It's easy to confuse life insurance and life assurance – although they sound pretty much the same, they're actually very different. If you're looking at taking out life cover you're probably wondering which one you need. So take a look at our guide to life insurance vs life assurance...
What is life insurance?
Put simply, life insurance is an agreed amount of money that will be paid to your loved ones should you pass away in the time you are insured. People usually take out life insurance over a 15 to 25 year period, especially when they own a home or have children to consider. Life insurance can be used to pay for things like outstanding mortgages, loans, childcare or getting your children through university. It gives you peace of mind that if you're not around anymore, you can still help look after your family and make sure they’re financially cared for when you're gone.
There are two types of life insurance:
Level Term:Level means for a certain and consistent amount - say £400,000 - and Term means for a fixed term - say 20 years. So with this kind of cover, for twenty years from the date you take out the policy, your loved ones would receive £400,000 if anything were to happen to you. Watch out because this sum may be subject to inheritance tax if you don't put your policy into trust. For more information on this see, our Life insurance guides.
Decreasing term cover insurance: This is usually a cheaper form of life cover where the pay-out you start with will slowly decrease with every year that goes by. This could be useful if your main concern is helping your family to pay off the remaining mortgage if anything happened to you... As time goes by the amount you need to pay off your mortgage will probably decrease in line with the balance of your loan. But don’t forget that the rate you pay off your mortgage and the rate your life insurance decreases at aren’t necessarily linked – make sure you check these rates carefully to ensure your family won’t be in a position of a lower pay out than what is left on your mortgage.
So what’s life assurance?
Unlike life insurance, life assurance will cover you for the whole of your life and not just a set term. In fact it's sometimes called a 'whole of life' policy. It's often more expensive as the insurer accepts that providing you pay all your premiums that they will definitely be making a pay out at some point. Often these products involve an investment approach, so they are more complex. You may need to speak to a financial advisor to buy one of these.
Do I have to pay my premiums for the rest of my life?
For life assurance, some policies will require you to pay right up to the end of the policy, some will allow you to finish your payments at a certain age - this varies, but is usually around 85 years.
How can I decide what kind of policy to get?
Only you can make that decision, but a great place to start is our life insurance comparison page for Term Cover. You won’t find Whole of Life cover on the comparison page as it would be best to seek professional advice to buy that type of cover. Start a quote telling us a bit about you and what level of cover you think you’ll need and we’ll give you a list of policies for you to compare that suit your needs. Look at the different options such as level or decreasing term and you can see how much each policy might cost and the different levels of cover you can get. Then you can start thinking about what would work best for you and your situation. It’s an important decision, and could make all the difference to your family one day.