It is a common misconception that life insurance and life assurance are interchangeable terms for the same thing, but in actual fact, they are different types of policies that work in different ways. It is important to understand the key differences between life insurance and life assurance, in order to decide which is best for you and your individual situation.
Choosing the right kind of cover to protect your family after your death is never easy, but it can be the difference between your loved ones being financially stable or struggling to pay bills once you are gone. This guide explains the difference between life insurance and life assurance, and a few top tips to help you decide which is best for you.
What is life insurance?
Life insurance is a type of insurance policy that will pay out a tax-free lump sum to your loved ones in the event of your death. This type of insurance will last for a predetermined period, known as the term, and your beneficiaries will receive the payout if you pass away during this time. The amount that is paid out can either be on a ‘level’ basis, which means it stays at the same amount throughout the entire duration of your policy period.
Alternatively, the payout could be on a decreasing basis, where it is reduced over time to cover mortgage debts. Choosing a decreasing cover option is often cheaper than a term cover option because the payout will be reduced as time goes on.
If you live longer than the term of your life insurance, you and your beneficiaries will not receive any payout. If you want to still be covered after the term has ended, you will need to take out a new life insurance policy.
What is life assurance?
Life assurance works in a similar way to life insurance but has some important differences. Life assurance is again a type of insurance policy that will pay out to your family when you pass away. However, life assurance will cover you for your entire life instead of for a fixed term. It is often called whole of life cover and means that no matter what age you are when you pass away, your family will receive a payout.
The monthly premiums for life assurance are often much higher than with life insurance because the insurance company is guaranteed to pay out at some point. Some life assurance policies will offer fixed premiums that won’t increase over time, but others may review your premiums every few years.
Another key difference between life insurance and life assurance is that life assurance policies are often linked to investments, which means that part of your premium payments will be invested. If your life assurance is invested, then the amount of the payout will be dependent on how well your investments are doing and could increase or decrease over time.
If you are considering a life assurance policy where your money is invested, it is often worth seeking professional financial advice to ensure it is a viable investment for you and your family.
Life insurance or life assurance?
Both policy types will offer valuable peace of mind that your family will be financially stable and looked after when you are no longer around. Many people choose a life insurance or life assurance policy in order to cover debts such as their mortgage and other household bills for their loved ones but knowing which to choose isn’t always easy.
The key difference between the two policy types is that life assurance covers you for your entire lifetime, whereas life insurance will only cover you for a set period of time.
Premiums for life insurance are typically much lower and choosing a decreasing policy can be an even cheaper option if you just want to cover your mortgage debts. With life insurance, you are free to decide how long you want to be covered for, and many people prefer to cover themselves until their children are grown up or their mortgage is paid off.
The main downside of life insurance is that if you live longer than the policy term, then your family will receive no payout, and while you can choose to get another policy after this, the chances are the premiums will be very high because of your age. Life assurance gives you piece of mind that you will be covered for your entire life, no matter what age you live until.
The premiums for both life insurance and life assurance will be dependent on your health, age and lifestyle. The younger you are when you take out a policy, the cheaper your premiums will be.