The difference between life insurance and life assurance

 Life is uncertain and you never know what is coming your way. Meeting unexpected circumstances like accidents, natural calamities, and other unpleasant events may cause a financial shock to you and your family. Under such situations, investing in the right insurance policy provides financial cover to you and your family members. People around the world purchase different types of insurance policies based on their requirements. we can recommend Marianna Financial Services as an experienced insurance advisorin Harrow.

People buy personal accident insurance to cover their expenses in the event of a meeting with an accident. They buy mortgage protection insurance to cover the repayments if the borrower defaults on payments or dies before the payments are made. However, life insurance is arguably the most common insurance opted for by policyholders.

It is a common misconception that life insurance is the same as life assurance. However, that is certainly not the case. If you are planning to take a life insurance policy, it is important to understand what it involves and how it is different from life assurance.

What is life insurance?

Life insurance is the type of insurance where one or more individuals nominated by the insured are paid a tax-free sum of money if the insured dies during the policy’s term. A life insurance policy would cover you for a specific period of time depending on the term of the policy. During this term, you would be required to a specific premium on a regular basis.

There are three different types of life insurance policies – level, increasing, and decreasing. A level life insurance policy provides you with the same amount as cover throughout the policy term. An increasing policy would increase the cover paid over the course of the term, taking into account inflation. Finally, a decreasing life insurance policy reduces the cover provided over time, considering the fact that key repayments have been made with every cover and the need for money reduces over time.

You can choose a life insurance policy based on the manner in which you want to be covered and your specific circumstances. However, it is important to note that getting an increasing life insurance policy would require you to pay more premiums over time.

What is life assurance?

Like a life insurance policy, life assurance pays a tax-free amount to one or more individuals nominated by the policyholder. However, there is no specific term for the policy here. In the case of life assurance, the policyholder is covered for their entire life. This is why it is also known as a “whole of life” cover. As there is no fixed date at which the term of the policy ends and the cover is greater, the premiums for life assurance policies are higher as compared to life insurance policies.

Life assurance policies allow the policyholders to breathe a sigh of relief as they provide them with a cover for their entire lives. As a life assurance policyholder, your nominees will be guaranteed a payout as long as you keep paying your premiums.

The working of life assurance is pretty similar to that of a life insurance policy. While you take out the policy, you are required to decide the amount to be eventually received by your nominees in the event of your death. This will lead to the calculation of the monthly premiums to be paid by you.

Just like a life insurance policy, your medical history and lifestyle would affect the premiums you need to pay every month.

Pros and cons of life insurance

Pros

Certainty of cover over a set period

With a life insurance policy, you can rest assured that your loved ones will be provided with financial aid if you pass away over a specific period of time.

Affordable premiums

Life insurance policies often come with premiums that are affordable for policyholders to pay on a regular basis.

High flexibility

Here, policyholders get the flexibility to choose the time period for which they need to be covered and the type of cover (increasing/decreasing/level).

Cons

No pay-outs if you do not die

The biggest drawback of a life insurance policy is that despite paying premiums, the policyholder will not receive any money if they do not die before the end of the policy’s term.

Expensive investment without a guarantee

As there is no guarantee of payout, a life insurance policy may turn out to be a fairly expensive investment.

Pros and cons of life assurance

Pros

Peace of mind due to lifetime cover

As a life assurance policy covers you for your entire life, it grants you peace of mind knowing that your loved ones will be covered.

Guaranteed payout

As the eventual death of the policyholder is certain and there is no limit to the term of the policy, life assurance guarantees a payout to your nominees.

Cons

Costly premiums

As compared to a life insurance policy, life assurance requires you to pay higher premiums for receiving more benefits.

Low flexibility

A life assurance policy does not provide you with many options apart from increasing cover for your nominees.

Life insurance vs life assurance: which option should I choose?

Life circumstances are different for everyone and the policy that is right for them depends on the kind of cover they are looking for. If you are willing to get covered for all your life, you should opt for a life assurance policy. On the other hand, if you are willing to be covered for a specific period of time and want more flexible options, you can take out a life insurance policy.

Moreover, if you are looking for an affordable policy that doesn’t drain your budget by paying high premiums, you can choose life insurance over life assurance. A life assurance policy is for individuals who are not certain about them passing away and are willing to guarantee a specific tax-free payout for their loved ones when they pass away.

These were some of the key differences between life insurance and life assurance. Make sure you are aware of the features offered by both policies before opting for any one of them.