Life insurance and life assurance sound similar but they are actually not the same.
Life assurance contains an investment value that life insurance does not have.
Learn more about the difference between these two types of cover designed to provide beneficiaries with a financial benefit when the insured dies. Educated consumers are less likely to purchase the wrong type of cover for their needs.
Life Insurance In Brief
Life insurance covers a specific period and if the insured individual dies while the policy is in effect, a claim is paid to designated beneficiaries. If the individual insured lives past the end of the cover period, the policy ends and does not have a residual value.
Even when it is in force, a life insurance policy does not have any value unless a claim is filed, similar to the way a home insurance policy operates.
Life Assurance In Summary
Life assurance features both a guaranteed insured amount and a non-guaranteed investment. The amount of the guaranteed sum, number of years the insurance policy has been in force, and performance of the investment determine the value of the investment.
If the insured dies during the term of an assurance policy, the larger of a guaranteed sum or the value of annual investment gains is paid to beneficiaries.
The longer a life assurance policy remains in effect, the higher the value of its gains tends to be. However, if the insured survives past the policy term, the investment value decreases and the individual receives a terminal payment plus the annual gains.
When a life assurance policy earns investment value through annual gains, it can be cashed in via the insurance company. However, many insureds receive higher prices by selling their policies to specialist investment brokers, some of whom do business online.
Since the financial crisis, investment returns for life assurance policies have declined significantly. In addition, many insurance companies impose penalties for early policy cash-in.
These factors have reduced resale values for UK life assurance policies. However, the market has recently begun to improve so life assurance is not necessarily a bad option.
Making a Decision
A life insurance policy tends to be much cheaper than a life assurance policy and may offer everything an individual needs. People who are interested in potentially providing a larger benefit to their loved ones through an investment component may want to explore life assurance.
An insurance professional will describe the different options and conduct a financial review to determine which type of policy is the most suitable for the current and desired future financial situations.