Life Insurance and Life Assurance are not the same!
One of the most common questions that comes up among retirees is whether life insurance and life assurance are the same. Interestingly, they are not quite identical. Life insurance pays out a lump sum in case of death or an extended illness while life assurance pays a fixed amount for a certain period based on the pay-in and rate of return. Both forms of cover contingent upon an event occurring, like death or serious illness, but it’s essential to know which you need if you’re looking to protect your property or your loved ones. [2]
In life insurance, the protection is provided to a beneficiary while he/she is alive. That is not the case with life assurance. The payout that you get in life assurance can be used for either funeral expenses or for payment of any outstanding debts that you have during your lifetime. You get money from the insurance policy only when there is a death or illness in the family and not in any other eventuality. When compared to investment options available today, life assurance comes as an option which benefits you at all times and does not really affect your decision making when it comes to choosing a financial product. In fact, it works on the premise that one person has more chances than another person of getting ill or dying sooner than later. [3]
It is important to see how this difference impacts one’s financial planning. For starters, there is no chance of making extra investment returns in life assurance than there is in the stock market. Should you wish to make a comparison, at the end of 2004, the annual rate of return for money invested in government bonds was about 7.5%, while that for money invested in equity markets was 15.6%. [4] As far as financial planning, you should consider your investment options well before you decide on an insurance product when more appropriate alternatives are available in the market.
Life insurance usually pays death benefits to a designated person but this is not the case with life assurance. In fact, you can use the funds to cover any debts that you may have. For instance, if you are a family man and have children to support, death benefits can be used for their education and various other expenses. Many people who take insurance policies tend to forget they are also getting a return on the premium that they pay as well. So, it is always best to remember that the money that your loved ones receive from insurance policy will be for two purposes-to pay off your debts and also provide for your family’s financial needs [5] .
Life assurance, the product, is a fixed sum of money that a life insurance policy holder gets over a certain period of time. A life assurance policy can also be used to generate regular income in exchange for cash-less or cash-cum-drawer options [5] . The amount received as per the surrender value is not as much as what it would be if you invested in a mutual fund but you should take into account all the benefits that come with a life insurance plan like travel costs and medical expenses. An individual must see if insuring against these factors will yield more benefits than just investing in a mutual fund.
The two products present you with very different incentives. In a life assurance policy, the benefit amount will be the same irrespective of when you decide to surrender (for cash) your policy, while in a life insurance plan, the sum assured is pre-decided and will be lesser if you surrender it before maturity. [6] Life assurance is also better if there is no beneficiary -which means there are no named beneficiaries for the proceeds- or in case of childless couples.
There are different types of life assurance plans too: linked and unlinked policies. In general, a linked policy offers guaranteed returns along with other benefits against lump sum premium payments. An unlinked plan does not have any guarantee on returns. [7]
When you weigh the pros and cons of both and compare them, life assurance is a better option, provided you are willing to accept the limitations that come with it. If you’re looking for investment options that give higher returns than those in a life assurance policy, you should look beyond this product. Whether you decide to take a life assurance policy or opt for an LIC or term insurance plan, consider your finances first instead of depending on agents and brochures. [8]
Life insurance and life assurance are not the same! There are different options available to meet your requirements as per your financial needs and knowing about them will help you make informed decisions when it comes to choosing an insurance product.
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Author: Denis Korgunov, IIE Financial Planners-Finance Expert. Relevant articles by this author: ISA - Money Market Accounts ISA - Risk/ Return of ISA Investing in Shares via a PEP up to 100k ?the facts/ myths about Investment Bonds What is an ISA? an Introduction to Investment Bonds and Stock Market Foreign Currency Exchange Rates Why Investors Prefer Tax Free Bonds Types of ISAs Is there any difference between life policy and life insurance? Short Answer: No, there is no difference between these two insurance products.
Life Insurance and Life Assurance Are Not the Same! | Finance Articles - Personal Finance & Money Blogs.
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Conclusion
The article clearly explains about the difference between life insurance and life assurance. These two products have been in business for a very long time, some of the examples are very clear to show that they have been some ideas of these products from that point of time. Thus every person should now know what is the difference between life insurance and life assurance. We cannot say that again and again this because this only leads us to confusion. If anyone gets confused then he will not get the right direction to get given. Also because the information is repeated over and over again it makes you not interested from an investor’s point of view as well.