Money Expert > Life Insurance > Life Assurance vs Life Insurance
Life Assurance vs Life Insurance
Compare life insurance quotes with Money Expert now to find a plan that works for you.
Last updated: 15/01/2025 | Estimated Reading Time: 7 minutes
Money Expert > Life Insurance > Life Assurance vs Life Insurance
Compare life insurance quotes with Money Expert now to find a plan that works for you.
Last updated: 15/01/2025 | Estimated Reading Time: 7 minutes
When planning for the future and considering financial protection for loved ones, many individuals face a common dilemma: Life Assurance or Life Insurance? This comprehensive guide explores the key differences between life assurance and life insurance, the types of policies available, and the factors to consider when choosing the right protection.
Life assurance is a type of life cover that guarantees a payout to the beneficiaries upon the policyholder’s death, regardless of when that happens. It provides whole-life protection, meaning that as long as the premiums are paid, the policyholder’s family or chosen beneficiaries will receive the sum assured upon their passing, no matter how long the policyholder lives. Life assurance is typically offered as a whole of life policy.
Guaranteed Payout: A life assurance policy pays out a death benefit regardless of when the policyholder dies, ensuring that the policyholder's family or beneficiaries will always receive a payout.
Permanent Cover: It provides lifelong protection, making it ideal for individuals who want coverage for their entire life.
Premiums: Premiums for life assurance tend to be higher than those for life insurance policies, as the provider guarantees a payout at some point.
Suitable for Long-Term Planning: Life assurance can be particularly useful for those looking to provide ongoing financial support to their family, especially when there are long-term financial obligations (e.g., a mortgage, funeral costs, inheritance planning).
Life insurance typically refers to policies that provide coverage for a set term, such as term life insurance or critical illness cover, for example, which only pays out if the policyholder dies within a specified period (the term). If the policyholder survives the term, there is no payout.
Fixed Term: Life insurance is typically designed to cover a specific period, such as 10, 20, or 30 years, after which the policy expires if no claim has been made.
Affordable Premiums: Since life insurance does not offer lifelong protection, premiums are usually more affordable than life assurance. The cost of life insurance is based on the likelihood of a claim being made within the term.
No Payout After the Term: If the policyholder outlives the policy term, the life insurance policy has no value, and no payout is made.
Flexible: Many life insurance policies in the UK offer flexible options, such as the ability to increase or decrease the sum assured during the term.
Understanding the differences between life assurance and life insurance is critical when determining which type of policy best suits your needs. Below are some of the key distinctions between the two:
| Feature | Life Assurance | Life Insurance |
|---|---|---|
| Cover Type |
Covers the policyholder for their entire life |
Covers the policyholder for a set period |
| Payout |
Guaranteed payout upon death |
Pays out only if death occurs during the term |
| Premiums |
Generally higher due to lifetime coverage |
Usually lower, as it’s temporary coverage |
| Types of Policies |
Whole of life policies, including with-profits and non-profit policies |
Term life insurance, critical illness cover |
| Term Length |
Lifetime coverage |
Fixed term (e.g., 10, 20, 30 years) |
| Suitability |
Long-term financial planning, inheritance, estate planning |
Short-term needs like mortgage protection or income replacement |
Life assurance may be a suitable choice for individuals looking for permanent financial security. Here are some of the key reasons to consider life assurance:
Life assurance offers lifelong coverage, meaning your family will be protected no matter when you pass away. This is particularly beneficial for individuals with long-term financial responsibilities, such as a mortgage, family members who depend on them for support, or those looking to leave an inheritance to their loved ones.
A whole of life assurance policy can be used as a tool for estate planning. The payout can help your beneficiaries cover inheritance tax, funeral costs, living expenses or other expenses upon your passing. This can ensure that your heirs are not financially burdened and can maintain the financial stability you intended.
With many life assurance policies, premiums are fixed for life, meaning that they won’t increase over time, making it easier for policyholders to budget for their future. This can be particularly helpful as people grow older and face inflationary pressure.
Life insurance policies are ideal for individuals seeking temporary protection and lower monthly premiums. Here are some reasons why life insurance might be a better option:
Because life insurance is typically term-based, premiums are often significantly cheaper than life assurance. This difference makes it an attractive option for individuals on a budget who still want to provide their loved ones with financial protection.
Life insurance is often used to cover specific financial obligations that will end at a certain point, such as paying off a mortgage, replacing lost income during the working years, or providing support to a partner or children until they become financially independent. Once these needs are met, the policyholder can allow the life insurance covers to expire.
Life insurance policies often offer greater flexibility in terms of the sum assured and coverage options. Many UK insurers allow the policyholder to increase or decrease cash value of the coverage as life circumstances change, such as getting married or having children.
Whole of Life Assurance: This is the most common form of life assurance, where the policyholder is covered for their entire life. The premiums are typically higher than other life insurance policies, but the policy guarantees a payout when the policyholder passes away.
With-Profits Life Assurance: This type of life assurance includes the possibility of bonuses, depending on the insurer’s performance. The policyholder receives the sum assured plus any bonuses added to the policy. However, returns are not guaranteed.
Non-Profit Life Assurance: This is a simpler form of life assurance where only the sum assured is paid out, without any bonuses or additional benefits.
Term Life Insurance: This is the most common form of life insurance, providing cover for a specific period (e.g., 10, 20, or 30 years). If the policyholder dies within the term, the beneficiaries receive the sum assured.
Decreasing Term Life Insurance: Often used to cover a mortgage or other debts, the sum assured decreases over time in line with the reducing balance of the loan.
Critical Illness Insurance: This policy covers the policyholder if they become critically ill (e.g., cancer, stroke, heart attack). It may be added to life insurance policies or purchased as a separate plan.
Both life assurance and life insurance serve critical purposes in providing financial security, but they are fundamentally different in terms of coverage, cost, and duration. Life assurance provides lifelong coverage with a guaranteed payout, making it ideal for long-term financial planning, while life insurance offers more affordable, temporary coverage for short-term needs.
Understanding the differences and selecting the right policy based on your unique circumstances is essential for ensuring that your loved ones are financially protected. Always consult with a financial advisor to assess life assurance products and insurance vs your needs and explore the best options available to you.
As with any type of insurance there will be numerous factors that come into play. Your physical health, age and profession amongst others will be taken into account. Trying to remain healthy is always a sure fire way to make sure that you are not paying through the nose for a policy.
While this is often the case there will be some instances where you may want the payout to be done over the course of months or even years to ensure the money lasts
As always with these things, the best option is to make sure you you are looking at as many different providers as possible. Fortunately, we have a handy life insurance comparison tool to help you quickly scan the market and find the policy that’s going to be best for you.