Families often buy a life insurance policy because it will offer some help and financial security if the worst should happen. The benefit varies, depending on the terms chosen for the policy – for example, the sum insured, the length of term and the age and gender of the insured people. Of course no-one likes to think about dying in the future and the upset that would ensue, but it is prudent to protect one’s family and loved ones.
The terms life insurance and life assurance are often thought to mean the same thing, but there are some important differences between them. A life insurance policy is only valid for a certain period of time for the duration of the policy. If you die whilst the policy is active, then the insurance company will pay out the agreed sum. However, if you survive to the end of the policy – in other words, the end of the term – then the policy is finished and the insurance company is absolved from any further responsibility. The only time a payout is made is when a claim is made, so in this sense it is very much like any other insurance policy, for instance home insurance.
On the other hand life assurance policies are tied into market conditions and may be considered a type of investment vehicle. The monthly premiums may be invested and there is the potential for the fund to grow. When you die, the fund is paid out, together with any accrued interest and bonus payments.
In simple terms, a life insurance policy offers protection against an event which might happen, usually a death. In that case the guaranteed amount is paid to the beneficiary of the policy. A life assurance policy offers the potential for a larger return if the market conditions are favourable. There is no fixed term associated with this and the policy is active until the event happens. It provides protection for something that is certain to happen.
The stock market has been less reliable recently than in previous decades and it can be difficult for the layman to choose an appropriate investment vehicle. A specialist, qualified insurance broker or adviser could therefore be employed to select a suitable policy, although this may carry fees or commission costs.
The words ‘life insurance’ and ‘assurance’ are often found when people are searching for the correct policy for themselves. Many people think that they mean exactly the same thing, but we have seen that they do have a subtle difference. A term insurance policy is usually the cheaper option due to the fixed term.
If you want more information about the types of life cover available, including critical illness cover and mortgage protection, then visit www.premiumlifecover.co.uk to speak with a qualified advisor.
