What is the difference between Life Insurance and Life Assurance?

Many people confuse Life Assurance with Life Insurance but there are several big differences between the contracts.
Life Insurance: This will provide you with insurance cover for a specific period of time (known as the policy’s “term”). If you were to die during the policy’s term, the insurance company will pay out the sum you have insured for. If you survive to the end of the term, the Life Insurance policy terminates and the cover ceases - the policy has no residual value whatsoever. Even whilst the life insurance policy is in force it only has a value if a claim is made– in that context it’s just like your home insurance!

Life Assurance is different because it involves an investment element. A Life Assurance policy combines a guaranteed payout with a non-guaranteed investment element. The value of the investment aspect depends heavily upon Company’s investment performance during the life of the policy.

Every year the insurance company will add an annual bonus to the guaranteed value of your life assurance policy and there is usually an additional “terminal bonus” at the end. As the years go by your life assurance policy will increase in value as the bonuses add up. The value of the investment bonuses will depend heavily upon how long you have held the life assurance policy for and also upon the insurance company’s investment record over that period. Once the investment value has built up, you can cash in the life assurance policy with the insurance company to receive a surrender value. (However, most people will get a far better price for their policy by selling it to a specialist broker instead of encashing it with the insurance company.)

If you were to die during a Life Assurance policy’s term, the policy would pay out the greater of either the guaranteed sum (just like life insurance) or the value of the annual investment bonuses which may have been credited to your policy by the Insurance Company up to that time.

Life Insurance is much cheaper than Life Assurance and for the vast majority of people, Life Insurance is what they really want. In recent years, investment returns on Life Assurance policies have fallen very significantly and many insurance companies have placed sever penalties for encashing policies early. This lowered the encashment and resale value of Life Assurance policies.


Other topics that relate to the issues discussed above:

What is Life Insurance?
What is Whole of Life?