The Difference Between Life Insurance And Life Assurance?

These two terms are often confused and it’s good to understand the difference before you sign up to one or the other because they are often interchanged at random.

Life insurance

This will offer insurance for a pre-defined period which you decide upon at the start of the policy. This is often from 10 to 25 years.

Life insurance is likely to ensure your financial commitments are met in the event of your death. The majority of mortgage providers will ask you about life insurance cover in order to be reassured your mortgage debt will be covered if you die before the end of term.

It is common to take out this type of insurance when you have young children; you can set a date in the future for the termination date when you think your family will be financially stable.

However, there is no guarantee of a pay-out as there can be no definition imposed that you will die before the end of term. This is similar to the way car or home insurance works.

In the event you live longer than the policy term, you will not get a pay-out at the end or a refund of premiums paid to that date. However, you can take out another policy.

Life assurance

This product is not set with a defined fixed term. It will cover you until your death, regardless of how long that is after you take out the policy.

This type of insurance is frequently offered as ‘whole of life’ or permanent insurance. One of the advantages is that you are guaranteed a pay-out at the end of the policy. However, it is usually a higher cost than standard life insurance as it covers you for a longer term.

Providers differ in their terms so it’s best to check out what suits you best first. Some will ask you to make regular payments until your death. Others will have a clause whereby you can cease payment of premiums when you reach a certain age and you can still get a pay-out on your death.

Life assurance investment

Some insurance companies will offer life assurance as an investment policy and this is often referred to as investment-linked life assurance or an endowment policy.

In this case, your monthly premium will be divided and a portion will go towards your final pay-out and the remainder will be invested by the provider.

Lump sum

Be aware that the full amount of the lump sum received will depend on the performance of the investment part of your policy. You will usually have the guarantee that you receive a minimum pay-out in the event of your death. However, remember, your dependents could get less than you have paid in over your lifetime. It will depend on the value of the investment linked part of the policy.

There is often the opportunity to close the policy early and benefit from the investment accrued to date. However, a penalty fee is usually applicable which could be quite large.

Value

One of the main things to remember with this type of product is that the value of the investment could go up or down, depending on market fluctuations. This, in turn, will affect your final pay-out.

It is advisable you talk to a financial advisor first beforehand.

Key point

Life insurance covers you if you die within the term of the policy; life assurance will be offer you a pay-out upon your death.

Medical history is likely to be taken into account, together with the status of your current health.

Written by

Kevin Patterson