Many people are unaware that there are two forms of what we would call Life Insurance. The first is obviously Life Insurance but the second is Life Assurance. Both very similar but completely different. Confused? Read on.
Life Insurance pays out if you die within a specific term, just like insuring a car for a year - no accident - no payout. Whereas Life ssurance will pay out when you die, no matter when. It will most likely include some form of savings element and include options to cover disability or critical illness protection.
Life insurance and life assurance are both types of financial protection that provide coverage in the event of an individual's death, but they differ in certain aspects:
- Term Coverage: Life insurance typically offers coverage for a specific period, known as the policy term, such as 10, 20, or 30 years. If the insured person passes away during the policy term, the insurance company pays out the death benefit to the beneficiaries.
- Premiums: Policyholders pay regular premiums, usually on a monthly or annual basis, to maintain their life insurance coverage. If the policyholder outlives the policy term, the coverage ends, and there is generally no payout or refund of premiums.
- Risk-Based Pricing: Life insurance premiums are determined based on various risk factors such as the insured person's age, health, lifestyle, and occupation. Higher-risk individuals may pay higher premiums.
- Flexibility: Life insurance policies can be customized to suit individual needs. There are different types of life insurance, including term life insurance, whole life insurance, and universal life insurance, each with its own features and benefits
- Lifetime Coverage: Life assurance, also known as whole life insurance, provides coverage for the entire lifetime of the insured person, as long as the premiums are paid. The policy does not have a specific term limit.
- Savings Component: Unlike life insurance, life assurance policies often have a savings or investment component. A portion of the premium paid goes into an investment account, and the policy accumulates a cash value over time. This cash value can be accessed or borrowed against while the policy is active.
- Premiums: Premiums for life assurance policies are typically higher than those for life insurance because they cover the insured person's entire lifetime and incorporate the savings or investment aspect.
- Guaranteed Payout: With life assurance, there is a guaranteed payout upon the death of the insured person, regardless of when it occurs. The death benefit is paid out to the beneficiaries, which is usually a fixed sum or a sum equivalent to the policy's cash value.
In summary, life insurance provides coverage for a specific term, with premiums based on risk factors, while life assurance offers lifetime coverage, includes a savings component, and guarantees a payout upon the insured person's death.