Life Assurance vs Life Insurance – What is the difference?
- July 2, 2018
- by Chris
The terms life assurance and life insurance are often used to mean the same thing, but actually, there is more of a difference than you may think.
It is important to understand how the two differ to ensure you are obtaining the right type of cover to suit your specific needs.
Life insurance only covers you for a specified period, whereas life assurance cover is guaranteed.
When taking out life insurance you specify how long you want the policy to last, (the term). If you die during this period, your beneficiaries receive a pay out. If the term of the policy ends, however, no pay out is made and your life insurance simply expires.
Life assurance, however, lasts for the rest of your lifetime and guarantees a pay out when you die. This usually involves paying premiums for the rest of your life, but it does mean that the policy will never expire.
In short, life insurance pays out if you die, whereas life assurance pays out when you die.
There are various types of life insurance and life assurance and understanding them can help you decide which type of cover best meets your needs.
Types of Life Insurance
Level term life insurance requires you to state your desired pay out amount (sum assured) and policy length. You then continue to make monthly payments (premiums) for the duration of the term. If you die during this period, your beneficiaries receive the fixed pay out amount as agreed at the start of the policy.
This type of policy is best suited for those who are looking to leave their loved ones an inheritance, cover a mortgage, as well as meet future living costs. Level term is usually more expensive than decreasing term as the pay out sum holds its value.
As with level term life insurance, decreasing term life insurance requires you to specify the policy term. The key difference here however, is that the pay out sum that is made to your beneficiaries decreases over time.
This type of cover is best suited to those looking to cover the cost of their repayment mortgage, as the pay out decreases in line with the outstanding mortgage balance. Decreasing term is usually the cheaper option out of the term based life insurance options because the risk to the insurer reduces over time.
Types of Life Assurance
Whole of Life
Whole of life insurance involves specifying the desired pay out amount, but the length of the policy lasts until you die. The important thing to consider with this type of policy is your age.
If you are young and in good health, because the premiums are to be made for the rest of your life, it could end up that you pay more into the policy than it will ever pay out. However, unlike term-based insurance, a pay out is guaranteed.
Over 50s Plan
Like whole of life insurance, an over 50s plan guarantees a pay out to your beneficiaries when you die. Again, you determine the pay out amount and your premiums are calculated based on that sum.
It is common for premium payments to be made until you die, however, in some instances a cut off age is put in place. For example, some insurers will only require you to make payments until the age of 90 but a pay out is still guaranteed if you die at any time after this.
A popular reason for people to take out an over 50s plan is to cover rising funeral costs. According to research undertaken by SunLife the average cost of a UK funeral is now £4,078.
Whole of life vs Over 50s
The key difference between an over 50s plan and a whole of life policy is the medical information required upon application.
A whole of life policy can be applied for at any age, but medical information and often a medical exam are required so that the cost of your premiums can reflect the risk you pose to the insurer.
Over 50’s plans, however, offer guaranteed acceptance between the ages of 50-85 but they do not require you to provide any medical information other than whether or not you are a smoker. This means that if you are older and/or in poor health, you are likely to benefit from this type of policy.
On average, for the same level of cover, a whole of life policy will be more cost effective provided you are in good health as the cost of your premiums is calculated based on the risk you pose to the insurer, whereas over 50s premiums need to cover the unknown risk due to lack of medical knowledge.
When is age an issue?
Generally speaking, the minimum age to take out life cover is 18, with the exception of an over 50s plan which only accepts those aged 50 or older. The maximum acceptance age varies from insurer to insurer so it is always worth getting in touch with an independent insurance broker regardless of your age to determine what options are available.
With regards to expiry age, most level and decreasing term policies will only cover you up to the age of 90. For example, if you are 30 and looking to take out level term cover, you will only be able to get a policy length of 60 years as opposed to 61 and so on.
Although decreasing term insurance tends to have the same condition, it is common that the length of term on these policies is shorter as it is usually set up to mimic the length of a mortgage term.
Whole of life and an over 50s plan don’t have an upper age limit. Therefore, regardless of the age you die, you will still be covered, hence the term life ‘assurance’.
It is also common for an over 50s plan to only require you to make payments up to the age of 90, whereas whole of life requires you to pay premiums for as long as you live.
This is where an over 50s plan could end up being the cheaper option. For example, if you were to take out a whole of life policy at the age of 65 at £10 per month and lived to the age of 105, in total you would have paid in £4,800. Whereas, if you took out an over 50s plan at the age of 65 at £15 a month, whilst more expensive on a monthly basis, because you are only required to make payments until the age of 90, you actually only pay in a total of £3,750.
When deciding on life assurance or life insurance, essentially it comes down to your budget, age, what it is you want to protect and how long you need cover for.