Life insurance should be one of the simplest policies you ever buy. The idea isn’t too complicated: you pay a premium so that your family could receive a pay-out when you pass away.
But why do people sometimes say life insurance and sometimes life assurance? Is there a difference? What is life assurance? Read on to find out more…
Life assurance or life insurance?
There are two main types of life cover. The first is ‘term insurance' which covers you for a set amount of time, say 10 years, and only pays out if you pass away within that period. Some providers may allow you to stop paying premiums but your cover will continue, for example when you reach your 90th birthday.
The second kind is ‘whole of life assurance’, which is a policy that continues indefinitely and pays out when you pass away (as long as you are still paying your monthly premiums).
An easy way to remember the difference is life insurance covers you for if you pass away within the term of the policy, but life assurance is there whenever you eventually pass away.
Just to complicate things even more, though, there are different kinds of life assurance. The simplest kind is as we say above – you pay for a policy and your family receives an agreed cash sum when you pass away.
But life assurance is also offered by some providers as an investment product, also known as investment-linked life assurance or an endowment policy.
With these, some of your monthly premium is invested by the life assurance provider and the final sum for your family depends on the investment part of the policy. Sometimes these can be very valuable, but there is the risk that when you pass away the value of the investment is low and your family receives less than with a basic life assurance policy.
How do I buy whole of life assurance?
There are a lot of policies available, all with different costs and pay-outs. Your premium will depend on your age, medical history and other factors, such as whether you smoke.
You’ll probably find that a lot of comparison sites, including ours, will only offer quotes for ‘term insurance’ – that is, you need to set a specific time limit on your life cover.
That’s because there are a lot of these policies available, and these days many companies are happy to sell a policy online with just a few details from you, and no medicals required. In general, too, term insurance policies will be cheaper than whole of life insurance.
But life assurance is a little different, which is why we suggest that you speak to some experts on life insurance and whole of life assurance. There’s a phone number below – you can either call this direct or give us your details and we’ll get someone to call you.
What are the advantages of whole of life assurance?
You might wonder why you should choose this kind of cover when it seems fast and easy to buy term assurance. There are a few things you might like to think about before you make that choice.
The first is that once you’ve bought the policy, you may not need to worry about it again. It’s in place and your family could be covered should the worst happen, whenever that might be. It could mean that your mortgage is paid off, or that your children get a helpful sum of money to get them on the property ladder.
Secondly, once your policy is there, it doesn’t matter what happens with your health. With a term insurance policy, when your term ends you’ll probably need to buy a new one. If you’ve developed a health condition since the previous policy you’ll notice a difference in the amount you’re paying, and it might mean that you need to reduce the pay-out to make it affordable.
So if you’re fairly young and healthy now, it could make financial sense to buy a whole of life policy to protect the people you love.
What are the disadvantages of whole of life assurance?
The main reason that people choose term insurance is that it’s usually cheaper. With term insurance the provider can work out how likely someone is to pass away during the term of the policy, and they price it accordingly.
Another thing to consider is that your family might not need such a big lump sum if you were to pass away aged 90 as if you passed away at 45. There probably wouldn’t be a mortgage to pay and your children would be self-sufficient. This is why some people choose ‘decreasing term’ insurance, which means that the pay-out reduces as you get older – and as a result the overall cost of the insurance is less.
Remember it’s important to review your life cover as and when your personal circumstances change.
So, as you can see, the ‘simple’ world of life insurance is not so simple at all! But we hope we’ve helped you understand some your options a little bit better. To talk through your situation and insurance needs, just give LifeSearch a call on the number above.