Life Assurance

 

 

When it comes time to buy life insurance, many people get confused about the exact differences between life insurance and life assurance. Many people believe there is no difference or that they are the UK and US expressions for the same thing. While in the US, life assurance is referred to as belonging to life insurance, there is a difference between the two types of policy and in the UK, the policies will be named according to whether they are life insurance or life assurance.

The difference is in fact hinted at in the name.

Life insurance is a type of pure insurance. There is an event that involves some form of uncertainty. In this case it will be your life. While everyone dies, you can never be sure when you will die, and this can mean that there is some risk, especially for your children and family. What life insurance allows you to do is say, “if I die within the next five years for example, I want so much paid to my family.” If you die within five years, they will pay your family, and if you survive, they will keep the premiums. The policy has ended. This is what insurance companies do for a living and they will be more than happy to take on risks of this kind.

Life assurance is something quite different. It will say something like, “if I die before sixty five, pay my family so much money, but if I survive till sixty five, then still pay out the money – back to me!” Life assurance is in fact more comparable with a type of savings policy or mortgage saving, and the insurance aspect of it is a type of additional feature that is added on.

How they work is that the life assurance policy will use some of what you give it in premiums, to cover the risk that you will die and they will have to pay out on the insurance aspect of the policy, but the rest of policy you give them will be put into a fund and invested on your behalf. Then, if you are still alive at sixty five, they will give you this fund. If you die before sixty five, they will keep the fund. Life assurance companies spend a lot of time working out the maths involved and just as with insurance, it works out that they will be happy to take on these risks in exchange for the potential rewards, and many savers will be happy to enter their policies.

It would be possible for you to take out a life insurance policy with one company, and save for your retirement with another and you would probably end up with just as good a result as with a life assurance policy, but there are definite advantages to having the entire thing connected and you are likely to get a good price for the policy. You will however, pay substantially more for life assurance premiums compared to life insurance premiums, because the insurance company is going to have to make a payout on the account no matter what happens.

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