What is the difference between Life Insurance and Life Assurance?

Many people confuse Life Assurance with Life Insurance but there are big differences.

Life Insurance provides you with insurance cover for a specific period of time (known as the policy’s “term”). Then, if you were to die during the policy’s term, the insurance company pays out. If you survive to the end of the term, the Life Insurance policy is finished and the policy has no residual value whatsoever. Even whilst the life insurance policy is in force it only has a value if there is a claim – in that context it’s just like your car insurance!

Life Assurance is different as it has an important investment element. A Life Assurance policy pays out either the guaranteed sum or a none guaranteed investment element, which ever is the higher at the date of a claim. The value of the investment element is based on the Insurance Company’s investment performance.

Each year the insurance company adds an annual bonus to the guaranteed value of your life assurance policy and there is normally an extra “terminal bonus” at the end. Therefore, as the years go by your life assurance policy increases in value as the bonuses credited to it, add up. The value of the investment bonuses depend upon how long you have held the life assurance policy and upon the insurance company’s investment record. But once investment value is there, you can cash in the life assurance policy with the insurance company. (However, most people get far better price for their life assurance policy by selling it to a specialist investment broker rather than cashing it in with the insurance company.)

If you were to die during a Life Assurance policy’s term, the policy would pay out the higher of either the guaranteed sum (just like life insurance) or the value of the annual investment bonuses which may have been credited to your policy by the Insurance Company up to that time.

However, if you are still living when the policy comes to an end, you get a bigger payout. This includes the annual bonuses plus, a terminal bonus.

Life Insurance is considerably cheaper than Life Assurance and, for the vast majority of people, Life Insurance is what they really want. Furthermore, in recent years, investment returns on Life Assurance policies have fallen very significantly and many insurance companies have placed penalties for cashing in policies early. This has adversely affected the encashment and resale value of Life Assurance policies.

Other topics which relate to the aspects referred to above, are discussed in the following questions. We suggest that you read them: -
What is Life Insurance?
What is Whole of Life?

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