What Is Life Assurance?

The primary purpose of a life assurance policy is to pay out a guaranteed sum to your family in the event of your death, whenever that should occur. However, many members of the public are often confused by the use of the terms ‘assurance’ and ‘insurance’: Though these words are sometimes (wrongly) used interchangeably, an explanation of the difference also sheds further light on exactly what life assurance is designed to achieve.

Assurance or insurance?

Assurance is the correct term to use for a policy which covers an event which will inevitably occur. So since death will come to us all, a life assurance contract is set up to pay out to a surviving beneficiary when the policyholder dies.

By contrast, an insurance contract protects against something which may, or may not, happen. Thus your motor insurance will pay out IF your car is involved in an accident, while a 10-year fixed-term life insurance will pay out only IF you die during the ten-year period specified in your policy contract.

The last example should explain why life assurance offers a much more comprehensive form of cover against the risk of death, and also how important it is to fully understand the limits of the life cover provided by different forms of life insurance.

Who can apply for life assurance? 

Most UK residents can obtain a life assurance quote, but there are a few additional restrictions. Only those aged 18 and above are eligible, and no one may apply if they have any kind of terminal illness. There is an upper age limit too: most insurers will accept under-85s, but some insurance companies may apply lower age limits than this.

What about the costs?

When quoting figures, each life company will apply their own set of evaluation criteria. In general, a life assurance quote will take into account four main features when deciding the costs and the level of ‘risk’ an insurer will have to bear. These are:

– your age. The cost of taking out life assurance will increase as you get older.
– your health. You can still take out cover with many longer-term health conditions, but it may cost more to do so.
– your lifestyle. Certain more-hazardous occupations and/or active hobbies may make your life assurance more expensive.
– the amount of cover. (The cost will be influenced by the amount of the payout you wish your dependents to receive.)

This assessment will then be used to calculate the final cost of the policy and the monthly payment you would be expected to make. Because a life assurance contract provides lifelong cover, it tends to cost more than life insurance policies which restrict cover to the number of years specified in the policy.

Does everyone need life assurance?

Those who have dependents may want to arrange life assurance in order to provide them with adequate financial support, or even a welcome legacy, when the assured policyholder’s death occurs. However, single people who have no dependents or beneficiaries can explore other ways to invest their capital to gain a good return.