What’s the difference between life assurance and life insurance?
The terms life assurance and life insurance are often used to mean the same thing, but there’s actually a number of key differences.
What is life insurance?
Life insurance is term-based, meaning you choose the level of cover you require and the length of time you wish to be covered (the term). Your monthly premium is then calculated accordingly.
You continue to make payments throughout the term and if you die before the end of the policy, your beneficiaries receive a pay out.
However, if the policy comes to an end and you’re still living, your life insurance expires and no pay out is issued. Thereafter you either need to take out a new policy or your loved ones could be left exposed.
What is life assurance?
Unlike life insurance, life assurance doesn’t expire, meaning that a pay out to your beneficiaries is guaranteed.
Because there is no expiration date on the policy, premiums must be paid for the rest of your life, meaning that whilst a pay out is guaranteed, you risk paying in more than your loved ones will receive.
In short, life assurance pays out when you die, whereas life insurance pays out if you die.
As a result, assurance policies, like whole of life insurance, tend to carry more expensive premiums, as a pay out is assured.
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Are there similarities?
Yes. Regardless of whether you choose an assurance or insurance policy, your cover will cease if you stop paying your premiums.
Also, the cost of your premiums in either scenario will be heavily influenced by the determined pay out amount (or sum assured). The greater the sum, the higher the premium.
Lastly, if you’re a smoker you’ll be required to disclose this information during either application process.
Types of life insurance
Now that we have defined the key difference between life assurance and insurance, let’s take a look at the various types of life insurance.
There are 2 main types of life insurance; level term and decreasing term.
- Level term life insurance involves determining a pay out amount and the length of time you wish to be covered
- Premiums are calculated and paid for the length of the policy term
- If you die during the term, your loved ones receive a full pay out, (as specified by the policy)
- This type of policy is ideal for covering an interest-only mortgage and/or meeting future living costs.
- Decreasing term life insurance also involves defining the level of cover you require and how long you require cover
- You pay monthly premiums and if you die during the policy term, again your loved ones receive a pay out
- The main difference here is that the pay out sum decreases over time, (the earlier into the policy you die, the larger the pay out)
- This is ideal if you’re covering a repayment mortgage, as the pay out sum decreases over time to mirror the mortgage balance.
When choosing between level term and decreasing term life insurance, the important decision is whether or not you need the pay out sum to hold it’s value.
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Types of life assurance
There are 2 types of life assurance; whole of life insurance and an over 50s plan.
As previously mentioned, life assurance covers you for the rest of your life, regardless of what age you die. As long as you were honest on the application and have paid your premiums, a pay out is guaranteed.
Both policy options involve determining the pay out sum you require.
- Over 50 plans offer guaranteed acceptance if you’re aged between 50-85 and a UK resident
- Over 50s life insurance includes a waiting period at the start of the policy for 12 or 24 months. You can’t make a claim during this time
- No medical information, other than whether or not you smoke, is required
- Therefore, this policy is ideal for anyone slightly older and/or in poor health, who may otherwise be denied life insurance
- On a monthly basis, an over 50s plan can be the more expensive, as the lack of medical information means the insurer needs to cover the unknown risk your health may pose.
- Whole of life insurance, like an over 50s plan, lasts as long as you do
- The premiums are calculated based on the level of cover you require, as well as the risk you present
- With whole of life you do have to answer health-related questions or undergo a medical
- If you’re younger and in good health, it’s likely this is the better solution for you as your monthly premiums will be lower
- It’s also possible to secure a much greater pay out amount vs an over 50s plan.
For the more mature, read our blog posts on over 60 or over 70 life insurance »
When life assurance doesn’t pay
Generally, a pay out is guaranteed with life assurance, but only if all necessary information is disclosed on the application.
If upon your death, information is found to have been non-disclosed, the policy is invalid and a pay out will be denied.
This is also the case with life insurance, so regardless of the policy you choose it’s always essential you’re truthful during the application.
Whole of life insurance may be cheaper on a monthly basis but can be more expensive in the long run.
Whilst monthly premiums may be lower, there’s the possibility that in the long run, a whole of life policy can end up costing you more. In some instances, over 50s plans only require you to make payments until a certain age, this is usually 90.
Therefore, dependant on the age you were when you took out the policy and how long you live, a whole of life insurance policy could result in you paying more.
So what should you choose: life assurance or life insurance?
There are many things to consider when deciding which option is right for you.
The key factors include:
- Your age
- What it is you want to cover (mortgage, living expenses, funeral costs, inheritance)
- Your budget
- Do you need a guaranteed pay out?
- Your health.
Use an FCA registered broker to save yourself time and money
Whatever you decide, in order to secure the most suitable policy, it’s important to compare quotes, as premium costs can vary.
Using an FCA registered life insurance broker, like Reassured, can ensure you get the right cover, at the best price.
We can also help guide you and explain any jargon you may not understand. Plus, our award-winning service is completely FREE to use!