Insurance versus assurance: what is the difference?

Should you care?

Yes!!

The world of finance is extremely complicated and there are many factors to consider when choosing any financial protection product.

When looking for a policy you need to know what you are looking for and what is on offer in order that you get the right cover for your needs.

One thing that many people find confusing is the specific use of the term insurance and the use of assurance. What are the differences between them?

In general, the term insurance refers to providing cover for an event that might happen while assurance is the provision of cover for an event that is certain to happen.

For the purposes of financial provisions, a life insurance policy provides cover for a set period of time. If the worst were to happen during that time (and there are no complications), then the insurance company will be required to pay out the agreed sum to the beneficiary. The only time the policy has any real monetary value is if there is a claim made for payment as a result of an event triggering that claim, such as the death of the person covered. If the person outlives the term of the policy, then the insurance policy will cease and no payment will be made.

Life assurance is different from insurance, and will always result in a payment. This is achieved by combining an investment element along with and an insured sum. This means that over time the value of the policy can increase as the investment bonuses are added. If a person covered by life assurance were to die, then the insured sum would be paid out, alongside the investment bonuses which would have accrued over time. If it is necessary to cancel the policy prior to the end of any designated term period, or the death of the life being covered, then once an investment bonus has been added, the life assurance policy will have an encashment value. It is therefore possible to cash in a policy earlier than its usual termination date, in order to collect on the investment portion. It should be noted that many insurance companies place penalties for cashing in policies early.

The distinction between the two terms has become increasingly blurred. This is principally due to many companies offering both types of policy and grouping insurance and assurance titles in similar contexts, sometimes interchanging the two terms. Richard Brown, Chief Executive of Moneynet.co.uk, clarified the situation by stating, most life insurance companies offer a wide range of insurance and investment services for example pension, investment funds, investment bonds, car insurance, home & contents insurance, life assurance, and even loans. Sometimes a life insurance company will call itself a life assurance company but they mean one and the same.

More companies within the financial services industry have realised that consumers are becoming increasingly baffled by the choice of financial products available. Although this confusion has resulted in a certain amount of apathy, many firms are resolving the situation by providing comprehensive information guides. This has lead to an increase in the number of the online financial guides and glossaries that have become available.

Sites such as Moneynet, Moneyfacts, and MoneyExtra not only provide comparisons of financial products, but also information to help consumers make informed decisions. With organisations like Which? writing publications such as Be Your Own Financial Adviser, the focus has turned to providing consumers with sufficient information to make their own financial judgements.