What is life assurance?

Life assurance explained

When you are trying to shop around for a life insurance policy, you might find that it starts to get a little confusing when you keep seeing pop up life insurance and life assurance policies. They may often be accidentally used in an interchangeable manner, but the fact of the matter is is that the two policies are quite different. But what exactly are the differences between the two? We intend to clarify this for you, in order to make a more informed decision.

Life assurance policies are not typically based on protecting you for a fixed term. This means that this kind of insurance policy covers you until you die, and a payment is made to your beneficiaries when the policyholder dies.  This can provide you with some comfort that in the event of your death your loved ones will be covered, with the lump sum they end up receiving when you die to be able to cover essential costs, such as the mortgage, rent and other kinds of bills. They are also referred to as ‘whole of life covers.

What is the fundamental difference between life assurance cover and life insurance?

With life insurance, you have the option of choosing exactly how long you want to be covered for, choosing whether to increase or decrease the cover over the course of time. However, in the event that you end up dying outside the terms of the policy you have, you will not receive any lump sum payout, which would be given to your beneficiaries. This is despite there being the possibility that you have paid out a number of premiums over a number of years.

Whereas with life assurance, despite typically costing you more, it will cover you for the duration of your life, meaning that you do not need to be concerned about not being covered (and your loved ones not receiving a payout when you die) which can provide you with greater peace of mind.

How much does life assurance cost?

You will find that the typical life assurance policy will be more expensive than a life insurance policy, as in this case a payout is almost guaranteed when you die.

 

life-assurance-smoker
Are you a smoker? Or did you used to previously smoke? You may find that if you take out a life assurance policy, it may cost you more due to the health conditions associated with smoking.

The exact amount you pay, as it goes with the majority of insurance covers will be circumstantial. For example, you may pay a lower or higher premium dependent on:

  • Your age, the older you are when you take out the cover, the higher the amount you will likely need to pay
  • Your job occupation, if you are in a particularly high-risk role, then you may have a higher premium
  • Your health: whether you are fit and healthy, have any existing health conditions, and whether or not you are a smoker or not

How long do I pay life assurance premiums for?

Not all policies will require you to pay a premium for the rest of your life. With some insurance providers, you will have the possibility of stopping premium payments once you have reached a certain age. Generally speaking, many insurers will no longer require life assurance payments after the age of 85. But you should verify with the individual insurance provider to make sure that this is in fact the case, so you do not encounter any nasty surprises at a later date.

Can premiums change for life assurance cover?

Yes, it could well be possible that over the course of the policy that the cost of your premium will end up changing. With many providers, your policy will be reviewed every few years, which means your premium could be subject to fluctuation.

Should I choose life assurance or life insurance?

Whether or not you decide to choose life assurance or life insurance cover will be dependent on your individual circumstances. You will need to assess what exactly you are looking to get out of a policy, and what is most important to you.

For example, if your biggest concern is that your loved ones will definitely receive a one off lump sum payment whenever you end up dying, then life assurance may be the better option for you. However, if you are more worried about not having your mortgage covered when you die, but not about life cover, then life insurance could be more suitable for you.

Can life assurance be an investment?

investment-life-assurance
Did you know that life assurance can be tied up with investments too? Part of your policy can be used to be invested in stocks and shares. The opportunity is available to you, but you have to be aware that there is an element of risk involved in doing so.

 

Some insurers will provide you with the possibility of being able to have life assurance as an investment product. This is sometimes as an endowment policy or as investment-linked life assurance.

This will mean that the premium  you pay every month will be split into two. Some of this money will be invested in the life assurance provider, and the rest of it will end up going towards the final payout your beneficiaries will end up receiving in your policy.

In most cases, if you have life assurance as an investment, you will have a guaranteed minimum payout if you die. However, the exact amount your beneficiaries named in the policy agreement will be dependent on exactly how well your investments have performed over the course of time. This means that investment-linked life assurance entails risk, which is something you need to be aware of prior to opting for this.

On one hand, an investment-linked policies could end up being considerable valuable, meaning that your family end up receiving far more than they would have otherwise received in a normal life assurance policy. Nevertheless, by the very same measure, they could end up receiving less than you have actually ended up paying over the course of your life time.