Life assurance vs insurance: What to know

Life assurance vs insurance: which is the better option for you? We’ll take you through everything you need to know so that you can make sound financial decisions for yourself and your loved ones.

First, let’s get down to basics: is life assurance the same as life insurance? The short answer is no, not exactly — even though the terms are sometimes used interchangeably. 

Life assurance is a type of life insurance, but not all types of life assurance are life insurance. 

Sound confusing? It doesn’t have to be. Let’s go through the details.

What is the difference between assurance and insurance?

The difference between life insurance and assurance comes down to how long your coverage lasts. Having life assurance means that you are assured coverage for life. On the other hand, life insurance is a broader term that covers a range of different policy types, including term cover, which protects you for an agreed-upon period.

Definition of life assurance

Life assurance guarantees that your beneficiaries will receive a tax-free payout when you die, regardless of when that happens. That’s why it’s also referred to as whole of life insurance — essentially, it covers you for the whole of your life, provided you keep up with your end of the bargain by paying your premiums when they are due. 

Because it provides a high level of protection, life assurance tends to be more pricey than other kinds of life cover. However, this may be worth it, particularly if you factor it into your inheritance tax planning. (Inheritance tax is a tricky subject. Talk to a professional about whether including life assurance in your planning is a good idea.)

While life assurance means that you are covered for your whole life, there are different subcategories within this type of cover, namely fixed and reviewable:

Fixed life assurance means your premiums and cover will remain the same.

Reviewable life assurance means your premiums and benefits come up for review periodically. When they do, you can choose to increase the worth of your policy. When sold through financial advisers, renewable life assurance may also include an investment element, meaning this policy type can be a way to grow your money. 

Definition of life insurance

Life insurance offers to pay out your beneficiaries after your death, either in a lump sum or regular payments. Your policy — the agreement you hold with your insurance provider — will outline the terms. This includes the amounts to be paid in and out, if there is an expiry date, and whether there are any exclusions (such as pre-existing health conditions) that may apply. 

Life insurance can be:

Valid for a set amount of time (term life insurance) or your whole life (permanent life insurance).

Either increasing (where the benefits increase as time goes on) or decreasing (where the benefits decrease over time). Increasing life insurance may be useful if you have young children whose financial needs will grow as they age, and decreasing might be the right option if you have to pay off a mortgage, as the debt will decrease over time.

For the full scoop on how life insurance works, head here. 

Why is it called life assurance instead of life insurance?

Quite simply, this type of cover is assured, regardless of when you die. Unlike term life insurance, life assurance does not come with an expiry date provided you pay what you owe to your provider. 

Of course, this kind of certainty doesn’t come for free. What you get in assurance, you pay for in the cost of your monthly premiums.

Is assurance better than insurance?

So what’s better: life insurance or assurance? That all depends on your needs. 

Benefits of life assurance

Whole of life coverage

Even if you die at a ripe old age, your beneficiaries will receive a payout. In contrast, some term life insurance policies have a maximum payout age, after which your coverage will no longer apply.

Peace of mind

You never have to worry about your policy expiring. As long as you have paid your premiums, you know that your beneficiaries will receive a payout when you die. For the extra money you put into your policy, you get the comfort of knowing that your loved ones will be taken care of.

Financial stability and growth

Beyond offering financial security after your death, life assurance offers some financial advantages while you’re still alive. Specific policies allow you to access funds from the cash value of your policy, either in the form of a withdrawal or a loan.

Some policies are investment-linked, meaning that they not only provide protection but also an opportunity to grow your money. How this works is that some of your premiums are put towards coverage and some towards specific investment funds. You will be able to find the right balance with your advisor, depending on your appetite for risk.

Benefits of term life insurance

Temporary financial support

One of the significant perks of term life insurance is that you get to provide your loved ones with financial support, even after you’re gone. This can be in the form of a monthly payment that can help them keep up with household expenses or a lump sum. 

Alternatively, if you would like to ensure that a specific cost is covered, such as a mortgage or a loan, you can take out term life insurance for this particular purpose. If you have young children, you can set up term life insurance so that their financial needs are met until they leave home.

Affordability

Cost is a big plus when it comes to term life insurance. While life assurance gives you the comfort of knowing that you are never without cover, that sort of surety sometimes comes with a hefty price tag. For life cover that doesn’t take too much of a chunk out of your finances every month, term life insurance is a great option.

Flexible coverage

Term life insurance offers you more flexibility in terms of how much you want to pay in and how much you want to get out. Also, because term coverage is only valid for a set period of time, you get to reassess if the terms of your policy still suits you when it comes to an end. 

Choosing between life assurance and life insurance

In making your decision, ask yourself the following questions:

Is your goal to ensure that you are covered, no matter what happens? Then life assurance is the best option.

Are you looking at getting life insurance as part of inheritance tax planning? Again, life assurance is best here. 

How much do you have available for life insurance premiums? If you have less to spend, term life insurance may be a better bet.

Do you have needs that are constantly shifting? If so, the more flexible term life insurance might be the right choice. 

The best thing to do is talk to a professional. (We can help!) With all the products on the market, it can be tricky to figure out what the best option is for your needs. 

In summary

So what is the difference between life assurance and life insurance? 

In short: 

Life assurance is permanent cover, providing protection for you for your whole life. Your policy will pay your beneficiaries out, regardless of when you die. This type of insurance can be investment-linked, offering the opportunity for financial growth. You also have the option of accessing funds from the cash value of your policy, either as a withdrawal or loan. Life assurance can be part of inheritance tax planning, helping you make smart decisions about your family’s future.

Term life insurance is valid for a set period of time, stipulated in the agreement that you have with your insurer. After that, you need to reinstate your cover. Term life insurance can be used for multiple purposes, including covering household expenses, mortgage payments, or specific debts. This type of cover is usually much cheaper than life assurance so can be a good option if affordability is a factor for you.

Finding the option that best suits you requires evaluating your needs and finances, and then talking to an insurance provider so that you can find the right fit.

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