There was a time when I, just like most people did not know the difference between life assurance and life insurance. I thought they were one and the same thing! Since back then I have come to realise that I am not the only one who has mistakenly thought this. Many people find insurance terms confusing and many policies can even seem the same except a few differences in wording. However do not be fooled as this is not the case. There is a difference between life assurance and life insurance and you would be wise to learn the differences before you sign that policy!

The reason you may be confused, is not your fault. There are many people within the insurance industry who do not even know the difference and so there is a lot of contradictory information out there. I will explain in the final paragraph why people get mixed up. But first let me explain the differences between life insurance and life assurance.

Life Insurance

Life insurance is a policy which is like your car insurance, in that once the 'term' or period over which you are insured, is over you are no longer covered and you lose all your money. The insurance company only pays out money to your beneficiaries if you die within the period or term you are insured. The term is agreed upon when you take out the policy, and is decided by you. You can decided to take out life insurance anywhere from between 1-40 years. Life insurance policies are basically a financial protection plan, so that in the event of your death your family will have a lump sum of money to pay any outstanding debts, and your bond as well as money to pay for your funeral arrangements. If you do not have any debts the money can go to your beneficiaries as inheritance. The amount of money paid out will not have increased in value and will be the same amount of money which you agreed upon when you took out the insurance. There are many types of life insurance but they basically work like this.

Life Assurance

Life Assurance can be thought as a mixture of both insurance and investment. With life assurance, you with decide how much insurance you want to take out and then pay your premiums every month. The amount which you pay is then invested. And every year the insurance company adds a bonus to the guaranteed amount of money you have taken out as insurance. The value of the bonus depends on how well the investment company invests. If you were to die during the term the company pays out. However if you are still alive when the term ends, you also get the cash payout.

The confusion comes because life assurance and life insurance both have whole life cover. With whole life insurance, if the policy holder decides to cash in their policy the money will be returned to them in the exact amount.