Life Assurance vs. Life Insurance: Understanding the Differences
Securing the financial future of your loved ones is arguably the most gracious act you can bestow on your family and friends, and life assurance and life insurance are both essential options to do so. However, many individuals are often confused about the distinctions between the two.
In layman’s terms, life insurance and assurance are both designed to provide financial protection, but they function in slightly different ways. Understanding these differences is important for selecting the right coverage for your specific needs and goals. Allow the experts at Efficient Wealth to explain.
What is Life Assurance?
Life assurance is a type of policy that provides lifelong coverage. Unlike life insurance, which only covers you for a set period, this assurance guarantees that a payout will be made whenever the policyholder passes away, regardless of when that occurs. This type of policy is often associated with whole life insurance, where the policy remains active for the entirety of the policyholder’s life, as long as premiums are up to date. The benefit of assurance policies is that they guarantee a death benefit, making it an excellent option for those seeking long-term security for their beneficiaries.
Life Insurance Explained
Inversely, life insurance typically only covers a fixed period, also known as term insurance. This means that if the policyholder dies within the term of the policy, a payout is made to their beneficiaries. However, if the policyholder outlives the policy’s term, no payout is issued. Life insurance is generally less expensive than assurance policies due to its temporary nature. These policies are preferential for individuals seeking coverage during specific life stages, such as while raising children or paying off a home loan.
The Difference Between Assurance and Insurance
While both policies provide financial protection, there are some notable differences to consider when choosing between them. The most important difference lies in the duration of the coverage and the potential for a payout. For example:
Life Assurance:
- Duration: Provides coverage for the policyholder’s entire life.
- Premiums: Typically more expensive due to the lifelong coverage.
- Investment Value: Can have an investment value attached.
- Payout: Guaranteed death benefit, regardless of when the policyholder passes away.
Life Insurance:
- Duration: Covers specific terms and timeframes, (e.g. 10, 20, or 30 years).
- Premiums: Generally lower than assurance cover because the coverage is temporary.
- Investment Value: No investment value attached.
- Payout: Only paid if the policyholder dies during the term of the policy. No payout if the policy expires before death.
Which Is the Better Option for You?
Choosing between the two options depends on your financial end goals and the life stage you are in. Assurance policies may be the best option for individuals who want guaranteed coverage for the rest of their lives, ensuring that their beneficiaries are always protected, regardless of when they pass away. However, it is particularly suited to those with long-term financial obligations. Alternatively, life insurance is better suited to those who prefer more affordable, temporary coverage.
Efficient, Effective Wealth through Efficient Wealth
At Efficient Wealth, we are a leading name in the insurance industry, nationally renowned for offering customised life insurance and assurance solutions that cater to different life stages and financial objectives.
With our solid relationships with all significant South African life assurers and insurers, we’re positioned to offer wide-ranging life assurance policies, disability and dreaded disease cover, and income protection alternatives. Consider us today for Efficient Wealth.
