Life Insurance or Assurance—What are the Important Differences?

Life Insurance or Assurance—What are the Important Differences?

When we make a positive decision to take out insurance of any kind, we are essentially hoping to protect what is most important. Regardless of the specific type of insurance, it might be, we are willing to hand over a portion of the money to reassure their safety. Insuring our own lives (and those of the ones we care for most) is one of the most important decisions we can make.

But where is the best place to start?

The very first port of call is to clarify what the products are that we are looking for. You will likely be familiar with the term life insurance already. Perhaps you have even taken out a policy in the past. The term ‘life assurance’ may not be quite as familiar. If you are curious to know the key differences between these two strikingly similar terms, then you’re in the right place.

Life insurance versus life assurance—what’s the difference?

As you may have already noticed, the two definitions here are strikingly similar. To an untrained eye, they might seem identical. Life insurance and life assurance are commonly interchangeable terms. They are often misused in one another by those who are ill-informed of their format and unique benefits.

So is there a clear difference? Yes—there is!

Life insurance is defined as a contract between an insurer and an individual policyholder. Paying premiums guarantees that the insurer will release a sum of money to the titled beneficiaries of the specific policy in place.

Life assurance is defined as a contract between an insurer and an individual policyholder also. The policy will pay out a set amount once the policyholder passes away to the beneficiaries in the same manner as a life insurance policy.

Life insurance and life assurance are forms of protection designed to provide a payout (of varying measure) after the policyholder passes away. In this way, they produce the same result. They are also set up in the same way, in terms of the policy buyer purchasing the cover to ensure that a financial payment will be released in the event of their passing.

The significant difference between the two is the actual term that the policy covers!

Life insurance pays out a tax-free sum to whoever the policyholder has previously chosen. In contrast, life assurance usually covers the policyholder for the entirety of their life. Life insurance is limited to the period of time where premiums are paid, whereas life assurance is not constructed with these same time limitations.

Life assurance sounds good—what does it involve?

In a similar manner to life insurance, life assurance pays out one payment of tax-free funds to the designated payees once the purchasing policyholder has passed away. Life assurance is also commonly termed as ‘whole life cover’. However, it might be uncomfortable to consider for many of us—death is eventually guaranteed for us all. Therefore, within a life assurance agreement, the payment is also a sure result.

The ultimate payout amount that your designated individuals will receive can increase and decrease depending on the type of cover you have chosen to take out. In contrast, life assurance quite literally offers assurance for life, as the title suggests. This form of peace of mind can be incredibly invaluable to someone who has loved ones concerned about following their passing later down the line.

Okay—let’s take another look at life insurance…

As we have already explored, life insurance covers a specific period rather than the entire remaining life period of the purchasing policyholder. Essentially, once the payments end, the cover will end shortly (if not immediately) afterwards. In contrast to life assurance, it is not guaranteed that your family will receive a lump sum payment. In this way, life assurance can be more attractive to those who value stress-free reassurance.

There are three different types of life insurance to consider; level, increasing and decreasing.

The level cover provides the same amount of coverage for the duration of the policy. Increasing cover accounts for inflation, and it increases during the period of cover that has been purchased. As the title suggests, decreasing life insurance decreases gradually in the same way that a repayment mortgage model would decrease over time.

Still unsure which option to choose?

When it comes to making financial decisions of any kind, it is always wise to gain an informed opinion from a qualified expert. Although initial internet research might offer some clarity, nothing replaces the trained expertise that a professional financial adviser can offer. Before you commit time and money to either a life assurance or life insurance policy, seek the support you need to make the very best choices for yourself and your family.

The particular details of any policy (whether insurance or assurance) will inevitably vary. The specific pros and cons will be unique to each policy depending on what the organisation offers and what you as a policyholder are willing to invest. It might be the case that your personal financial situation alters over time, and thus you have more economic flexibility to boost or adjust your policy. This is where the input of a financial adviser is naturally recommended. 

Ultimately—the peace of mind that either life assurance or life insurance can offer is invaluable. Knowing that your loved ones will be financially taken care of in your absence is both great comfort and true liberation from concern. Although you may not be able to put a price on human life, you certainly can set up the proper support to ensure that those you love will be economically cared for in the future and beyond.


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