Life assurance

It may seem confusing as life insurance is sometimes referred to as ‘life assurance’, ‘term assurance’, or ‘life cover’, but is usually the same thing. We’d like to explain what life insurance is to help you decide what cover you may need.

Life insurance or term assurance is designed to provide a cash sum if you die during the period of cover (the ‘term’). The maximum cover available and how long the policy can last may vary. However, you can choose the amount of cover and how long you want the policy to last to suit your personal circumstances.

Ask yourself: what do you want life cover for? For example;

I want to plan ahead and make provisions for my loved ones in the event of my death.
I want cover that will help clear my mortgage or other financial obligations if I should die before they have been repaid.
I want to be able to choose the amount of cover I need.
I want to be able to choose the number of years that I will be covered.
I want to pay a fixed regular payment and know that this will not change throughout the term of the policy.

So life insurance could be used to help repay your outstanding mortgage, or to help protect your family’s lifestyle on your death, if this happens before the policy ends. If a claim isn’t made, the policy will end at the agreed date without the cash sum being paid and you won’t get anything back.

Read our guide to understand the difference between two often confused terms, life insurance and life assurance

When shopping for insurance you may see the terms life insurance and life assurance used interchangeably, but there are some key differences you need to understand before taking out a policy.

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What is life insurance?
Life insurance covers you for a set term that you decide at the onset of the policy — usually between 10 and 25 years. Most people take out life insurance to ensure their financial commitments are met in the case of their death. Most mortgage agreements will require you to have some form of life insurance cover so your mortgage will be taken care of in the case of your death.

Some people take out insurance to cover them while their children are young, choosing a policy end date to coincide when their family is likely to be financially independent.

The key thing to remember about life insurance is you’re not guaranteed to get a payout, as you’re not guaranteed to pass away within the term. Much like car and home insurance where you’re not guaranteed to crash your car or be burgled, the insurance is there for peace of mind if you do.

If you outlive the policy, you won’t get a payout or a refund of any premiums you’ve paid, but you can apply for another policy.

What is life assurance?
Life assurance is not a fixed-term product — it’s intended to cover you until you pass away, whether that’s weeks or decades after you’ve bought the policy.

Life assurance is often sold as ‘whole of life’ or permanent insurance, and comes in many forms. It tends to be more expensive than standard life insurance as it covers you for a longer term and you’re guaranteed a payout at the end of the policy.

Some insurers will require you to make regular payments until the end of your life, but with others you can stop paying your premiums at an advanced age (e.g. 85) and still get a payout upon your death.

Life assurance as an investment
Life assurance is also offered by some providers as an investment product, also known as investment-linked life assurance or an endowment policy.

The premium you pay each month will be split — some will go towards your final payout (as with a normal life insurance policy), while some will be invested by the life assurance provider.

You will usually be guaranteed a minimum payout in the event of your death, but the full amount of the lump sum received will depend on the performance of the investment part of your policy. Some investment-linked policies turn out to be very valuable, but there is also the risk that your family could receive less than you’ve paid in over your lifetime.

You may also be able to end your policy early to ‘cash in’ on the investment value, but a large penalty fee is usually applicable.

It’s important to remember that the value of any investments can go up or down and your final payout may be affected by this. As investment-linked life assurance is a specialist product, it’s recommended you speak to a financial advisor if you’d like to purchase one.

The key difference between life insurance and life assurance
An easy way to remember the difference is life insurance covers you for if you die within the term of the policy, but life assurance is there for when you eventually pass away.

As with all types of life and health insurance, your premium will depend partly on your medical history and current health status. After getting an initial quote from uSwitch, our insurer will contact you to discuss these details.