Most of the policies sold now are what are known as pure risk policies – they cover you against the risk of dying or being disabled or contracting a severe illness.
As long as you pay the premiums, you are covered. However, if you stop paying, the life insurer gives you some time to catch up and if you still don’t pay, the cover falls away or lapses. At this point, there is no value for you to recoup even after years of paying premiums because your premiums covered you for the period during which you were paying.
Premiums are priced to cover the benefits that are paid to those who do claim. While you may not have been one of them, your premiums while you were paying gave you cover in case you did need to claim and paid benefits to those who did.
Universal policies
If you took out a policy many years ago, you may have what is known as a universal life policy. These policies cover you against the risk of dying, as well as possibly the risk of being disabled or contracting a severe illness, and allocate a portion of your premiums to a savings account.
In your younger years when your life premiums are lower, a portion of your premium is used to fund an investment. This investment would reduce the amount of risk cover you would need in your later years when the cost of your life, disability and dread disease cover increases.
Many of these policies were sold between the mid-1980s and the 2000s, but they are no longer sold and new policies are either risk or investment policies, not both.
