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What is life assurance?

What is life assurance?

What is life assurance?

It’s never easy to think about what might happen after you’ve gone but, as we get older, many of us start to think about providing a financial safety net for our children and dependants in the event of our death. You might be considering life insurance cover and know something of the protection it provides. But do you know what life assurance is, how the two differ and which type might suit your needs best?

 

Life assurance explained

The purpose of life cover is to pay out a tax-free lump sum to your loved ones following your death. Life assurance is a type of life cover that protects you for the duration of your life, guaranteeing to provide a pay-out on your death. Because of this, it is commonly referred to as ‘whole of life’ cover.

As long as you keep up the payments of your monthly premiums, a life assurance policy is guaranteed to pay out on your death; the lump sum is therefore assured. Due to the guaranteed pay-out, whole of life policies can be more expensive than fixed term life insurance, so it is always wise to compare life insurance quotes to see which is best for you.  

Whole of life insurance can also be used to avoid overpaying on inheritance tax. For example, if you choose a policy that is written ‘in trust’ you can ensure that the pay-out your family receives is not subject to inheritance tax, leaving them with a larger amount when you pass away.

 

Is life insurance different from life assurance?

When you take out a life insurance policy, the cover runs for a set period of time and is usually referred to as ‘fixed term’ or term life insurance.

Often, cover is taken out for between 10 and 25 years and is usually considered when buying a house or starting a family, as it provides financial protection until you retire or until dependants leave home.

The younger you are when you take out a life insurance policy, the lower the cost tends to be. For example, taking out life cover under the age of 30 can be considerably cheaper than if you wait until later. But it’s important to keep in mind that a pay-out will only be received if you pass away during the period of time that you’re insured for.

While fixed term cover will give you peace of mind during the length of the policy, if you outlive the term you won’t receive any refund for the premiums you’ve paid, although you can apply for another policy. At this stage, you might want to take a look at our guide for life insurance for over-50s, and consider whether life assurance is right for you.

 

The benefits of life assurance vs life insurance

Both types of life cover can provide you with some valuable peace of mind. Receiving a tax-free lump sum in the event of your death can really help to reduce some of the anxiety your family might experience in having a sudden loss of household income, compounded by the grief of loss.

The benefit of fixed term life insurance is that the monthly premiums typically tend to be lower and you can target your cover for a period in your life when your dependants have the greatest financial need. You can choose how long you want the cover to last and whether you want your premiums to remain the same, increase or decrease to provide more or less cover over time.

Life assurance or whole of life policies provide you with cover for your entire life, so that you will always have the assurance your family will be provided for. This is a popular option for people wanting to take out life cover over the age of 50, but remember that policies tend to cost more.

Both types of cover are good options if you want to provide your family with some financial protection after you pass away. Much will depend on your stage of life and the financial needs you envisage the pay-out helping with. If you’re unsure, speak to our expert team on 0800 862 0373 to help find the right policy for your individual requirements and circumstances.