Life Insurance Vs Assurance: What's The Real Difference?

Life insurance and life assurance are terms often used interchangeably, but they are not the same thing. Both are forms of protection designed to pay out after the policyholder dies, but they have key differences. Life insurance covers the policyholder for a specific term, while life assurance covers the policyholder for their entire life. Life insurance policies have no residual value, whereas life assurance mixes investment and insurance, paying out either a guaranteed minimum or its investment valuation, including bonuses, when the policy is redeemed.

Life insurance is a contract between an insurance company and a policyholder

The policyholder must pay a single premium upfront or pay regular premiums over time for the life insurance policy to remain in force. The death benefit is usually tax-free and can be used to cover the insured person's final expenses, such as funeral costs, or to provide financial support to surviving dependents or other beneficiaries.

Life insurance policies can be term or permanent. Term life insurance is designed to last for a specific period, such as 10 or 20 years, and expires after that period. Permanent life insurance, on the other hand, remains active throughout the insured person's lifetime unless the policyholder stops paying premiums or surrenders the policy.

When choosing a life insurance policy, it is important to consider your financial situation, the needs of your dependents, and your long-term financial goals. Life insurance can provide peace of mind and ensure financial stability for your loved ones in the event of your untimely death.

Life insurance is distinct from life assurance, which is a type of life insurance with no term limit. Life assurance policies cover the policyholder for their entire life and typically have higher premiums due to the certainty of a payout. Life assurance is often used for wealth management and tax planning purposes.

Life assurance is a type of life insurance without a term limit

Life assurance is a type of life insurance that provides cover for the entire life of the policyholder, rather than for a specific term. It is sometimes referred to as 'whole-of-life cover'.

Life assurance policies are designed to last indefinitely, and the monthly premiums are usually higher as a result. Insurers know with a high degree of certainty that they will have to pay out eventually. There is generally no term limit, so beneficiaries are almost guaranteed to receive a pre-agreed amount when the policyholder dies. Some plans require the policyholder to pay premiums until they die, while others have a cut-off point—often 85 or 90—after which cover continues but premiums are no longer payable.

The lump sum from a life assurance policy can be received tax-free, and this is one of the main reasons people take out this type of cover. It can be used to help families with inheritance tax. When a person dies, if the assets they pass on are valued at more than a certain amount, inheritance tax is charged at 40%. As this threshold includes the value of the family home, millions of people are affected. A whole-life policy can be written under trust to pay off any forthcoming inheritance tax, removing this roadblock for the family.

Life assurance is also used as an investment tool. In this type of policy, known as a 'maximum cover' policy, the insurer invests the policyholder's monthly premiums, and the eventual payout is affected by how well these investments perform. The premiums for these policies are regularly reviewed and may increase as the policyholder gets older.

Life assurance is a complex product, and anyone considering taking out a policy is strongly advised to consult a specialist financial adviser.

Life insurance covers the policyholder for a specific term

Life insurance is designed to cover the policyholder for a specific term, while life assurance covers the policyholder for their entire life. This is the key difference between the two.

Life insurance is a contract between an insurance company and a policy owner, in which the insurer guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies. In exchange, the policyholder pays premiums to the insurer during their lifetime. The best life insurance companies have good financial strength, low customer complaint numbers, high customer satisfaction, several policy types available, optional riders, and easy application processes.

The specific term of a life insurance policy is chosen by the policyholder when they take out the policy. Common terms are 10, 20, or 30 years. Level term life insurance, the most common type, pays the same amount of death benefit throughout the policy's term. There are also decreasing and convertible term life insurance options.

Life insurance policies can be tailored to increase or decrease cover over time. For example, if you choose increasing cover, your premiums will also increase. This could be useful if you want your cover to account for inflation.

Life insurance is designed as a last resort, to provide peace of mind that your family will be able to fund themselves if you die. It is an emergency measure to ensure they can keep up with the mortgage and other bills.

Life insurance is protection for the term of the cover. If the policyholder dies during the term of the policy, the insurance company will pay a tax-free sum to their beneficiaries. However, if the policyholder outlives the term, their beneficiaries will not receive any payment.

Life assurance covers the policyholder for their entire life

Life assurance is a type of life insurance that covers the policyholder for their entire life. Unlike life insurance, which is designed to cover the policyholder for a specific term, life assurance provides coverage until the policyholder dies. This means that a payment is typically made when the policyholder passes away, and beneficiaries are almost guaranteed to receive a pre-agreed amount.

Life assurance policies are also known as 'whole-of-life cover' and do not have a term limit. This indefinite term length means that monthly premiums are usually higher, as insurers know they will have to pay out at some point. Some plans require policyholders to pay premiums until they die, while others have a cut-off point, often at age 85 or 90, after which coverage continues but premiums are no longer required.

At the start of a life assurance policy, the policyholder chooses the desired amount for the eventual lump-sum payout. The insurance provider then calculates the monthly premium based on the desired payout amount. Life assurance policies can also be investment-focused, with insurers investing the policyholder's monthly premiums, and the eventual payout is affected by the performance of these investments.

Life assurance is often used for tax-planning purposes, particularly to help families with inheritance tax. The lump-sum payout from a life assurance policy can be received tax-free, making it a valuable tool for wealth management and succession planning.

Life insurance is protection for the term of the cover

Life insurance is protection for a specific period, or term, of cover. This means that the policyholder is covered for the length of the insurance contract, which is typically between five and 30 years. During this time, the policyholder pays a set premium each month or year. If the policyholder dies during the term of the policy, the insurance company will pay a tax-free sum to their beneficiaries. However, if the policyholder outlives the term, their beneficiaries will not receive any payment.

There are three main types of term life insurance products: pension term protection, convertible term life insurance, and term life insurance. The most common type is level term insurance, which pays the same amount of death benefit throughout the policy's term. Other types include decreasing term life insurance, which decreases over the life of the policy at a predetermined rate, and convertible term life insurance, which allows policyholders to convert a term policy to permanent insurance.

Term life insurance policies can also be renewable, providing a quote for the year the policy is purchased and increasing premiums annually at renewal. These plans usually offer the least expensive term insurance in the first year but can become more expensive over time as renewal premiums are based on the policyholder's current age.

Life insurance is designed to provide financial protection for a specific period, such as the duration of a mortgage. It ensures that beneficiaries can cover resulting losses of income and pay off any outstanding debts. It is important to note that life insurance is not an investment and has no residual value if the policyholder outlives the term.

When choosing life insurance, it is essential to consider your specific needs and financial goals. Life insurance is suitable for those who want protection against financial losses during a particular period, such as property damage or medical expenses. It can also be useful for those who want to ensure their dependents' financial security during that time.

Frequently asked questions