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.

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.

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.

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.

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.