Life assurance and life insurance: they’re more or less the same thing, surely? While sounding similar, these two financial products have some crucial differences that you should be aware of when considering the right type of cover for yourself – and your family.

Policy duration is a key difference between life assurance and life insurance. While a life insurance policy has a fixed term (for instance, 25 years), a life assurance policy is commonly paid into until death – or in some cases, an advanced age. Life insurance policies – having a set ‘lifespan’ - are often a lot cheaper than life assurance cover. However, there are many different factors beyond cost that should be considered before selecting a policy.

The most suitable product for you will be totally dependent on your personal circumstances. Some individuals choose life insurance as they want to provide financial cover for their families in event of their death, while their children are young and not yet financially independent. Life assurance, on the other hand, can be viewed as an investment. If your policy is set to expire when you are older, you can receive a return on your payments.

SOME IMPORTANT FACTORS

Life insurance

Life insurance is called a ‘fixed-term’ policy. A fixed-term life insurance policy simply covers the policyholder for their death within the policy’s duration.

If you choose a fixed term policy then it has no residual value once it comes to an end, unlike a life assurance policy. Depending on the type of policy you have, the amount paid out upon your death can be a fixed sum that can be set against a specific cost – for example, paying off a mortgage.

It’s worth bearing in mind that some insurers will not pay out on death caused by specified pre-existing health conditions.

Life assurance

Life assurance is a ‘whole of life’ policy which only ends once the policyholder passes away.

You can choose to pay a fixed sum in some cases. But in most cases, much like a bond, you can choose a life assurance policy where the premiums increase in value over time. It can be a combination of insurance and investment.

With this kind of policy, the amount received at the end will depend on the performance of your investment. If you were to die during the policy’s lifespan, the pay-out would be equal to the minimum pay-out amount, or the value of your policy’s bonuses, whichever is higher.

In some cases you may be able to cash a life assurance policy in, once it has accumulated investment value, with the life assurance company or an investment broker.

Please note:

• The plan will cease at the end of the term. If premiums are not maintained, then cover will lapse.