Life Insurance vs. Life Assurance: What’s the Difference?

While purchasing life insurance, you might have become curious about difference between insurance and assurance at some point. To the uninitiated, the two terms -insurance and assurance –might sound synonymous and interchangeable, but in the world of insurance, things work a little differently. However, you have nothing to worry about. At Bandhan Life, we understand that with so many different types of life insurance policies available, you are bound to get confused.  We believe that buying life insurance should be empowering rather than confusing. Going by this mantra, we have tried to clear all confusion about the difference between insurance and assurance by answering the most important questions.

What is Life Insurance?

A life insurance policy is a financial tool that guarantees you peace of mind and financial security. It is a safety net that protects a policyholder in the unfortunate event of their passing.

This entails an agreement between you and an insurance company, often referred to as the insurer. Your end of the agreement is that you annually pay a fixed amount to the insurer as premiums. In return, the insurer promises to pay a predetermined sum, known as the ‘sum assured,’ to your beneficiaries. Beneficiaries are the next of kin, family members who might suffer the financial burden in your absence.

This type of a policy is time-bound by nature. It is only enforced in a given ‘policy term’ – typically 20 or 30 years. The sum assured often replaces the policyholder’s income to aid the family. There are different kinds of life insurance policies, which come with the added advantage of saving money or growing your wealth. You can read more about them in our blog on different types of life insurance in India.

What is Life Assurance?

While life insurance is a broad term used for all life insurance products, a life assurance policy refers to a  whole life plan. It’s a  policy designed to provide a lifelong guarantee. The fundamental guarantee of a life assurance policy is the coverage has no expiry date. In simple terms, the ‘sum assured’ is provided to the next of kin ‘when’ the policyholder passes. Which is to say, there is no time-limit on a life assurance policy. The end of a life is certain but not fixed in time. A life assurance policy promises the benefits regardless of when the unfortunate time comes.

In this type of policy, you pay the fixed premiums – which are typically slightly higher than a regularinsurance policy that is valid for a fixed term. In return, the company promises to pay the ’sum assured‘ to your beneficiaries upon your passing.

Difference Between Life Insurance and Life Assurance

How does Life Insurance and Assurance Work?

We understand that life insurance and assurance are powerful tools to protect the policyholder’s future, but how  do they operate? Let’s understand the process:

Risk Pooling

Imagine insurance as a community fund. You and many others pay regular premiums into a common pool. This collective money is then used to support any member who faces a financial loss, spreading the risk among everyone involved. Since the life assurance policy is guaranteed to take a part of this pool, the premiums are higher.

Purchasing a Policy

When you choose a life insurance or assurance policy, you agree to pay premiums to the insurer. The amount you pay depends on factors like your age, health, and the level of coverage you need.

Coverage and Payout

In return for your premiums, the insurer promises to provide financial support in specific situations:

Life Insurance: If something happens to you within the policy term, your beneficiaries receive the sum assured. This money can help cover expenses like education, mortgage payments, or lifestyle costs.

Life Assurance: This offers lifelong coverage, ensuring that your loved ones receive the payout whenever you pass away, providing lasting financial security.

Both life assurance and life insurance policies have their pros and cons. Read on to learn about them.

Advantages Life Assurance

While life assurance seems like a very good deal, we must make a clear and informed decision after defining all the benefits and drawbacks of the policy. Several factors help provide individuals and their families long-term financial security. Here are some of the key advantages:

Lifetime Coverage: One of the most significant benefits of life assurance is its lifelong coverage. Unlike term life insurance, life assurance ensures that your beneficiaries receive a payout no matter when they pass away. This guarantees financial support for your loved ones whenever they need it.

Guaranteed Payout: With life assurance, the payout is guaranteed. This certainty means that your family won’t be left in financial distress after your passing. The assured sum can help cover essential expenses and your family’s financial stability remains intact.

Inheritance Creation: Life assurance is an excellent choice for creating a legacy. It allows you to leave a substantial inheritance for your children or other beneficiaries, providing them with the means to achieve their financial goals and maintain their lifestyle without interruption.

Cash Value Accumulation: Many whole life cover or life assurance policies include a cash value component. Over time, this cash value grows and can be borrowed against or withdrawn, offering you financial flexibility during your lifetime. This feature makes life assurance not only a protection tool but also a savings and investment vehicle.

