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Life insurance vs Life assurance

Fiona Leake
Written by Fiona Leake

Many people believe that life insurance and life assurance are the same thing but the two policies actually have a number of differences. So, what's the difference between life insurance and life assurance and which is the right one for you? 

If you are thinking of taking out a life insurance policy, it’s important to know which one is right for you. Which might lead you to wonder what the difference between insurance and assurance is. That’s why we are here with this guide to help compare life insurance and life assurance policies in order to help you to decide which is the right policy for you. 

What is a life insurance policy?

A life insurance policy is an arrangement that will see your beneficiaries receive a lump sum if you pass away during the policy term. You will pay monthly premiums throughout the term of the policy in order for your family to receive the agreed ‘death benefit’ if you pass away. 

There are different types of life insurance but the most common is level term insurance. This lasts a certain number of years and the death benefit remains the same amount throughout the term.

What is a life assurance policy? 

Unlike life insurance which has a fixed term, life assurance covers you for your entire life, which is why it’s also known as ‘whole of life’ cover. This means that life assurance lasts indefinitely until you die, whether that is in 20, 30 or 40 years. 

As long as you pay your monthly premiums, your family will be guaranteed a payout when you die. 

How does a life assurance policy work?

A life assurance policy works very similarly to a standard life insurance policy. When you decide to take out a life assurance policy, you will decide how much you want the eventual lump sum for your family to be. Your monthly premium will then be calculated depending on how much the death benefit is. 

Your medical history, general health and lifestyle choices will also affect the cost of your monthly premiums, much like any life insurance. Make sure that you are always honest and don’t miss anything out as this could affect whether your family receives the lump sum upon your death or not. The insurance company has the right to deny the death benefit if you lied on your application.

You will then pay your monthly premiums until you eventually pass away and your family will receive the agreed lump sum. They will have to let your insurance company know after you pass away, provide the policy details and then make a claim. This is why you must put the details and beneficiaries of your life assurance policy into your will.

What’s the difference between life insurance and life assurance?

The key difference between life insurance and life assurance is the length of the policy. Life insurance lasts an agreed term which is a number of years and can vary. If you don’t die during the term of your life insurance policy, then your family won’t receive your death benefit. 

However, life assurance lasts your entire life, meaning that your family is guaranteed a payout when you pass away. There is no term with life assurance, meaning your family will receive a lump sum even if you don’t die for many, many years. 

Also, with life assurance policies you can have the option to increase your death benefit amount during the policy, but you cannot decrease it. Whereas with life insurance, you have the option to choose between level, increasing or decreasing cover. 

Life assurance monthly premiums tend to be higher than standard life insurance premiums as the payout is guaranteed and lasts for the whole of your life. 

Life Insurance vs Life Assurance: Pros and cons 

Life insurance pros and cons 

Pros 

  • Peace of mind that your loved ones will receive a lump sum if you die in the next set number of years

  • Affordable monthly premiums 

  • Flexibility to pick how long you want to be covered for and whether the cover increases or decreases 

  • Will help support your family with bills, mortgages and debts if you pass away

Cons

  • If you don’t die during your policy term, you won’t receive a payout even though you may have been paying monthly premiums for many years

  • Can be an expensive investment without a guaranteed payout 

Life assurance pros and cons

Pros

  • Peace of mind that you are covered for your entire life

  • Your family are guaranteed a payout when you die 

  • Your family can plan in advance what they might need the payout for 

  • Can give your family financial freedom when you pass away

Cons

  • Monthly premiums tend to cost more than other life insurance policies 

  • The cover is less flexible and more fixed with only the option to increase cover during the policy

What type of policy should I choose?

Everyone’s life circumstances are different and it really depends on what type of cover you are looking for. However, for many people, life insurance provides enough cover for their needs at an affordable price. This is because most key life events last a certain number of years. 

For example, raising a child takes 18 years and many mortgages last around 25 years. Therefore, many people choose life insurance as they set the term to last the length of their most expensive life events. After these financial commitments, their family may no longer require a lump sum if they were to pass away. If your family only requires cover during the period of your mortgage but not afterwards, then life insurance will work for you.

However, if your family will require financial support if you were to pass away many years in the future, then life assurance might be a better option. This will give you the peace of mind that no matter when you die, your family will be looked after. This guaranteed payout and peace of mind will cost more as monthly premiums will be higher. 

Moreover, some people choose life assurance over life insurance as they wish to grant their family financial freedom when they pass away. This means that they don’t need to leave money to help with bills but they want to leave money to give their family freedom after they pass. Life assurance tends to be the better option if this is the case.

This choice is very much yours and down to your personal circumstances. Make sure you weigh up the pros and cons of both life insurance and life assurance before making a decision.

Is life assurance worth it?

If you are the main breadwinner in your family and have multiple dependants that will need financial help when you pass away, then life assurance will certainly give you peace of mind. 

However, if your family only will require financial help during a set number of years, then life assurance might be an unnecessary expense. In this case, a term life insurance policy would suit your needs better.

Life assurance is worth it for you if your family will need to rely on a guaranteed lump sum whenever you pass away, no matter how many years in the future that may be. For many, the guaranteed payout that life assurance offers is worth the additional peace of mind. 

FAQs 

Why is life insurance cheaper than life assurance? 

Life insurance tends to be cheaper than life assurance because a payout isn’t guaranteed and the policy only lasts a certain number of years. Life assurance policies are guaranteeing a lump sum upon your death and so the premiums must be higher to compensate for this. 

The complete peace of mind that life assurance policies offer does certainly cost more.

Why is life insurance sometimes called life assurance? 

The terms life insurance and life assurance are sometimes used interchangeably but they are very much different policies. Life insurance is a set term policy and life assurance lasts indefinitely. 

Life assurance can often be called whole of life cover. It also might be included in over 50s life insurance policies as these often last the rest of your life. 

Make sure you read the terms and conditions of your policy to understand how long it lasts and what it covers.

Can I cash in my life assurance policy early? 

Life assurance policies are designed to only payout when you die. However, some insurance providers will allow you to cancel early due to the indefinite length of the policy as circumstances can change. If your insurance provider does allow you to cancel early, then you will likely receive the value of the payout or what you’ve paid so far in monthly premiums. However, this final amount will be minus any penalty charges you will receive due to cancelling. 

These penalty charges are likely to be substantial which means you might end up with less than you have paid in so far. So, it might not be worth cancelling unless you can no longer pay the monthly premiums. 

Make sure you check the terms of your life assurance policy before you take it out so you know whether or not you can cancel down the line.

Is life assurance the same as over 50s life insurance?

Life assurance and over 50s life insurance aren’t exactly the same. They both technically offer ‘whole of life’ cover. However, over 50s life insurance can only be taken out once you are over 50. Life assurance can be taken out as soon as you are 18 or over. 

There is also likely to be various differences in the terms and conditions so make sure you read them thoroughly before taking out life assurance or over 50s life insurance. If you are over 50, over 50s life insurance will very likely be a cheaper option for you. However, if you are looking for a whole of life cover starting from a young age, life assurance might be more suitable.

Life insurance/assurance and COVID-19

During the coronavirus pandemic, many people have considered the need for life insurance due to the uncertain times we find ourselves in. 

Thankfully, you can still get life insurance during the current pandemic. It’s important to note that some insurance companies are adjusting their policies so make sure you always read the details. 

If you are travelling to or live in a high-risk area, this could also affect the cost of your premiums or the likelihood of being approved. 

This shouldn’t discourage you from getting life insurance during these times, it’s always worth the peace of mind for yourself and your family.

Take a look at the different types of life insurance available in our guide

10th September 2020