You’ve surely heard about life insurance, but another option that often goes overlooked is life assurance. While they sound similar, they both work in different ways, suitable for specific circumstances.
If you’re thinking of buying protection, it’s essential to familiarise yourself with all the options available to you. You may find one works better than the other, and choosing the wrong option could cost you money better spent elsewhere.
Let’s break down the differences between life insurance and life assurance and help you decide which might be the best fit for your needs.
What is Life Insurance?
Life insurance can often be referred to as term life insurance by insurers. It’s designed to provide financial protection for a specified period of time, generally ranging from 5-50 years.
If you pass away during this term, a death benefit is paid out to your designated beneficiaries. However, if you outlive the term, the policy expires and no payout will be made.
This type of policy is beneficial for those looking to cover specific financial obligations such as a mortgage, debts, and raising a family, especially during your most financially vulnerable years. Because the policy can expire, premiums tend to be cheaper.
What is Life Assurance?
Life assurance (also known as whole of life insurance) covers you for your entire life. Unlike life insurance, it doesn’t have an expiry date; instead, you keep paying your premiums to remain covered.
The main benefit of this policy is that it provides a guaranteed payout whenever you die. The downside is that because of this, premiums are usually higher than for life insurance.
This cover can be ideal if you want to leave a guaranteed lump sum to loved ones, cover funeral costs or help with inheritance tax planning. It’s often chosen by people who want the certainty of a payout, regardless of when they pass away.
Pros and Cons
As with any financial product, there are pros and cons to be considered. Both of these types have their strengths and weaknesses that may make them more suitable over the other.
Life Insurance Pros & Cons
Pros:
- Lower cost – Generally more affordable than life assurance, especially if you take out cover when you’re younger and in good health.
- Flexible terms – You can choose a policy length that matches your needs, whether that’s 10 years to cover a short-term loan or 25 years to protect a mortgage.
- Tailored to specific goals – Ideal if you only need cover during your most financially demanding years, such as when raising children or paying off debts.
Cons:
- No payout if you outlive the policy – If you survive beyond the term, your cover ends and your premiums are not refunded.
- Potential for gaps in cover – If your needs change (e.g., you extend your mortgage), you might need to take out a new policy, which could be more expensive as you age.
Life Assurance Pros & Cons
Pros:
- Guaranteed payout – No matter when you die, your loved ones will receive the agreed lump sum.
- Peace of mind – Provides certainty for covering funeral costs, leaving an inheritance, or managing estate taxes.
- Lifetime cover – Removes the need to reapply for insurance later in life, when premiums would be higher and medical conditions could limit options.
Cons:
- Higher premiums – Because a payout is guaranteed, costs are typically much higher than term life insurance.
- Long-term commitment – You’ll need to keep paying premiums for life to stay covered; missing payments could mean losing your policy entirely.
- Not always cost-effective – If your goal is only to cover short-term debts, you may end up paying more than necessary.
Which is Best for You?
There’s no one-size-fits-all approach for life cover. The right choice will reflect on your individual circumstances and financial goals, among other aspects.
Because life insurance covers you for a certain time, it may be best suited if you are covering a mortgage term. If you have young children, you also wish to ensure they are protected until they’re financially independent.
Whereas life assurance is often viewed as a suitable option for long-term planning. For example, you may intend for the policy’s proceeds to be used for your funeral costs. Or perhaps you want to leave some kind of inheritance to your family when you’re gone.
In any case, it’s important to make sure the type of policy you choose reflects your plans and intentions so that your loved ones are appropriately protected.
Cost Considerations
You may also want to consider the cost. As life assurance tends to be more expensive, you may find life insurance is better suited to your budget.
With any type of life cover, the cost of your premiums is determined by several factors, including:
- Age
- Health
- Occupation
- Lifestyle habits such as smoking
- The type of cover
If you’re looking to save money on cover, it’s often best to apply when you are young and most likely healthiest. As you age, the cost of premiums rises as insurers view you as more of a risk to insure.
Final thoughts
Both life assurance and life insurance can provide financial protection for your loved ones, but deciding which is best for you will depend on your specific circumstances.
If you’re still unsure about which policy you need, it’s worth speaking to an independent life insurance adviser. They can take the time to weigh up your options, providing guidance on which policy could be suitable.
