What is life assurance?
Life assurance is a type of life cover that guarantees a payout to the beneficiaries upon the policyholder’s death, regardless of when that happens. It provides whole-life protection, meaning that as long as the premiums are paid, the policyholder’s family or chosen beneficiaries will receive the sum assured upon their passing, no matter how long the policyholder lives. Life assurance is typically offered as a whole of life policy.
Key features of life assurance:
Guaranteed payout: A life assurance policy pays out a death benefit regardless of when the policyholder dies, ensuring that the policyholder's family or beneficiaries will always receive a payout.
Permanent cover: It provides lifelong protection, making it ideal for individuals who want coverage for their entire life.
Premiums: Premiums for life assurance tend to be higher than those for life insurance policies, as the provider guarantees a payout at some point.
Suitable for long-term planning: Life assurance can be particularly useful for those looking to provide ongoing financial support to their family, especially when there are long-term financial obligations (e.g. a mortgage, funeral costs, inheritance planning).
What is life insurance?
Life insurance is a type of insurance policy designed to help cover your loved ones’ financial needs after your death. Most life insurance policies will pay out a lump sum of money if you die within the specified time period. This means that, regardless of your own financial situation, you can leave your family the money they need to use how they see fit, for example covering regular outgoings or using towards funeral expenses.
Life assurance vs Life insurance
Understanding the differences between life assurance and life insurance is critical when determining which type of policy best suits your needs. Below are some of the key distinctions between the two:
Feature | Life Assurance | Life Insurance |
|---|---|---|
Cover Type | Covers the policyholder for their entire life | Covers the policyholder for a set period |
Payout | Guaranteed payout upon death | Pays out only if death occurs during the term |
Premiums | Generally higher due to lifetime coverage | Usually lower, as it’s temporary coverage |
Types of Policies | Whole of life policies | Term life insurance, critical illness cover |
Term Length | Lifetime coverage | Fixed term (e.g., 10, 20, 30 years) |
Suitability | Long-term financial planning, inheritance, estate planning | Short-term needs like mortgage protection or income replacement |
Why choose life assurance?
Life assurance may be a suitable choice if you're looking for permanent financial security. So, why choose life assuranc?
Lifelong coverage
Life assurance offers lifelong coverage, meaning your family will be protected no matter when you pass away. This is particularly beneficial for individuals with long-term financial responsibilities, such as a mortgage, family members who depend on them for support, or those looking to leave an inheritance to their loved ones.
Estate planning and inheritance
A whole of life assurance policy can be used as a tool for estate planning. The payout can help your beneficiaries cover inheritance tax, funeral costs, living expenses or other expenses upon your passing. This can ensure that they are not financially burdened and can maintain the financial stability you intended.
Fixed premiums
With many life assurance policies, premiums are fixed for life, meaning that they won’t increase over time, making it easier for policyholders to budget for their future. This can be particularly helpful as people grow older and face inflationary pressure.
Why choose life insurance?
Life insurance policies are ideal for individuals seeking temporary protection and lower monthly premiums. Here are some reasons why life insurance might be a better option:
Affordable coverage
Because life insurance is typically term-based, premiums are often significantly cheaper than life assurance. This difference makes it an attractive option for individuals on a budget who still want to provide their loved ones with financial protection.
Specific needs and short-term coverage
Life insurance is often used to cover specific financial obligations that will end at a certain point, such as paying off a mortgage, replacing lost income during the working years, or providing support to a partner or children until they become financially independent. Once these needs are met, the policyholder can allow the life insurance covers to expire.
Flexibility
Life insurance policies often offer greater flexibility in terms of the sum assured and coverage options. Many UK insurers allow the policyholder to increase or decrease cash value of the coverage as life circumstances change, such as getting married or having children.
Common types of life assurance and life insurance in the UK
Life assurance:
Whole of life assurance: This is the most common form of life assurance, where the policyholder is covered for their entire life. The premiums are typically higher than other life insurance policies, but the policy guarantees a payout when the policyholder passes away.
With-profits life assurance: This type of life assurance includes the possibility of bonuses, depending on the insurer’s performance. The policyholder receives the sum assured plus any bonuses added to the policy. However, returns are not guaranteed.
Non-profit life assurance: This is a simpler form of life assurance where only the sum assured is paid out, without any bonuses or additional benefits.
Life insurance:
Term life insurance: This is the most common form of life insurance, providing cover for a specific period (e.g., 10, 20, or 30 years). If the policyholder dies within the term, the beneficiaries receive the sum assured.
Decreasing term life insurance: Often used to cover a mortgage or other debts, the sum assured decreases over time in line with the reducing balance of the loan.
Critical illness insurance: This policy covers the policyholder if they become critically ill (e.g., cancer, stroke, heart attack). It may be added to life insurance policies or purchased as a separate plan.
Both life assurance and life insurance serve critical purposes in providing financial security, but they are fundamentally different in terms of coverage, cost, and duration. Life assurance provides lifelong coverage with a guaranteed payout, making it ideal for long-term financial planning, while life insurance offers more affordable, temporary coverage for short-term needs.
Understanding the differences and selecting the right policy based on your unique circumstances is essential for ensuring that your loved ones are financially protected. Always consult with a financial advisor to assess life assurance products and insurance vs your needs and explore the best options available to you.
FAQs
How can I get the cheapest life insurance / assurance?
As with any type of insurance there will be numerous factors that come into play. Your physical health, age and profession amongst others will be taken into account. Trying to remain healthy is always a sure fire way to make sure that you are not paying through the nose for a policy.
Will a policy always pay out a lump sum?
While this is often the case there will be some instances where you may want the payout to be done over the course of months or even years to ensure the money lasts
Where can I get the best deal on life insurance / assurance?
As always with these things, the best option is to make sure you you are looking at as many different providers as possible. Fortunately, we have a handy life insurance comparison tool to help you quickly scan the market and find the policy that’s going to be best for you.