“Life assurance” can be a confusing term – especially because we don’t hear it that often. However, it is important to remember that it is very much a real term. And it is significantly different from standard life insurance – although the reasons for taking it out are similar. Want to find out the key differences between the two types of cover? Simply read on…
When you’re shopping around for insurance or looking online, you will likely encounter a number of different terms. Some of these terms may even be a little confusing. Phrases like “life insurance” are pretty common… but every now and then, the concept of “life assurance” rears its head.
But what, pray tell, is life assurance?
In many ways it is very, very similar to life cover. Like insurance, it was designed with a very similar goal in mind. However, as a customer you ought to remember that…
…there are key differences between life insurance and life assurance.
When taking out life insurance, you pay for cover for a set amount of time. This is an amount of time that the policy offers, or that you and your insurer decide on together. In most cases, life cover contracts will provide a term that goes from anywhere between 10 to 25 years. Some may even be a bit longer than this.
NOTE: Quite a lot of mortgage agreements will require you to take out some kind of life insurance policy.
The main goal of this cover is to ensure that a person’s financial commitments remain met – even if they die. So, as with the previous case of the mortgage: should you pass away before you’ve finished paying, the bank will still get their money (and your family, spouse or next of kin can remain living in the property).
Mortgages are not the only reason, of course. Parents may take out cover when their kids are still growing up, so that there is money available should they pass away. However, the term they set will usually coincide with a time when their children are financially independent.
Ultimately, life insurance does not guarantee a payout. If you’re still alive at the end of the term, no one gets any money.
Then, we have life assurance.
Life assurance policies and what they really mean
When it comes to life assurance, we’re not talking about a “fixed term product”. The whole idea behind this kind of policy is simple: when you die, a payout is given to your next of kin. It doesn’t matter when you die: a day after signing the contract, or fifty years in the future.
In the UK, you may not necessarily see the term “life assurance” being bandied about too much. In many cases, you’ll see it sold as “whole of life” insurance (sometimes also called permanent insurance). And, like any other type of cover, there are countless different forms that depend on the provider.
- You may only have to pay premiums up to a certain age, even if you are still alive. However, a payout is given when you die.
- Other insurers will require you to pay up until end-of-life.
What to Consider: Is life assurance an investment?
It may seem rather morbid, but some people see a “whole of life” policy as an investment. In many cases, they are investing their own life in their children, spouse or next-of-kin. In fact, some providers may even sell this policy as a type of investment product.
In these cases, your life assurance policy will come with a premium that’s split in two. One half of the premium will be used as your payout upon death: the other then goes to the provider.
NOTE: In the event of your own death, you often get a guarantee of at least a minimum payout. However, “full lump sum received” may depend on how well the other part of your premium performs in terms of investment.
It can make sense to consider an investment-style life assurance policy. Indeed, many of them have proved to be rather valuable. But remember, as with all types of investment this does carry a certain amount of financial risk for your family.
NOTE: Depending on the policy, it may also be possible to “cash in” on the investment side of your policy. However, some providers may charge a considerably large penalty fee.
If you’re still confused about the difference between life assurance and insurance, don’t worry. There is a very easy way of remembering the difference… Life insurance is about cover something that might happen. Life assurance is about cover for something that will definitely happen.