When it comes to buying life insurance for the first time, the most confusing part is often the terminology. With all these new words to wrap your head around, how can you know what’s what? That’s probably why so many people are confused about the differences between life insurance and life assurance. If you’re one of those people, not to worry. We’re here to help you figure it all out.
What is Life Assurance?
Life assurance covers you for your entire life from the day you take out your policy until the day you die. This is why it is sometimes called ‘whole of life’ insurance. You may find that premiums for this type of cover can be more expensive than they are for life insurance since a payout is almost always guaranteed, assuming you keep up with your monthly premiums. In some cases, life assurance policies are reviewed every few years meaning premiums could increase over time, however, this depends on the policy.
What is the difference between life insurance and life assurance?
‘Life insurance’ tends to be used as a blanket term for both life assurance and life insurance policies (even though they are technically different) - this is where the confusion arises for many. To get a better understanding of this, let’s take a quick look at how life insurance works.
As you now know, life assurance typically covers you for your entire life, whereas life insurance generally refers to a policy with a fixed term. A term policy allows you to take out cover for a set period of time. This could be 10, 20 or 30 years for example. The policy will pay out if you die within the chosen term. If you survive the term, your cover expires, you no longer pay premiums and you don’t get any money back.
With a term policy, you can arrange for your premiums to be level, meaning they remain the same throughout the duration of the policy, decreasing, meaning they reduce over time - usually in line with a decrease in outstanding debt or increasing meaning the premiums and benefit amount increases over time.
What about Over 50s Life Insurance?
Over 50 Life Insurance can also be a type of life assurance (lasts for your whole life and is almost always guaranteed to pay out). Over 50s policies are a type of guaranteed policy designed to meet the needs of those aged 50 to 80. The payout is guaranteed if you keep up with your monthly premiums. And, the insurance is whole-of-life meaning you’re covered from the day you take out the policy until the day you die, no matter when that is.
Who needs life assurance?
A need for life assurance or life insurance will depend on your personal circumstances. To determine what’s right for you, let’s look at some of the reasons why someone might lean towards one type or another.
A Term Life policy could be suitable for someone who wants to protect their loved ones from outstanding debt like mortgage repayments. It could also help you to put a financial safeguard in place until your children are old enough to care for themselves.
Typically term policies have a lower rate of premiums than whole of life policies which could work for someone on a budget. This kind of life insurance policy generally costs less since you’re only covered for a specific term and the payout is not guaranteed.
A Whole of Life policy could be suitable for someone who wants peace of mind knowing that their family will receive a cash lump sum should they pass away. With a whole life policy, you know that as long as you keep up with your monthly premiums, you’re covered no matter what.
If you want to leave something behind for your family in terms of inheritance, it might be worthwhile considering life assurance. If you want to make sure your family have financial help with maintaining living costs and lifestyle in the event of your death, then this kind of policy could make sense.
Whole of life policies could also be an option with Over 50 Life Insurance since it can be used to help cover any end of life expenses or funeral costs. Generally, it could be the case that Over 50s policies could allow you to stop paying premiums around the age of 85.
Whichever you choose, way, the premiums you pay will depend on your age, your health and your lifestyle. A young person with good health who doesn’t smoke could end up paying a cheaper rate of premiums than an older person who smokes and has a pre-existing medical condition.
Clearing up any confusion
So, in a nutshell; if you’re looking to buy life insurance, what you really need to check is whether the policy is a whole of life policy that lasts your entire life or a term policy which covers you for a specific term. Here’s our guide to types of life insurance for more information on what kind of policies are available to you.