Don’t be fooled by how similar they sound – life insurance and life assurance are two different types of policy. Don’t be intimidated either though because the difference is straightforward. 

Here’s how life insurance and life assurance work, how they differ and the pros and cons of each type of life cover. 

What is life insurance?

Life insurance pays out a sum of money if you die during a specified period – that is, the term of the policy. Depending on the type of policy chosen, this sum of money will be made either upon your death or after a set period. All life insurance policies fall into one of two main types: Term and Whole Life. Whichever type you opt for, cover can be arranged on a Decreasing, Level or Increasing basis. All of the money you pay in premiums will go towards your final payout.

Why get life insurance?

Life insurance policies are designed to pay the funds to you, the insured person – or rather, your name dependents, tax-free. Life insurance can help to support your dependents and/or provide immediate cash at death to serve as a handy source of cash to pay your debts, funeral expenses, and income or estate taxes. Remember, even if you’ve been vigilant with your bills, you may have outstanding payments such as a mortgage. 

What is life assurance?

Life assurance is often known as ‘whole of life’ cover because it covers you for your entire life. There is no specified term (in terms of lifespan) of the policy. Some life assurance products are linked to investments. In these cases, the premium you pay each month will be split — some will go towards your final payout (as with a normal life insurance policy), while some will be invested by the life assurance provider. This means that the amount of any payout received on death will depend, in part, on how the investment part of your policy has performed. 

How does life assurance differ from life insurance?

• Whereas life insurance has a fixed term, life assurance isn’t a fixed-term product and typically covers you for your entire life. It’s often known as ‘whole of life’ cover because of this. Life insurance covers you if you die within the term of the policy, but life assurance is there for when you eventually pass away, whenever that may be. 
• Life assurance is also offered as an investment product by some providers meaning that part of your premium will be invested (also known as investment-linked life assurance or an endowment policy). 
• Premiums for this type of cover tend to be more expensive than for standard life insurance because life assurance policies cover you for a longer term and you’re guaranteed a payout at the end of the policy. It’s also more likely that premiums will be reviewed every few years, meaning they could increase throughout the duration of the policy. 

Which is better?

When it comes to the life assurance versus life insurance debate, the following pros and cons should be considered. 

The pros of life assurance:

• Life insurance as an investment – although the amount received depends on how the investment funds perform, you’re usually guaranteed a minimum payout in the event of your death.
• Some insurers will require you to make regular payments until the end of your life, but with others, you can stop paying your premiums at an advanced age, such as 85 and still receive a payout upon your death.
• You may be able to end your policy early to ‘cash in’ on the investment value. However, a large penalty fee is usually applicable in the event that you do this.

The cons of life assurance:

• Premiums tend to be higher than for standard life insurance because a provider expects to make a pay out at some point. Some investment-linked policies turn out to be very valuable, and therefore pay out in excess of the premiums paid but there’s also the risk that your family could receive less than you’ve paid in policy payments over your lifetime.
• Usually you’ll be guaranteed a minimum payout in the event of your death, but the full amount of the lump sum received will depend on the performance of the investment part of your policy. Check these details when choosing a policy. 

The pros of life insurance

• They’re cost effective – some people take out insurance to cover them while their children are young, choosing a policy end date to coincide when their family is likely to be financially independent. Read Daniel Gibbs’ five tips on how to save on life insurance here. 

The cons of life insurance:

• If you outlive the policy, you won’t get a payout or a refund of any premiums you’ve paid, but you can apply for another policy. However, depending on the length of your policy, by this stage in your life any people who were financially dependent on you, may now be financially independent. What is more, you may have settled all your debts including the mortgage on your home.
• You’re not guaranteed to get a payout, as you’re not guaranteed to pass away within the term. Although it’s unlikely that you’ll want to pass away within the term, if you don’t, the premiums you’ve paid have brought you nothing but peace of mind. Although, this peace of mind isn’t to be scoffed at – the outcome of passing away without any kind of policy are likely to be more severe. Think of it this way, with car and home insurance you’re not guaranteed to crash your car or be burgled, the insurance is simply there for peace of mind if you do.

Investment-linked life assurance is a specialist product, therefore it’s recommended you speak to a financial advisor if you’d like to purchase one.