The Difference Between Life Insurance And Life Assurance

The average person thinks that Life Insurance and Life Assurance are different names for the same thing. Many financial commentators too fail to note the difference.Life Insurance and Life Assurance perform different financial roles and are poles apart in cost – so it helps to buy the correct product.

Life Insurance provides you with insurance cover for a specific period of time (known as the policy’s “term”). Then, if you were to die whilst the policy is in force, the insurance company pays out a tax-free sum. If you survive to the end of the term, the policy is finished and has no residual value whatsoever. It only has a value if there is a claim – in that context it’s just like your car insurance!So Term Insurance is a Life Insurance product.

Life Assurance is different. It is a hybrid mix of investment and insurance. A Life Assurance policy pays out a sum equal to the higher of either a guaranteed minimum underwritten by the policy’s insurance provisions or its investment valuation. The value of the investment element is then a reliant on the insurance company’s investment performance and length of time you have been paying the premiums.Each year the insurance company adds a bonus to the guaranteed value of your life assurance policy and there is normally an extra “terminal bonus” at the end. Therefore, as the years go by your life assurance policy increases in value as the bonuses accumulate. The value of these bonuses are determined by the insurance company’s investment performance. Once bonus has been assigned to the policy, you can cash it in with the insurance company. However, most people get a far better price for their Life Assurance policy by selling it to a specialist investment broker rather than cashing it in with the insurance company.If you were to die during a Life Assurance policy’s term, the policy pays out the higher of either the guaranteed minimum sum or the accumulated value of the annual bonuses. However, if you are still living when the policy terminates, you usually get a bigger payout. This is because with most insurance companies, an additional terminal bonus is awarded.So Endowment Plans,Money-back Plans,ULIPs etc are Life Assurance products.There is a also a specialised form of life assurance called “Whole of Life”. These policies remain in force for as long as you live and as such, have no preset term.

What are Life Insurance polices and Life Assurance policies used for?

Life Insurance is usually a focal point of the family’s financial protection. It is ideally suited to ensure that known debts such as a mortgage, are repaid in full in the event of the policyholders death.When it comes to providing a lump sum for general use in the event that the policyholder were to die whilst the policy was in force, either Life Insurance or Life Assurance can be used. The differences are that with Life Insurance the size of payout would be preset whereas with Life Assurance it would depend on the guarantees offered and the insurance company’s investment performance.At the end of the policy’s term Life Insurance is worthless, whereas Life Assurance should payout a sizeable sum that is tax-free and in some cases give returns comparable with the best bonds . In this context Life Assurance could be far more worthwhile.