Life insurance and life assurance are terms that are often used interchangeably – but is there a difference?
Both are forms of protection designed to pay out after the policyholder passes away – but they don’t work the same way. The key difference is that life insurance is designed to cover the policyholder for a specific term, while life assurance usually covers the policyholder for their entire life.
What is life insurance?
Life insurance covers you for a specific term, or amount of time. This is often the same amount of time as your mortgage, for example. You’ll only pay a premium for the term of your policy, and you’ll only be covered if you pass away during that term.
The different types of cover do pretty much what they say on the tin. Level cover gives you the same amount of cover for the whole term of the policy, whereas the amount of cover you have goes up with increasing cover (to account for inflation) and goes down with decreasing cover (to account for the fact that you’ve hopefully paid off more and more of your mortgage or other loan).
You can choose a product based on whether you want your cover to increase, decrease, or remain the same. If you choose increasing cover, your premiums will also increase. That could help you determine which of these types of life insurance suits your circumstances best. Remember, you’ll only be covered for the term of the policy 1.
What is life assurance?
Like life insurance, life assurance pays out a tax-free sum to whoever you choose when you die. However, life assurance usually covers the policyholder for their entire life – so it’s also known as ‘whole of life’ cover. Unfortunately, death is one of life’s certainties, so a payout is guaranteed – meaning that premiums for life assurance policies tend to be higher than for life insurance policies.
With life assurance policies, your cover can increase if you choose, but not decrease – and although your premium is likely to be higher, you have the peace of mind that comes with knowing you have cover for your whole life.
Which is right for me?
The cover that’s right for you depends on your circumstances, of course, but you can think about the differences between the two to help make your decision.
For example, if you want peace of mind that your mortgage will be covered if you were to pass away but feel you don’t require life cover after your mortgage is paid off, you may want to consider a life insurance policy. However, if you’d like to know that a lump sum will be paid out to your loved ones no matter when you pass away, you might want to consider a life assurance policy.