Do I need Life Insurance or Life Assurance?

Both types of cover can be used to protect your family in the event of death, but what’s the difference? Read on to learn about the pros and cons of both types of policy.

What is life insurance?

Life insurance often refers to 'term life insurance', which covers you for a specific period. It pays out a lump sum if you die during the term, allowing your family to pay off any outstanding debts or manage their lifestyle.

What is life assurance?

Life assurance, also known as whole of life insurance, provides lifetime cover. It usually pays out a lump sum when you die, no matter when it is. It tends to be more expensive than term life insurance, as the risk of payout is greater and therefore requires a larger premium.

The difference

Though both types of cover sound similar, they have plenty of differences. Here are some of the most major ones:

Cover duration

With life insurance, the cover is only valid for a specific period of time, usually 10 to 30 years. Once the term ends, the policy expires, meaning you can either take out another policy or continue without no cover. This makes it an ideal option for those looking for short-term cover.

Life assurance, however, is designed to give you financial security throughout your life and so it does not expire. It will continue to provide a lump sum payout no matter when you die. This makes it more suitable for those looking for long-term protection or peace of mind.

Payout structure

Life insurance pays out a lump sum, providing you die within the agreed term. However, this isn't guaranteed. It also depends on the type of policy.

For example, decreasing term life insurance is used to cover a mortgage or large payment. The value of the policy decreases as you make repayments. The amount your family receives can then help them repay the remaining balance.

With life assurance, your loved ones receive a guaranteed payout upon your death - so long as you continue to pay premiums. During this time, the payout value and premium rate remain fixed.

Premium costs

The cost of premiums can vary depending on your age, health, and lifestyle.

Term life insurance is often cheapest as cover is limited, so the risk of payout is much lower. Life assurance, however, tends to be more expensive, as it provides long-term security, paying out no matter when you die.

Pros and cons of life insurance

Pros:

• Financial Protection - a lump sum payout can help your family with future finances.
• Flexible Cover - you can tailor the duration of cover and amount of payout depending on your needs.
• Cost effective - Depending on the type of policy you choose, life insurance can be cheaper than life assurance.

Cons:

• Limited cover - the policy only pays out if you die within the specified term.
• End of Term - If you don't renew the policy at the end of its term, you won't have any cover and will need to take out a new policy.
• Exclusions - Depending on your policy, there may be certain exclusions that mean you would not be covered for certain medical conditions.
• Risk of Payout - There’s always a chance that you could outlive your policy and not receive any payout.

Pros and cons of life assurance

Pros:

• Security - Life assurance provides financial security throughout life and pays out a lump sum when you die, no matter when.
• Guaranteed Payout - your loved ones receive a guaranteed payout upon your death so long as you continue to pay premiums.
• Fixed premiums - The premium rate and payout value remain fixed during the life of the policy.

Cons:

• Cost - Life assurance tends to be more expensive than life insurance as it provides long-term security.
• Lack of flexibility - Unlike life insurance, you can't modify the policy as your needs change.
• Risk of investment - if you choose an investment-linked policy, the premiums may be affected by how well your investments perform.

Factors to consider when choosing between life insurance and life assurance

No matter which type of cover you choose , it's important to consider the following factors:

Financial goals and objectives - Consider your family's financial situation and how your death might affect it. For example, you may be looking to cover a mortgage in which decreasing term cover could be best suited. Or if you're looking for long-term cover then whole life cover may be more suitable.

Budget - Think carefully about how much you can afford to pay in premiums each month. Consider both life insurance and life assurance policies to see which offers the best cover for your budget.

Insurance provider - It's important to choose a reputable and reliable provider who can guarantee payouts if needed. Read reviews and do some research into the provider before you commit to a policy.

Cover length - Make sure that the cover you choose will meet your family's needs. Consider the length of the policy and whether the payout value is adequate for your needs.

Health & lifestyle factors - Your health and lifestyle can affect the type of policy and premium you pay. Make sure you provide accurate information to get an accurate quote.

Tips for getting a quote

• Compare different providers and policies - Take the time to compare different providers and policies to ensure you get the best possible cover for your needs. Make sure you read through all details and ask questions if anything is unclear.
• Be honest - When getting a quote, it is important to be honest about your health and lifestyle. If you don't provide accurate information, your family could be denied a payout when you eventually die.
• Understand terms and conditions - Make sure you understand all of the terms and conditions before taking out a policy. Sometimes there can be hidden costs or charges so make sure you read through everything.
• Shop around - Don't just take the first quote you receive. Shop around and get multiple quotes to ensure that you're getting the best possible deal.

To sum up, life insurance and life assurance are both important forms of cover that should be considered. Regardless of the policy you choose, you can relax knowing your family is safe should anything happen to you.