Life Assurance

What is life assurance?

When most people think about life insurance, they picture this type of permanent life insurance policy. A life assurance or Whole of Life insurance policy covers you until you die. There is no set term limit, and the tax-free lump sum will be paid out to your loved ones at the end of your life. The money is ‘assured,’ provided you have kept up with your premium payments.

Often life assurance schemes can also be linked to an investment reserve at the beginning of your policy (sometimes known as Unit-Linked Whole of Life Insurance). Your investment portfolio is then used to help you subsidize your premium payments as you get into retirement.

Similarly, you can also get a Whole of Life Policy that is not tied to your investments and just paid for every month through your premiums.

The benefits of life assurance

Provided you keep up your monthly or annual payments, this policy will pay out upon your death, whenever that may be. Alternatively, some life assurance providers will let you pay your entire premium as a single lump sum.
Your inheritance tax bill is sorted in advance with this type of policy; this prevents delay in getting the payout to your loved ones when you die.
This policy can be reviewed at intervals of, say, ten years. If your investment hasn’t grown in this time, you may be able to cash out the investment proportion of your policy and close down the cover. You can also choose to keep the policy going and pay more towards premiums as you age. Flexibility in how your premium payments are utilized is a huge plus point for policyholders.
You can also choose to fix your policy payments and opt-out of the investment proportion of your plan; these are called Non-profit Whole of life policies.
If you choose an investment, for-profit whole of life policy, if your investments perform well, you may add an annual bonus to the sum assured added. However, profits are not guaranteed.

What is the difference between life insurance and life assurance?

Life assurance commonly refers to a Whole of Life Insurance plan that you will pay towards until you die. Life insurance, in contrast, can be paid for over a set term (such as 10 or 20 years). In addition, a life assurance plan can be linked to your investment portfolio in many instances, allowing you to lower your monthly premium payments over time. In contrast, level term assurance is not tied to an investment portfolio; you just pay your monthly premiums outright.

How does life assurance work?

Like other life insurance policies, a life assurance cover policy pays out a large, tax-free lump sum to your will beneficiaries when you die. However, suppose you are signing up for a whole life policy with an investment element. In that case, the amount paid out at the end of the (known as the sum assured) can vary based on the performance of your invested assurance premiums.

When signing up for Unit-Linked (or With-Profits) Whole of Life Insurance policies, you will know upfront what percentage of your premium payments are going to your investment portfolio and how much is covering the sum assured at the end of your policy. Most insurers will ask you to review your policy every ten years, calculating how well your investments have done in that time, and reallocating funds to help you lower your premium payments, pay your inheritance tax bill in advance, or even change the amount left to your loved ones when you die.

Who is life assurance for?

Life assurance is for anyone who wants to make sure that their loved ones will get a sum of money upon their death. It is also for those interested in tying their investment portfolio to their life insurance policy to help them meet their policy premiums as they approach retirement. Also, if you have an estate that may be subject to inheritance tax when you die, this plan can help you cover the cost while you are still alive.

Often business partners will consider taking out a Life Assurance policy together, not just family members; this is known as a group assurance policy.

You may also choose to release the payout on a joint policy when the first or second person named dies. However, please note, a life assurance plan will only pay out once.

Frequently Asked Questions

What is covered?

Whole of life insurance or life assurance offers your will beneficiaries lump-sum payment upon your death. Use the policy to pay off your inheritance bill, and place the policy in Trust. You will also be able to make sure that your will beneficiaries receive the guaranteed payout very quickly after your death. The sum is also assured. In contrast, those who take out a term life insurance policy will not receive any payout if they pass away outside of the term limits. Within a Whole of life insurance policy with an investment portion, you also have the potential to lower your policy payments as you get older.

What are the disadvantages of life assurance?

Life assurance policies can incur a higher overall cost in premiums than standard level term life cover.

If you have a with-profits or unit-linked cover plan, your investments may not perform as well as you had hoped.

There may be penalty charges for exiting the policy early, so you may end up paying more in that you get out.

Your Whole of Life plan could be reviewed after a number of years, and a Market Value Reduction may be attributed to your policy. This often occurs during times of global financial crisis.

Which insurance do I choose? Life insurance or life assurance?

When it comes to deciding to get life assurance vs life insurance, think about what you can afford to pay and how much you want to leave behind to your will beneficiaries. For example, if you have paid off a mortgage and you have a significant estate, whole of life insurance may be a good way to ensure that your loved ones are set up financially from the day you pass away. Alternatively, if you are in retirement, you have paid off your mortgage, and you just want to make sure you have your funeral costs planned, an Over 50s life insurance product may be a better fit for you.

Can you cash in a life assurance policy early?

With this type of life assurance plan, it may be possible for you to cash out your sum assured early with some insurers. Think carefully before considering this, as some policies may charge you if you do not continue the policy until your death. When cashing out early, you could be leaving your loved ones with nothing when you are gone, and you will receive the funds you have paid in, minus the penalty charges. So, in some cases, you may be left short.