What's The Difference Between Life Insurance And Life Assurance?

While life insurance and life assurance sound very similar and are often used interchangeably, there are actually very important differences between the two, and both can have a major difference in protection for your loved ones. 

Understanding the distinction between life insurance and life assurance can help you make a significant decision for the right type of cover for your circumstances. We will explain the key differences between the two, how each works independently, and how to determine which option is better suited to you and your family. 

What Is Life Insurance?

In short, life insurance is a policy that provides financial protection for your loved ones if you should pass away during a specific period. 

This period of time is often referred to as the ‘policy term’. If the policyholder passes away while the policy is active, the insurer will pay a lump sum to their beneficiaries. However, if, for any reason, the policy term ends and no claim has been made, the cover will expire, and no payout will be made. 

Life insurance is most commonly used for: 

• Covering any outstanding mortgages
• Helping with childcare and educational costs
• Replacing lost household income
• Covering debts and liabilities
• Providing financial support for dependents

As the insurer will only pay out if a death occurs within an agreed term, the life insurance premium is often more affordable than that of life assurance. 

What Is Life Assurance? 

On the other hand, life assurance provides lifelong cover, rather than for a designated term. Instead of a payout only when the holder passes away within a specified period, life assurance will guarantee a payout whenever it occurs, provided the policy remains in force and all premiums are paid. 

Life assurance is often referred to as a ‘whole of life’ plan, and can offer support to:

• Help loved ones cover funeral expenses
• Support estate planning
• Leave financial gifts or an inheritance
• Provide certainty of payouts

Although life assurance plans are generally more expensive than equivalent life insurance plans, the certainty of a payout provides valuable peace of mind for policyholders.

What Are The Key Differences Between Insurance And Assurance? 

Although both life insurance and life assurance provide financial support and protection, the main difference between the two lies in how the benefits are paid out to loved ones. For example: 

1. Cover duration: 

Life insurance is covered for a fixed period. This will typically be over 10, 20 or 30 years. If the policyholder passes away during this time, the policy will be paid out. However, if you outlive your initial term, the cover will end. 

With life assurance, you are covered for your entire lifetime, with a guaranteed payout upon your passing. 

1. Premium costs:

Typically, life insurance is less expensive due to the brief cover period, especially if a payment is never made. Life assurance premiums are typically higher for this reason, as a payment will be guaranteed. 

Although there is a specific difference between the two, both options reflect the certainty of a payout, which should be taken into consideration. 

1. Payout certainty:

With life insurance, there is an underlying risk that a payout may never be made if you survive beyond your policy term. With life assurance, a payout is guaranteed from the get-go, as the policy lasts your entire lifetime, subject to conditions. 

1. Purposes:

Life insurance is most commonly used for financial protection of commitments, such as a mortgage, or for family income. On the other hand, life assurance is most commonly used for long-term financial planning, such as funeral costs or inheritance planning. 

When Do I Need Life Insurance? 

Life insurance is most typically suitable if you have financial responsibilities that could create difficulties for your family if you are no longer around. 

For example, life insurance is suitable if:

• You have a mortgage
• You have young children or dependents
• You want to replace any lost income for your family
• You have outstanding debt
• You need affordable protection for a specific period of time

Life insurance policies provide protection and reassurance that your family and loved ones will be protected financially if the unexpected happens, only for a specified period in your chosen policy. 

When Do I Need Life Assurance?

Life assurance, on the other hand, can be a suitable option for people who want complete protection and certainty that their loved ones will be financially protected after their passing. 

For example, life assurance is suitable if:

• You want guaranteed lifelong cover
• You wish to leave money for family members
• You are planning your estate
• You want to help with the funeral costs
• You want long-term peace of mind from financial worries

As life assurance does not expire, it is often valued as an important part of future financial life planning. 

Can I Combine Savings And Life Cover?

At Sheffield Mutual, we offer a Tax Exempt Savings Plan to go alongside your life insurance cover, to allow policyholders to build tax-efficient savings to support their life cover. For example, if the policyholder passes during their policy term, a savings plan will ensure that a guaranteed amount and any applicable bonuses will be paid out, as well as if the policy term were to end.

Which Is Better?

Ultimately, there is no guaranteed answer for which option is better between life insurance and life assurance, as both policies hold their own values and benefits for your specific needs. 

Life insurance is often better suited if you:

• Need affordable cover
• Need support with your mortgage term
• Want protection during key financial commitments
• Want income protection for your family

On the other hand, life assurance is often better suited if you:

• Want lifelong cover
• Want help covering funeral costs
• Need a guaranteed payout
• Are considering estate planning

Choosing between the pair often comes down to an assessment of your personal situation and your long-term goals. If you need support in making a decision, seek financial advice.

How Do I Get Started?

Whilst considering life insurance or life assurance can be a daunting process, ultimately, having a policy in place can guarantee you peace of mind if the inevitable should occur. 

Life insurance can provide coverage for a fixed term, with payouts only if you pass away during your policy term. Life assurance can protect with lifelong cover, with payouts guaranteed whenever you pass, as long as the policy remains active. 

The right option for you ultimately depends on whether you would benefit from temporary protection for a specific commitment or period in your life, or require lifelong certainty that your family will be protected. 

By understanding the differences between the two, you can make a more informed decision for your personal type of cover. For more information and support in getting a quote, contact us today.

This article provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.