What’s the Difference Between Life Insurance and Life Assurance?

Navigating the world of financial protection can often feel complex, especially when similar-sounding terms like “life insurance” and “life assurance” appear. You might be considering how best to help protect your family’s financial future, and understanding these differences can be a helpful step. At Polly, we believe it is all about making things clearer, so you can make informed decisions about your financial well-being.

Both life insurance and life assurance are forms of financial protection insurance. They are designed to provide a financial payout to your loved ones after you pass away, offering a financial safety net during what could be a challenging time. However, their core structures and the circumstances under which they pay out can differ significantly.

Let’s explore these differences to help you understand which option might better suit your circumstances and goals for financial security.

Life Insurance: Covering a Specific Term

Life insurance, often referred to as “term life insurance,” typically provides financial protection for a set period, known as the “term.” This term could be 5, 10, 20, or even 30 years, depending on your choice and circumstances.

Key characteristics of life insurance:

• Fixed Term: You choose the length of time you want the cover to last. For example, you might align the term with significant life stages, such as when your children are financially independent, or until a mortgage is repaid.
• Payout Conditions: The policy is designed to pay out a lump sum if you pass away within the specified term of the policy. If the term ends and you are still living, the policy typically ceases, and there is usually no payout or cash value.
• Premium Stability: Premiums for level term and decreasing term life insurance typically remain fixed for the duration of the policy term, which can help with budgeting. Increasing term policies, however, might have premiums that vary over time to account for a growing sum assured.
• Common Use Cases: People often consider life insurance to cover specific financial commitments that have a defined end date. This could include helping to repay a mortgage, covering the costs of raising a family, or contributing to education expenses.

Life Assurance: Cover for Life

Life assurance, also known as “whole of life insurance,” usually provides cover for your entire life, rather than a specific term. This means the policy is designed to pay out a lump sum whenever you pass away, as long as you continue to pay your premiums.

Key characteristics of life assurance:

• Indefinite Term: The cover lasts for your whole life.
• Guaranteed Payout (with conditions): As long as you maintain your premium payments, the policy is designed to pay out eventually. This can offer a sense of long-term financial security for your beneficiaries.
• Premiums: Premiums for life assurance can often be higher than term life insurance initially, reflecting the certainty of a future payout. They might also be structured in different ways, such as remaining level or increasing over time.
• Common Use Cases: People often consider life assurance for purposes that don’t have a specific end date. This could include helping to cover potential inheritance tax, leaving a legacy for loved ones, or contributing to funeral costs..

While this blog explores the general differences between life insurance and life assurance, it’s important to note that Polly does not currently offer life assurance policies. Our focus is on providing various types of term life insurance, such as our Polly Family Protection policy, to help meet your family’s financial protection needs for a specific period.

Making the Choice: Which Could Be Right for You?

The decision between life insurance and life assurance often depends on your individual circumstances, financial goals, and what you aim to achieve with the cover.

Consider life insurance if you:

• Have specific financial commitments with an end date: Such as a mortgage that you want to help ensure is repaid, or the period until your children are financially independent.
• Are looking for cover for a defined period: You might want cover during certain life stages when financial responsibilities are typically highest.
• Are seeking a potentially more budget-friendly option: Term life insurance premiums can sometimes be lower than whole of life premiums, especially for younger individuals.

Consider life assurance if you:

• Want to help ensure a payout regardless of when you pass away: This could be for long-term financial planning, legacy planning, or to help cover potential final expenses.
• Are looking for a policy that offers lifelong financial protection: This might be to help mitigate inheritance tax implications or to leave a gift for your loved ones.

Important Considerations for Your Financial Protection Journey

No matter which type of policy you consider, understanding the details is key. Here are some factors it can be helpful to think about:

• Sum Assured: This is the amount of money your policy is designed to pay out. When deciding on the sum assured, you might want to consider your current debts, living expenses, future financial needs of your dependents, and any other financial goals.
• Beneficiaries: You can typically nominate who receives the payout from your policy. This could be your partner, children, or other loved ones. Our beneficiary nomination service can help with this process. It can be a simpler way to indicate your wishes without the need for a formal legal trust.
• Premiums: The cost of your policy, known as the premium, can depend on various factors including your age, health, lifestyle, the sum assured, and the policy term (for life insurance).
• Inflation: Over time, inflation can reduce the purchasing power of a fixed sum assured. Some policies might offer an option to increase your cover, which could help maintain its real value, though this may also lead to higher premiums.

Why Think About Financial Protection?

For many women, particularly mums, thoughts of financial protection often centre around their loved ones. You might be the primary earner, or your contribution to the household, whether financial or otherwise, is invaluable. Should the unexpected happen, having financial protection in place could help ensure your family maintains their financial stability and continues to pursue their dreams.

The aim of financial protection insurance, like life insurance, is to provide a safety net. It can offer a financial cushion, helping to cover things like:

• Everyday Living Costs: Helping your family manage household bills, groceries, and daily expenses.
• Mortgage or Rent Payments: Potentially helping to ensure your family can remain in their home without immediate financial strain.
• Childcare and Education: Contributing towards ongoing childcare costs or future education expenses for your children.
• Debts: Potentially helping to clear outstanding personal debts, easing the financial burden on your loved ones.

Understanding your options can empower you to make choices that align with your vision for your family’s future. It can be a proactive step towards building a more secure financial foundation for those who matter most to you.

Common Questions Women Might Ask About Life Insurance

Q: Can I change my life insurance policy later?

A: Policy terms can sometimes be reviewed or changed, but this often depends on the specific policy and insurer. It can be sensible to review your policy as your life circumstances evolve to help ensure it still meets your financial protection needs.

Q: Is life insurance only for parents?

A: No, while many parents consider life insurance for their children’s financial future, anyone with financial dependents or significant debts might find life insurance a valuable form of financial protection. This could include partners, siblings, or even business partners.

Q: What happens if I stop paying my premiums?

A: If you stop paying your premiums, your policy could lapse, and the cover would typically cease. This means no payout would be made if an event occurred after the policy had lapsed. It’s usually important to maintain your premium payments to keep your cover active.

Q: Do I need a medical exam for life insurance?

A: It can vary. Some policies might require a medical exam or a health questionnaire, while others might not. When you apply, the insurer will typically ask questions about your health and medical history to assess your application.

Next Steps: Securing Your Family’s Financial Future

Considering your financial protection options is a meaningful step. Whether life insurance or life assurance seems more aligned with your aims, exploring your options can help you move forward.

At Polly, we focus on providing straightforward financial protection designed with you and your family in mind. If you’re considering life insurance, we can help you understand how our Polly Family Protection policy could fit into your financial planning.

TL;DR: Life insurance typically provides cover for a set period, paying out if a specific event occurs within that term. Life assurance, on the other hand, usually provides cover for your entire life, paying out regardless of when the event occurs, as long as premiums are paid. Both are types of financial protection insurance designed to help secure your loved ones’ financial future.