Difference between Life Insurance and Life Assurance

A lot of times, Life Insurance and Life Assurance are used interchangeably and are thought to be synonyms of insurance. There is little truth to this as life insurance plans essentially provide insurance cover for a specific period of time, whereas Life Assurance is a hybrid mix of investment and insurance.

If you were to die whilst your life insurance policy is in force, the insurance company pays out a tax-free sum. On competition of the policy's "term" If you are still alive, the policy is finished and has no residual value whatsoever. It only has a value if there is a claim. This is one of the key differentiators between Life Insurance and Life Assurance.

A Life Assurance policy will pay out a sum assured equal to the higher of either a guaranteed minimum underwritten by the policy's insurance provisions or its investment valuation. The value of the investment element is an indicator the Insurance Company's investment performance and length of time you have been paying the premiums. If you were to die while your Life Assurance policy is still in force, the policy pays out the higher of either the guaranteed minimum sum or the accumulated value of the annual investment bonuses. However, if you survive the policy’s term, there is usually a bigger payout. Most insurance companies offer an additional terminal bonus. A specialized form of life assurance is available and called "Whole of Life". These policies remain in force for as long as the policy holder is alive and by default, have no predetermined term.

On the other hand, Life Insurance is usually purchased keeping the family's financial protection as a priority. It is ideally suited to ensure that known debts such as a mortgage, are repaid in full in the event of the policyholders death.

Finally, if you are looking to purchase a product that will provide a lump sum on your death whenever that is with a minimum payout guaranteed, you'll probably elect Whole of Life insurance. It's a form of lifetime investment with the benefit of a guaranteed minimum. They are also particularly useful for Inheritance Tax Planning.