few examples from the Hungarian and the English literature. 

1. In the Hungarian market, considering questions of insurance theory it was Dr. Dezső Csabay in the last decades, who has created the most enduring foundations, and his writings serve as a standard up to our days (although in many respects it would be useful to rethink them). Considering life insurance he88 states the following under the title “The Classification of Life Insurance

2. There are several usual classifications of life insurance according to several aspects: 

I. According to the conditional or unconditional liability of the insurer. … 

II. According to conditions depending on the health status of the insured: normal or abnormal (high risk) life insurance. 

III. According to the insurance benefits: capital and annuity insurance. 

IV. According to the insured event: term endowment, pure endowment insurance and annuity. 

V. According to business management, mostly based on the administration and transaction method of policies:

a) major life (or regular life), 

b) minor life (or popular, or industrial, workman) 

c) group insurance” The individual (life) insurance products themselves can be further categorised according to several aspects9 

By the type of premium payment: 

1. single premium 

2. annual or monthly premium (recurring premium) a) fixed (level) premium b) variable premium

3. The most important categorisation of insurance products is categorising based on the purpose of the insurance – or the insurance term. Basically all products of this aspect can be derived from two basic products or their different combinations. We distinguish four main types:

4. The few remarks on the next couple of pages are also very interesting and typical, although they cannot be considered totally accurate in an actuarial sense: “With the exception of the pure risk insurances (term and pure endowment) the net premium of the other life insurance types consists of two main elements: a risk premium and a savings premium. (Premium reserve.)

 

5. The English literature handles categorisation 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