Life Insurance and Life Assurance are not the same
Below is a MRR and PLR article in category Finance -> subcategory Insurance.
Life Insurance vs. Life Assurance: Understanding the Difference
Overview
Many people mistakenly believe Life Insurance and Life Assurance are the same, but they're quite different. This guide will clarify these differences in simple terms and explain their uses.
Key Points
- Life Insurance and Life Assurance are distinct financial products.
- They serve different purposes and vary in cost.
Life Insurance Explained
Life Insurance provides coverage for a specific period, known as the policy's term. If the policyholder dies during this term, the insurance company pays a tax-free lump sum to the beneficiaries. If the term ends without a claim, the policy has no value, much like car insurance.
Life Assurance Simplified
Life Assurance is a combination of insurance and investment. It pays out either a guaranteed minimum sum or an amount based on the investment's performance, whichever is higher. The value grows with annual bonuses, which depend on the company's investment success.
You can cash in a Life Assurance policy, but selling it to a specialist broker often yields a better return than cashing it in with the insurer. If the policyholder dies during the term, it pays out the higher of the guaranteed amount or accumulated bonuses. If the policy ends while the policyholder is alive, an extra terminal bonus usually results in a larger payout.
Whole of Life Assurance
This specialized form of Life Assurance has no set term and lasts for the policyholder's lifetime.
Purchasing Considerations
- Life Insurance: Available online for easy purchase.
- Life Assurance: Considered an investment product requiring advice from a Financial Adviser, and not available for direct online purchase. However, you can find advisers online.
Uses of Life Insurance and Life Assurance
- Life Insurance: Ideal for covering specific debts, like a mortgage, ensuring they're paid off if the policyholder dies.
- Life Assurance: Suitable for providing a lump sum for general use upon the policyholder’s death. Its value depends on the guaranteed minimum and investment performance, offering the potential for a significant payout at the end of the term.
Cost and Trends
Life Insurance is generally more affordable than Life Assurance. Recent declines in investment returns and penalties for early withdrawal have impacted the value of Life Assurance policies. Thus, many opt for Life Insurance due to its lower cost.
Whole of Life Policies
If you want a policy that provides a guaranteed lump sum upon death, regardless of when it occurs, Whole of Life insurance is an option. It's often used for Inheritance Tax Planning due to its guaranteed minimum payout.
By understanding these distinctions, you can make a more informed decision about which product suits your financial needs.
You can find the original non-AI version of this article here: Life Insurance and Life Assurance are not the same .
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