Life Insurance & Life Assurance Explained
13 Dec 2019
What is life insurance?
Life insurance is designed to pay a lump sum when you pass away to take care of your dependents financially when you’re no longer around. You pick a length for your policy (usually somewhere between 10 and 25 years) and you only receive a payout if you pass away within that time, even if you’ve been paying the premiums for years.
Because you’re not guaranteed a payout, life insurance is designed to give you peace of mind as well as to provide money for your beneficiaries if you were to pass away. You’re paying to protect your loved ones and to ensure that they can go on living the life that they love. It’s like car insurance - you’re not guaranteed a car crash, but the insurance is there for peace of mind if you do.
What is life assurance?
Life assurance typically covers you for your entire life and is often also known as ‘whole of life’ cover. Unlike life insurance, a payout is guaranteed so the premiums do tend to be a little more expensive. Premiums also get reviewed every few years, meaning that they could increase during the policy to stay in line with inflation and the cost of living.
Some life assurance products are linked to investments, meaning that the premium you pay each month will be split, with some going towards your final payout and some being invested by your life assurance provider. Of course, the value of investments can go down as well as up, so whether this is a worthwhile way to play it can’t really be predicted.
Of course, you’ll be guaranteed a minimum payout if you were to pass away, but with an investment-linked policy, the full amount your dependents could receive will depend on how your investment has been performing. You could end up with lots of extra money to pass on, or you could end up with less than you’ve paid over your lifetime. Some policies may allow you to ‘cash in’ on the investment value before your policy is over, but this usually comes with a pretty big fee. Always speak to a financial advisor if you’re thinking about getting involved with an investment-linked policy.
So, should I take out life insurance or life assurance?
Life insurance and life assurance can both provide that peace of mind that our loved ones will be looked after when we’re not around. When deciding between these two products, you need to look at your personal situation and what you want out of your insurance. It will differ from person to person as to which product is ‘better’.
For instance, if paying off the mortgage is your biggest worry, you’d be better off taking out life insurance and arranging for the term to last as long as your mortgage. Your cover may end without a payout, but at least you know that your partner or family won’t be left with a mortgage that they can’t pay. Similarly, this would work best if you just want insurance whilst your children are young and can’t look after themselves financially.
Life assurance will suit you better if you want a guaranteed lump sum to leave your family with when you pass away. This would make up for one less household income to pay bills, buy essentials and keep food on the table or, even if it pays out once your family have flown the nest, it’s money to leave behind to help your children or your partner progress through life comfortably.
Whichever route you decide to take, we can help you take the first step. Talk to one of our experts on 0800 316 7253 for friendly, award-winning advice on life insurance and life assurance.