Fixed Premiums: Life assurance policies typically come with fixed premiums. You can fix an amount for the premiums and keep it going for as long as you live. Knowing exactly how much you need to pay each month helps you manage your expenses without unexpected costs.

Peace of Mind: Saving the most important one for the end – life assurance provides peace of mind. Being sure that your loved ones are financially protected no matter what life brings, allows you to live confidently, focusing on what truly matters without worrying about unforeseen financial challenges.

Disadvantages of Life Assurance

Higher Premiums: Life assurance policies generally come with higher premiums compared to term life insurance. This is commonly seen as the primary difference between difference between insurance and assurance.

Since life assurance provides coverage for your entire lifetime and guarantees a payout, the cost reflects this added certainty. For individuals on a tight budget, these higher premiums can be a financial strain, making it challenging to maintain the policy over the long term.

Complexity of Policies: Life assurance products could have more complex terms and conditions than term life insurance. Features like cash value accumulation, investment components, and various riders can make these policies difficult to understand. This complexity might lead to confusion about what is covered and how the policy works, potentially resulting in misunderstandings or unmet expectations when it’s time to make a claim.

Limited Flexibility: Once you commit to a life assurance policy, making changes can be difficult and costly. Adjusting coverage amounts, altering beneficiaries, or modifying policy terms may not be simple. You might have to spend extra to make these changes. This lack of flexibility can be a drawback for those whose financial situations or needs evolve over time.

Potential for Lower Returns: While some life assurance policies include investment components, the returns on these investments may be lower. You might be disappointed if you compared life assurance products to other investment options like mutual funds or stocks. The primary focus of life assurance is protection rather than growth, which means you might miss out on higher potential gains that other investments could offer.

Limited Claim Scenarios: Life assurance guarantees a payout upon death. However, it might not cover all scenarios. Some claims, such as those related to terminal illness or disability, may have specific conditions or exclusions. Understanding these limitations is vital to ensure that the policy meets all your protection needs.

When Should You Choose Life Assurance?

Life assurance is ideal for long-term financial planning and creating a legacy. It helps with estate planning and ensuring that your heirs receive a guaranteed sum to cover estate taxes or leave an inheritance.

• Imagine you want to secure funds for your child’s future education or set aside a legacy for your family — life assurance ensures these goals are met regardless of when you pass away.

• Annuities offer guaranteed income during retirement, making life assurance a smart choice for stable, long-term financial security.

How to Choose the Right Option Between Insurance and Assurance for Your Needs?

Now that you  understand the difference between insurance and assurance, we hope you will be able to make an informed decision while buying your policy. The process is simple, start by assessing your financial goals and the needs of your dependents.

If your primary aim is to protect your family’s income or cover specific liabilities like a mortgage or education costs, term life insurance might be the best fit. It offers high coverage at affordable premiums for a set period, making it ideal for income replacement during your working years. To get the right product, you can use the term insurance calculator from Bandhan Life.

On the other hand, if you’re looking to create a long-lasting fund or ensure financial stability for your loved ones, no matter when you pass away, life assurance is the way to go. Whole life cover not only provides lifelong coverage but also builds cash value over time, which can be used for estate planning or as a savings tool.

Once you decide how you intend to secure your family’s future, you can buy life Insurance online and enjoy peace of mind!

Frequently Asked Questions

What is the primary purpose of life insurance?

The primary purpose of life insurance is to ensure that your loved ones are financially protected and can maintain their lifestyle in the event of your untimely passing.

What is the difference between life insurance and assurance in terms of coverage duration?

Life assurance provides coverage for the entirety of the policyholder’s life, ensuring a payout occurs whenever they pass away. In contrast, life insurance offers coverage for a specific term, such as 10 or 20 years, after which the policy expires if no claim is made.

What are the key benefits of life assurance compared to life insurance?

Life assurance provides lifelong coverage, guaranteeing a payout to your beneficiaries whenever you pass away, which ensures continuous financial security for your loved ones. Additionally, many life assurance policies build cash value over time, offering both protection and a savings component that can support your long-term financial goals.

Is life insurance more suitable for short-term financial goals?

Yes, life insurance, especially term life insurance, is ideal for short-term financial goals like covering a mortgage, funding your children’s education, or replacing your income during your working years. Its affordable premiums and fixed coverage period make it a practical choice for addressing immediate financial needs without the long-term commitment associated with life assurance.