Life insurance and life assurance are terms used interchangeably by most people – and, indeed by those in the insurance industry. Today, they generally mean the same thing, although they originally had quite different meanings.
Life insurance and life assurance are widely used to mean the same thing – namely, life insurance. Few people purchase life assurance policies any more, although some insurers do provide this service. It is therefore always worth consulting a specialist insurance broker to establish what it is you need, and whether life insurance or another type of policy or investment would be better for your circumstances.
What is life insurance?
A life insurance policy pays out a sum of money if you die within the term of the cover. ‘If’ is the relevant word here. You pay your premiums every month, and the insurer pays only in the event of your death.
Life insurance is necessary if you have dependant relatives, such as a spouse or children, and you want to make sure that they will be provided for should you die. The level of the cover you opt for will depend on a number of variables, including the term of the policy, how much you want it to pay out (which may depend on your current salary) and whether you have any existing health conditions. As a rule, you should ensure that any payout made should reasonably last until they are no longer dependent.
Life insurance premiums are generally fairly low, since – as far as the insurance company is concerned – this is a numbers game. The probability of any one policy-holder dying within the term is fairly small, so there is a high ratio of premiums to claims. At the end of the term – say, 25 years – your policy ends. You stop paying premiums, and the policy has no value after that. It has served its purpose and its benefits are cancelled.
What is life assurance?
Both life insurance and life assurance are considered forms of insurance, which can lead to complications. Moreover, in some settings the term ‘life assurance’ is taken to mean exactly the same as life assurance, but in others, they refer to different things. To avoid any confusion, make sure that you consult with an experienced broker who will be able to explain what your policy provides, and what is most suitable for your circumstances.
A life insurance policy pays out if you die within the term. Strictly speaking, life assurance pays out when you die. In other words, the policy has investment value. The idea is that when you die, your beneficiaries receive a payout derived from the investments underlying the policy.
This has a number of implications. One is that life assurance is much more expensive. Its purpose is, like a pension or another form of long-term investment, to build up a sum of capital over time that will be given to your dependants or other beneficiaries. Another is that there is no term for the policy. Life insurance tends to be a temporary requirement, since there will come a time when your dependants are no longer so – either they will be in work, in the case of children, or drawing a pension, in the case of a spouse. But life assurance pays out on your death, so the policy is active until that time.
Conclusion
These two terms are generally used to mean much the same thing. In any case, within life insurance and life assurance there are many variations. To avoid any kind of confusion and to ensure that you receive the right policy for your personal circumstances, you should take advice from an experienced professional. An appropriate insurance broker will be able to provide you with the information you need to select the best and cheapest policy.
This article was supplied by the leading firm of Irish insurance brokers, Robertson Low, established in 1995 and the only Irish incorporated ‘Lloyd’s broker’.
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