Title:

Life Insurance and Life Assurance are not the same!

Word Count:
762

Summary:
Life Insurance and Life Assurance are different. Most people assume they are one
and the same product and their online searches reflect this. What are the
differences and what are they used for? This article provides an explanation for
the layman.

Keywords:
life,insurance,assurance,policy,cover,term

Article Body:
The average man in the street assumes that Life Insurance and Life Assurance are
names for the same form of insurance. How wrong they are! But don't hang your head
in shame, many financial commentators get it wrong too! Life Insurance and Life
Assurance perform different financial roles and are poles apart in cost - so it
helps to surf for the correct product.

Life Insurance provides you with insurance cover for a specific period of time
(known as the policy's "term"). Then, if you were to die whilst the policy is in
force, the insurance company pays out a tax-free sum. If you survive to the end of
the term, the policy is finished and has no residual value whatsoever. It only has
a value if there is a claim - in that context it's just like your car insurance!

Life Assurance is different. It is a hybrid mix of investment and insurance. A Life

Assurance policy pays out a sum equal to the higher of either a guaranteed minimum
underwritten by the policy's insurance provisions or its investment valuation. The
value of the investment element is then a reliant on the Insurance Company's
investment performance and length of time you have been paying the premiums.

Each year the insurance company adds an annual bonus to the guaranteed value of
your life assurance policy and there is normally an extra "terminal bonus" at the
end. Therefore, as the years go by your life assurance policy increases in value as
the investment bonuses accumulate. The value of these bonuses are then determined
by the insurance company's investment performance. Once investment value has been
assigned to the policy, you can cash it in with the insurance company. However,
most people get a far better price for their life assurance policy by selling it to
a specialist investment broker rather than cashing it in with the insurance
company.

If you were to die during a Life Assurance policy's term, the policy pays out the
higher of either the guaranteed minimum sum or the accumulated value of the annual
investment bonuses. However, if you are still living when the policy terminates,
you usually get a bigger payout. This is because with most insurance companies, an
additional terminal bonus is awarded.

There is a also a specialised form of life assurance called "Whole of Life". These
policies remain in force for as long as you live and as such, have no preset term.

There is also a practical difference for the internet user. Whereas you can buy
life insurance online, the Financial Services Authority view life assurance as
fundamentally an investment product. As such they believe it is best suited to
being sold by a Financial Adviser with advice based on the Advisors full
understanding of your personal details. Therefore, you will be unable to buy life
assurance online. However, you can use the internet to find a suitable financial
adviser with whom you can meet and discuss your requirements.

What are Life Insurance polices and Life Assurance policies used for?

Life Insurance is usually a focal point of the family's financial protection. It is

ideally suited to ensure that known debts such as a mortgage, are repaid in full in
the event of the policyholders death.

When it comes to providing a lump sum for general use in the event that the
policyholder were to die whilst the policy was in force, either life insurance or
life assurance can be used. The differences are that with life insurance the size
of payout would be preset whereas with life assurance it would depend on the
guaranteed minimum and the insurance company's investment performance. But
remember, at the end of the policy's term life insurance is worthless, whereas life
assurance should payout a sizeable investment sum. In this context Life Assurance
seems far more worthwhile but in practice more people elect for life insurance.
Why? It's a matter of cost. Life Insurance is considerably cheaper than Life
Assurance. Furthermore, in recent years, investment returns on Life Assurance
policies have fallen significantly and many insurance companies have placed
penalties for cashing in policies early. This has adversely affected the resale
value of Life Assurance policies.

Finally, if you want a product to provide a lump sum on your death whenever that is
with a minimum payout guaranteed, you'll probably elect for Whole of Life
insurance. It's really a form of lifetime investment with the benefit of a
guaranteed minimum. They're particularly useful for Inheritance Tax Planning.