The terms ‘life insurance’ and ‘life assurance’ are often used interchangeably, but there are actually some fundamental differences that you should know about. If you’re considering taking out a life insurance policy and have questions regarding whether life assurance would be better, this is the guide for you. Let us explain the key differences and help you decide which one you need.
As always, Think Plutus are just a phone call away if you need tailored advice or have any further questions. We offer expert, whole of market advice and help customers find the best policy for them at the right price. Our team is waiting to hear from you, so please don’t hesitate to drop us a line if you have questions.
How do life insurance and life assurance differ?
The main difference you need to be aware of is as follows:
- Life insurance provides cover for a specific term and will only pay out if you die within that term.
- Life assurance, on the other hand, covers you from the moment you start the policy right up until your time of death, no matter whether that happens after two weeks or five decades! For this reason, life assurance is often known as whole of life insurance or, in some cases, permanent insurance.
Which will work better for me?
The answer to this question depends entirely on your unique circumstances and needs. The most obvious indicator of which would be better could lie in the very reason you are seeking cover in the first place. For example:
- If your plan is to protect against a debt or liability that only lasts for a limited time, such as a mortgage, then life insurance would probably be your best option. Once that mortgage is paid off, you would no longer need to worry about leaving money for your loved ones to pay it.
- If you hope to protect against a debt or liability that never goes away, such as an inheritance tax bill, then life assurance might be a better option. That expense will come up for your family sooner or later so having whole of life cover could help ensure your loved ones don’t have to sell the family home when you die.
Life insurance vs life assurance: the pros and cons
It doesn’t have to be complicated to establish the strengths and weaknesses of life insurance and life assurance. If you want a quick breakdown of the relevant advantages and disadvantages of both types of policy, here’s the section for you.
Life insurance – the pros
- You and your loved ones get peace of mind.
- It’s a more affordable option that protects your family in the event of your death for the period they would need financial protection most.
Life insurance – the cons
- If you still want to be covered when your initial policy expires, you will have to apply all over again.
- The older you are when you buy insurance, the higher the premium costs are likely to be.
Life assurance – the pros
- It also delivers peace of mind for you and your family.
- The payout comes no matter when you die.
- There is often an investment element incorporated.
Life assurance – the cons
- It can be expensive due to the long duration you make payments for.
- Some insurers will have you paying your monthly premium for your whole lifetime.
Should I take out life insurance or life assurance?
If you know you want to insure your life, but are having difficulty deciding whether to go with life insurance or life assurance, the best move is to seek independent advice. The reasons you need the cover will be the guiding factors that indicate which type of insurance is better for you. Another key factor will be your age when you are looking for insurance, as it can make a significant difference to your premiums.
The specialist advisers at Think Plutus can help you make the right decision about the best way to insure your life and protect your family if you pass away. Contact us today to arrange a free, no-obligation consultation and talk through your situation.
Our advisers are independent and have access to the whole of market of insurers and products. We are regulated by the Financial Conduct Authority and will be more than happy to answer your questions and offer expert insights into making the right decisions and securing the best possible deal if you decide to proceed.
Life assurance as an investment
Some insurers offer life assurance with an investment element. You might see this type of product sold as an endowment policy or investment-linked life assurance. If you choose a life assurance product with an investment element, your monthly premiums are divided up. Part of the premium will go towards your final payout and the remaining portion will be invested.
With this kind of life assurance policy, you are guaranteed a minimum payout when you die, but the actual total will depend on how the invested funds perform. You may have heard these policies called ‘with profits’ or ‘with bonus’ policies. For some policyholders, this investment element can pay off and result in a large payout, but you should know that growth is not guaranteed. It could be that your beneficiaries end up receiving less money than you paid in premiums through your lifetime.
Some insurers will allow you to end your policy early and ‘cash in’ the value of the investment. Be advised that an exit fee is likely to apply if you do this, so always read the terms and conditions upfront. As with any investment, the value of what you put in could actually decrease rather than go up, meaning the final payout may not be all you had hoped for.
How will a life insurance policy and life assurance be different for me?
As previously discussed, there is one fundamental difference between life insurance and life assurance, and that is the term the insurance covers you for.
- Life insurance is a fixed-term form of cover. People often arrange them alongside mortgage terms to offer a safety net for their loved ones in the event that they die with outstanding mortgage debt.
- Life assurance offers whole of life cover with a guaranteed payout upon your death, no matter when it happens. Many people use life assurance to help cover the inheritance tax bill that their family will have to pay when they die.
How do life insurance policies differ from other types of insurance policy?
Life insurance and life assurance are products designed to pay your family a lump sum in the event that you die. There are many other insurance products out there designed to offer protection against other risks in life.
The list of non-life insurance policies out there is a long one, but here are a few examples:
- Car insurance – designed to cover costs associated with your vehicle being involved in an accident, vandalised, stolen or damaged by fire.
- Home insurance – a product to cover expenses relating to your home.
- Health insurance – allows you to make a claim to cover expenses relating to medical treatment, tests, surgeries and medications.
- Travel insurance – this covers you in the event that you suffer injury, ill-health or other unforeseen expenses whilst travelling.
- Mortgage insurance – protects your mortgage payments.
How does life assurance differ from critical illness cover?
Life assurance is an insurance product that pays out a lump sum to your beneficiaries when you die, no matter how long after taking out the policy that happens. Critical illness cover, meanwhile, provides financial protection for if you are diagnosed with a predefined illness, medical condition, injury or disability during the term of the policy.
If you make a claim against a critical illness policy, a tax-free lump sum will be released to you, at an amount defined when you took out the policy. This money can be used to help you pay for additional expenses your critical illness incurs, as well as household expenses and any other outgoings you have.
Life assurance guarantees a payout when you die, however long it takes to get to that point. Life insurance pays out a lump sum or regular payments if you die within the term of the policy. Critical illness cover pays out if you become incapacitated by injury or illness but usually assumes that the reasons for needing the payout(s) are only temporary.
There are life insurance policies that will pay out if you are diagnosed with a terminal illness, particularly if the prognosis suggests that you will die within 12 months. If you’re weighing up your options and wondering how best to provide protection for yourself and your family, contact Think Plutus and our expert advisers will help you get some clarity.
Speak with an expert insurance adviser
To get the peace of mind you and your family so desperately need, it is crucial that you take out the right insurance cover. This is an important decision so it should never be made lightly.
If you are not an expert in these types of insurance, the advice of an experienced broker could be invaluable. The independent advisers at Think Plutus are on hand to answer your questions and offer valuable insights, and it all starts with a free, no-obligation chat about your circumstances and the options out there. We have whole-of-market access to the UK insurance policies you are exploring and insider knowledge about the issues and pitfalls that customers have experienced with each. This means we are perfectly positioned to help you identify the right type of insurance and zero in on the best possible cover at a price you can afford.
Get in touch today and one of our friendly team will arrange an initial consultation with you. If you need help choosing between life insurance, life assurance, and any other related product, Think Plutus.
