Differences between life insurance and life assurance
Life insurance and life assurance sound similar but they’re not the same. Although they both offer the same core benefit of providing your loved ones with financial support when you’re gone, they work in different ways.
If you’re thinking about taking out cover, we’ll explain the key differences between life insurance and life assurance so you can choose the right one for you.
Put simply:
- Life insurance is term cover, meaning it protects you for a specific period, like 10 or 20 years. If you pass away during that time, your loved ones get a payout. If the policy ends and you still need cover, you can take out a new one
- Life assurance is whole-of-life cover. It lasts your entire lifetime and guarantees a payout when you die. Because of this, it generally costs more than life insurance
- Over 50s life cover is also a type of life assurance designed for people aged 50 to 80, usually offering a smaller payout to help with funeral costs or small debts
In this guide, we’ll explore these types of life cover in a little more detail.
What are the advantages of life insurance (term life insurance)?
Life insurance, otherwise known as term life insurance, can be a more affordable option, especially for young, healthy people. It can help protect your loved ones financially when they might need it most, like when buying a home or starting a family.
There are different types of term life insurance, including decreasing cover, level cover and increasing cover. We’ll run through the basics of each to help you understand how they work.
Decreasing cover
Decreasing cover is a type of term life insurance that helps pay off a reducing debt, like a mortgage, if you pass away.
The payout amount gets smaller over time, just like the amount left on your mortgage. Your monthly payments stay the same. This type of cover is designed to end when your mortgage is fully paid off.
Decreasing cover usually has an interest rate cap. If your mortgage’s interest rate is higher than your insurer’s cap, the payout might not fully cover what’s left on your loan.
Level cover
Level cover pays out a fixed amount of money. If you’ve worked out how much your family would need to manage without your income, then level cover can provide peace of mind that they will be financially secure if you pass away.
Remember, inflation can reduce the value of your payout over time. The number will stay the same but, in the future, it might not buy as much as it does today.
Increasing cover
Increasing cover works like level cover but grows over time to keep up with rising prices. It increases each year, either by a fixed percentage or they’re index-linked, so rise with inflation.
For example, things like food and utility bills tend to get more expensive over time. Increasing cover helps make sure your payout has the same value in the future as it did when you first took out your policy.
Because the payout goes up over time, your monthly payments will also increase. But this can vary by insurer.
Generally speaking, while everything depends on a person’s unique circumstances, decreasing cover has the lowest monthly cost, while increasing cover costs the most.
What are the advantages of life assurance (whole of life insurance)?
Life assurance, also known as whole of life insurance, guarantees a payout whenever you die, no matter when that is. This can be a good option if you want certainty that your loved ones will get a payout.
Because the cover lasts your entire life, it usually costs more than term life insurance, especially if you choose a high payout amount.
For example, someone in their 30s and 40s might take out life assurance to help leave a financial gift or cover inheritance tax planning. You can usually choose cover amounts of £500,000 or more, depending on the provider.
What is over 50s life cover?
Over 50s life cover is a type of whole of life cover. It’s specifically designed for people aged between 50 and 80. Like life assurance, it pays out when you die, but the cover amount is usually much smaller. It’s often used to help with funeral costs, small debts or to leave a gift for family.
One key difference is that over 50s life policies don’t require a medical exam. This means you’re guaranteed to be accepted, regardless of your health and lifestyle, as long as you’re within the age range.
With over 50s life cover, you keep paying for your policy until you either reach a certain age (usually 90 or 95, depending on the provider) or until you pass away, whichever happens first. If you reach the age limit, you stop paying but the cover stays in place. This means your loved ones will still get a payout when you die.
Which is right for me?
Choosing between life insurance and life assurance depends on what your age, personal situation and what you want the payout to help with. Consider whether you need life cover for a specific term or for your entire lifetime, and whether you want to leave money for your family, to help with funeral costs or to cover something like a mortgage.
Everyone’s needs are different, so it’s important to compare different insurance providers and check policies carefully so you can make sure the cover works for you, now and in the future.
Key takeaways
- Life insurance, or term life insurance, protects you for a set period, like 10 or 20 years. It only pays out if you die during the policy term. If you outlive your policy, you’ll need to take out a new one for continued cover. There are different types of life insurance, including decreasing, level and increasing
- Life assurance is also known as whole of life insurance. It lasts your whole lifetime and guarantees a payout to your loved ones. It does tend to cost more than term life insurance
- Over 50s life cover is a type of life assurance, or whole-of-life policy, with guaranteed acceptance and a smaller payout. It’s designed to help with funeral costs or small debts
