While both terms might sound similar and indeed, people don't usually perceive the difference between the two, both policies are actually very different. Let's take a look at the differences between these two kinds of policies.
Life Insurance is a policy that offers you a cover for a predetermined period and if you were to die during that period, your family would get a fixed sum of money – the sum that you were insured for – and this would be tax-free. Now, if you happen to live beyond the specified period that the insurance was taken for, then the policy finishes and has no residual value.
Life Assurance on the other hand has an element of investment about it. In actual fact, it is a combination of insurance and investment. This policy assures you of a sum of money and this is guaranteed. The amount guaranteed would greatly depend on the amount of your policy and the number of years you have been paying towards it. It also depends on the investment performance of the insurance company. With time, this policy keeps increasing in value because there are bonuses that are issued at intervals and all these add up.
The amount you keep paying towards a Life Insurance policy is less than on a Life Assurance policy. For most people, this is the policy that is most important because it means that in the event of sudden death, the family is not left bereft and there is a sum of money that will come to them and help them tide over a difficult time. However, a Life Insurance policy will just come to an end when the specified number of years is up. This is a great form of protection when one person is the sole earner and has a partner and children who are dependent on them. The amount that the family would get in the event of the policy holder's death is predetermined and is a fixed amount.
With a Life Assurance policy, while the amounts payable are higher, if the person were to die, the amount would be the one that is higher – the preset amount of the insurance policy or the total amount of the policy to which the bonus amounts have been added. The greater the period that the policy has been in force, the bigger the amount payable. If the person reaches the end of the policy term and is still alive, they will be given an additional terminal bonus. At the end of the predetermined term, a Life Assurance policy can be cashed in or it can be sold for a higher price to an investment broker – there are specialists in this area who are always looking to buy these policies. Today, there are Life Assurance policies called 'Whole of Life' too which do not have a predetermined period but stay operational for as long as you live. When you die, a guaranteed sum will be paid out to the person you nominate.
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