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As you will have read in the previous chapter,
premiums on life assurance policies remain at the same level throughout
the duration of the contract. In the early years these premiums are
larger than required to meet claims, leaving large amounts which can be
invested. |
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Investment is the use of money to secure an income or
a profit, for instance, by buying shares in a profitable company. Income
would come in the form of dividends from the profits earned by the
company and profit might come from eventually selling the shares at a
higher price than the original purchase price. |
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Investment is made in different ways; by buying
shares in larger industrial companies, buying government and local
government securities, mortgages and loans to property developers or the
purchase or existing property. |
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Excess premiums must be invested very carefully,
always trying to balance the security of the money invested with as high
a rate of return (interest) as possible. The investments must be spread
across all the options available, taking advantage of the security this
affords. It is in this area that the experience and expertise of life
office investment departments play such an important part. |
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It must be remembered that the money invested belongs
to the policyholders and great care must be taken on their behalf to
ensure money is available to pay claims and provide good returns to
those policyholders who also use life assurance as an investment. |