Life assurance differs from life insurance, because it guarantees a payout when you die. Find out more about the differences, your options and which might be best for you.
Whole of life insurance - also known as life assurance - is a policy that guarantees to payout when you die. It differs from life insurance. That’s because life insurance (fixed-term policies) will only pay out if you die within the policy term.
Life assurance is more expensive than a fixed-term policy, because the insurer knows that it’ll have to pay out eventually.
If you only want to secure a payout in case you die while your children are still dependants, or while your mortgage is still outstanding, you won’t necessarily need whole of life cover – you might find term life insurance is more suitable.
If you want a guaranteed payout, regardless of when you die, life assurance could be right for you.
It’s important you understand that the value of the payout depends on your investment’s performance and that charges or fees will reduce your policy’s value.
Life insurance runs for a set amount of time and is worth considering if you have dependents and big financial commitments. You can tailor payments and cover to suit your lifestyle, say opting for less cover later in life as you pay off the mortgage or the kids leave home.Sue Hayward, Personal Finance & Consumer Journalist, Broadcaster & Author
Life assurance covers you for life which means a guaranteed payout when you die. For both types of cover, premiums are calculated based on your lifestyle, age, occupation and health.
You take out a policy and pay the insurer a premium. You usually pay your premiums monthly, but it could be annually or a lump sum.
The money you pay gets invested on your behalf, and when you die your beneficiaries will get a payout.
As long as you keep paying the premium, you’ll be insured.
With some policies, that means you’ll be paying premiums well into old age and up until you die. But some only ask that you pay premiums for a fixed number of years. You’ll still be insured until you die without paying anything else.
You might be able to add cover for certain illnesses, or for becoming disabled and unable to work, to your life assurance policy too.
There are two main types:
You’ll sometimes hear this called balanced cover. The insurer sets a premium that’s high enough to stay the same throughout the term of the policy. So you get older, but you don’t end up paying more and you’ll still get the same cover.
Maximum cover can be cheaper at first, but what differs is your insurer will review your policy fairly regularly.
When they review your policy, if you’re deemed more of a risk, they could ask you to pay higher premiums. Alternatively, your premiums might stay the same, but the amount of cover you get could reduce.
It’s important to: