Most people think that Life Insurance and Life Assurance are different names for the same kind of insurance. They are so wrong! But don't feel bad, because a lot of people who talk about money are wrong too. Life insurance and life assurance serve different financial needs and cost very different amounts, so it's important to shop around for the right one.
Life insurance covers you for a certain amount of time, which is called the "term" of the policy. Then, if you die while the policy is still in effect, the insurance company gives you a sum that is not taxed. If you live until the end of the policy term, the policy is over and has no value left. It is only worth something if someone makes a claim, just like your car insurance.
Life insurance is not the same thing. It is a mix of insurance and investments. A Life Assurance policy pays out a sum equal to the higher of a guaranteed minimum set by the insurance provisions of the policy or the value of the investments in the policy. Then, the value of the investment part depends on how well the Insurance Company invests your money and how long you have been paying the premiums.
The insurance company adds an annual bonus to the guaranteed value of your life assurance policy every year, and there is usually an extra "terminal bonus" at the end. So, as the years go by, the value of your life insurance policy goes up as the investment bonuses add up. Then, the value of these bonuses is based on how well the insurance company did with its investments. Once the policy has been given an investment value, you can turn it in to the insurance company. But most people get a much better deal when they sell their life insurance policy to an investment broker instead of cashing it in with the insurance company.
If you die during the term of a Life Assurance policy, the policy pays out either the guaranteed minimum amount or the value of the annual investment bonuses, whichever is higher. But if you are still alive when the policy runs out, you usually get more money. This is because most insurance companies give an extra bonus at the end of the policy.
"Whole of Life" is the name of a special kind of life insurance. These policies last as long as you do, so they don't have a set end date.
There is also a difference in how it works for people who use the internet. Life insurance can be bought online, but the Financial Services Authority sees it as an investment product at heart. Because of this, they think it's best to be sold by a Financial Advisor, who can give you advice based on what they know about you. You won't be able to buy life insurance online because of this. But you can use the Internet to find a good financial adviser who can meet with you and talk about your needs.
Why do people buy Life Insurance and Life Assurance policies?
Life insurance is often the most important financial protection for a family. It's perfect for making sure that known debts, like a mortgage, are paid off in full if the policyholder dies.
Either life insurance or life assurance can be used to provide a lump sum for general use if the policyholder dies while the policy is still in effect. With life insurance, the amount of the payout is set, while with life assurance, it depends on the guaranteed minimum and how well the insurance company invests the money. But remember that at the end of the policy's term, life insurance is worthless, while life assurance should pay out a sizeable investment sum. In this situation, life assurance seems like a much better choice, but more people choose life insurance. Why? It comes down to money. The price of life insurance is much lower than the price of life assurance. Also, the investment returns on Life Assurance policies have dropped a lot in recent years, and many insurance companies now charge fees if you cash in your policy early. This has hurt the value of Life Assurance policies when they are sold again.
Lastly, you might choose Whole of Life insurance if you want a product that gives you a lump sum when you die and has a guaranteed minimum payout. It's more like a long-term investment that comes with a minimum guarantee. They are especially helpful for figuring out how to handle inheritance tax.
