Life Assurance

People often assume that life assurance and life insurance are the same thing. In fact, there are key differences between the two types of policy – it is important to understand how each one works to decide which is the right choice for you.

Life assurance

Life assurance will cover you for your entire life. Also known as “whole of life” cover, the premiums tend to be higher and will normally be reviewed every few years. This means they can increase during the life of the policy.

Life assurance continues indefinitely and pays out a lump sum when the policyholder dies, as long as they have paid their monthly premiums. Premiums are higher because the insurer expects to pay out at some point.

Life insurance

Life insurance will pay out a tax-free lump sum if you die during the policy’s term. The insurance cover can be arranged on either a “level” basis (meaning the pay-out on death remains the same for the duration of the policy) or on a “decreasing” basis, so the level of cover decreases over time.

If you decide on this type of cover alongside a repayment mortgage, it means your dependants will receive the same as the amount outstanding on the mortgage on your death. Decreasing cover normally costs less than level cover.

Which should you choose?

The most appropriate policy will be dictated by your own personal circumstances, so you must consider other expenses such as paying bills, childcare costs, paying your mortgage and protecting yourself against an event such as a serious illness.

Both life assurance and life insurance will make sure your dependants are provided for after your death. If you want to ensure your mortgage is covered, you might consider life insurance is the appropriate choice. On the other hand, if you want to be sure that your loved ones will receive a lump sum when you die, life assurance may be a better option.

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