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April 5, 2023

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Life Insurance vs. Life Assurance: Understanding the Key Differences

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Introduction

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1. What is Life Insurance?

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Life insurance is a policy designed to provide financial protection for a specific term, typically matching the duration of significant financial commitments such as mortgages or raising children. If the policyholder passes away during the term, a tax-free lump sum is paid out to the designated beneficiaries. There are three primary types of life insurance: level, increasing, and decreasing cover.

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  • Level cover maintains a constant payout amount throughout the policy term.
  • Increasing cover adjusts the payout amount to account for inflation, usually resulting in higher premiums over time.
  • Decreasing cover reduces the payout amount over the policy term, often aligning with a decreasing mortgage or loan balance.

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In summary, life insurance provides temporary financial protection for your loved ones, with coverage and premiums tailored to your specific needs and circumstances.

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2. What is Life Assurance?

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Life assurance, also known as ‘whole of life’ cover, is a policy that provides lifelong coverage, guaranteeing a payout when the policyholder passes away. Because the payout is assured, life assurance premiums tend to be higher compared to life insurance policies. Although premiums can be more expensive, life assurance offers peace of mind knowing that your loved ones will receive a financial benefit upon your passing, no matter when that occurs.

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Comparing Life Insurance and Life Assurance

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Here’s a quick comparison of life insurance and life assurance:

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Life Insurance

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  • Covers a specific term (e.g., 25 years)
  • Pays out only if the policyholder dies within the term
  • Generally more affordable premiums
  • Ideal for covering temporary financial commitments

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Life Insurance

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  • Provides lifelong coverage
  • Guarantees a payout upon the policyholder’s death
  • Usually higher premiums
  • Suitable for estate planning and ensuring lifelong financial security for beneficiaries

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3. Choosing the Right Policy

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The choice between life insurance and life assurance depends on your individual needs and financial goals. If you’re looking for protection during specific periods of financial responsibility, such as raising a family or paying off a mortgage, life insurance may be the better option. On the other hand, if you desire guaranteed lifelong coverage for your loved ones, regardless of when you pass away, life assurance may be more appropriate.

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Conclusion

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Understanding the differences between life insurance and life assurance is crucial when choosing the right policy to secure your family’s financial future. By taking the time to evaluate your needs, you can make an informed decision and find a policy that offers the best protection for your loved ones.

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Remember that insurance products and regulations can vary between countries, and this article focuses primarily on the UK market. It’s always advisable to consult with a qualified financial advisor to discuss your specific situation and explore the available options.

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We’re here to help

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If you are unsure about what policy to choose and would like advice, you can enlist help from insurance brokers. Here at I’m Insured, we strive to find the most suitable policy for you and your family – you can call to speak to one of our experts on 0800 334 5980.

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Life insurance protects you and your loved ones financially. Use our simple online tool to compare UK life insurance quotes and find the best prices and cover for you. Start your online quote now.

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Knowledge Hub

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Beginner’s Guide to Life Insurance

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Read this beginner’s guide to life insurance and find out everything you need to know before you take out life insurance.

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Find out more

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Types of Life Insurance

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There are a number of different types of life insurance, so here at I’m Insured, we’ve put together this simple guide to the different types of cover

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Find out more

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