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Life Insurance vs. Life Assurance

Many people, including financial commentators and advisers who should know better, believe life insurance and life assurance are one and the same. This is not the case, because they both play very different roles and have different values and costs assigned to them. Because of this, it helps to make sure you know which one is the right product or combination of products for your family's financial needs.

The Difference Between Life Insurance and Life Assurance

Life insurance is designed to cover you and your family in the event of your death. There are two types of life insurance: whole life, which you pay on throughout your lifetime and which pays out upon your demise, and term life, which insures you and your family for the duration or term of the policy. If you die prior to the end of the policy term, this form of insurance pays your family a tax-free amount previously agreed upon. However, if you survive beyond the policy term, you receive nothing and the policy is null and void. This is similar to car insurance in that it only has value when a claim is filed, i.e. when you die.

Unlike life insurance, life assurance combines insurance and investment. With a life assurance policy, the payout equals the higher of the policy's investment valuation or a guaranteed minimum set by the insurance company's underwriters. The investment value of a life assurance policy depends upon how the company performs with its investment and how long you have been paying monthly premiums on the policy.

A life assurance policy gains value annually because in addition to the guaranteed value, the insurance company also adds a bonus. In addition, upon full maturity of the policy, most insurance companies also apply what is known as a "terminal bonus." In this way, each year the policy gains value as investment dividends and bonuses accrue. These values are set based upon the underwriting company's performance in their investments. After the value of investment is set on the policy, you then have the option to cash it in or leave it where it is. Many people who elect to sell their life assurance policies find they receive a better return on their investment by selling the policy to an investment broker who specializes in such policies instead of selling the policy back to their company.

If you carry a life assurance policy and die during the term, the insurance company will pay out the policy at its cumulative investment value or the guaranteed minimum, whichever is greater. On the other hand, if you outlive the term of the policy, you will receive a higher payout because of the terminal bonus. As with regular life insurance, life assurance has a "whole of life" policy. Because this type of policy remains viable throughout your life, there is no preset term on whole of life policies.

Particularly for online users, there is a crucial difference between life insurance and life assurance. Life insurance can be purchased online. However, the Financial Services Authority considers life assurance an investment product rather than traditional insurance. Because of this, there are rigid limitations imposed upon purchasing life assurance policies, which largely relegate these transactions to a financial adviser who is familiar with the nuances of your financial situation. This means life assurance is not available for purchase via the web. This does not mean you cannot find an appropriate adviser with whom to meet, simply that you cannot purchase their products online.

Common Usages of Life Insurance and Life Assurance

Life insurance is designed to take care of any remaining expenses such as a mortgage, medical and funeral costs upon the demise of the policyholder. This makes life insurance a key focus in family financial planning. Both life insurance and life assurance provide lump-sum payouts in the event of the policyholder's death, but with life insurance there is a previously agreed upon payout, while life assurance pays depending on guaranteed minimum versus investment value.

However, term life assurance loses all value at the end of the term, requiring that the bearer start over again. Life assurance, by contrast, pays out at the end of the term regardless of the policyholder's status of life. Viewed from this perspective, life assurance would seem to be a wiser investment, but more people tend to opt for life insurance because of drastically lower premiums.

Additionally, life assurance policies have somewhat fallen from favor in the wake of diminished returns brought about by global market recession and many insurance carriers have imposed steep penalties for early withdrawal of one's assurance policy. Because of this, the resale attractiveness of life assurance policies has fallen significantly among the general public and financial advisers.

Whole of life insurance policies are better suited to those who prefer an assured lump-sum payout in the event of their death. This type of insurance functions as an investment over the bearer's life with a guaranteed minimum payout at the end. Because of this quality, whole of life insurance is an excellent choice for end-of-life and inheritance tax planning.

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