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.
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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!
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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.
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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.
According to recent research by major life insurance company Standard Life, life insurance is at its cheapest ever. However, the message doesn’t appear to be getting through to many UK consumers, 50 per cent of whom do not have sufficient cover . Being uninsured with a family and mortgage is a risky game to play, Standard Life commented. They said that consumers should aim to have cover sufficient for their family, and that those people who do not should consider now, with life assurance premiums low as they are, an ideal time to choose a policy.
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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 are a number of reasons why life insurance is an essential type of insurance policy for anyone who has financial obligations or dependants. Life insurance will pay out a set sum, known as the sum assured, in the event of the death of the policyholder, or one of the policyholders in a joint policy. The premium paid for this insurance will depend on age, sex, health and the sum assured. There are many types of life insurance on the market. life cover and term assurance . However, within these two types there are numerous different policies. For instance, term assurance can include decreasing term assurance (payout reduces every year), level term assurance and increasing term assurance. Less common types are convertible term assurance and family income benefit.
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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.
> News New American life insurance site Fri, 10 Aug 2007 A new American life insurance site selling term life insurance cover online has been launched. eLifePolicy.com will allow life assurance consumers to buy up to $250, 000 term life insurance cover online, without having to have a medical exam . Consumers will need to answer a few health questions.
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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.
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What are Life Insurance polices and Life Assurance policies used for?
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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.
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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.
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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.
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Michael Challiner has 15 years experience in financial services marketing at senior level. Michael now works as the editor of Brokers Online Life Insurance
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Capital Development Equity Michael Challiner has 15 years experience in financial services marketing at senior level, the last 5 of which specialised in online marketing. Prior to that he spent 15 years in advertising with two of the world's top advertising agencies, J Walter Thompson and Saatchi & Saatchi.
Article Between Difference Michael is currently the editor of Express Life Insurance and Andromeda Webs Ltd
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