Many people hear about the life insurance policies and life assurance policies and assume they are the same. However, there is an important difference between these two types of policies. When arranging for a mortgage, some lenders may require you to arrange life insurance or life assurance as collateral for the loan in the event of your death. So, what is difference between life insurance and life assurance?
Life insurance offers cover for a specific period of time. In the event that you die while the policy is in force, the insurance company will pay out according to the terms of the policy. Once the policy comes to an end, however, no payout is made. This is just like any other kind of insurance.
Life assurance, meanwhile, includes an investment element where the value of the policy increases as time goes by. Therefore, the borrower is guaranteed a payout at the end of the policy.
Let’s look in a bit more detail at the differences between life insurance and life assurance policies.
What is Life Insurance?
Life insurance policies protect the mortgage repayments in the event of the borrower’s untimely death. This means that if the borrower dies before the mortgage has been paid off in full, the insurance company will pay off the outstanding mortgage.
Usually, life insurance policies are cheaper than life assurance policies because payouts at the termination of the policy are not guaranteed. For example, when the borrower pays off the mortgage in full, he or she won’t receive any payment from the life insurance policy.
There are two reasons why people may choose life insurance:
- It can give the borrower peace of mind in the event of their death that dependents aren’t left with large debts to pay
- Some mortgage lenders require borrowers to have a life insurance policy in place before approving a mortgage
What is Life Assurance?
Life assurance policies also offer mortgage protection, but they also pay out a lump sum to surviving dependents in the event of the borrower’s death. Because life assurance guarantees that money will be paid out, they are more expensive than life insurance. Life assurance policies are for the whole period of the borrower’s life.
With some life assurance policies, there is also an element of investment built into them. So, in the event of death, a minimum amount will be paid out plus a lump sum. The amount of the lump sum depends on how the investment part of the policy performed. Some life assurance policies allow the borrower to cash in on the investment value, but this may incur a fee.
Conclusion
Both life insurance and life assurance policies offer a level of financial protection in the unfortunate event that the insured person dies.
Life insurance policies only pay out if the borrower dies during the term of the policy. Life assurance pays out a lump sum when the borrower passes away.
As with all types of financial investments, you are advised to speak to a professional financial adviser to find out what is the most suitable type of policy for your circumstances.
The information contained within was correct at the time of publication but is subject to change.
Date: 08/07/2017
