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Life Assurance vs Life Insurance | MoneySuperMarket 

Life Assurance vs Life Insurance

Donna McConnell
Written by  Donna McConnell
Saarrah Mussa
Reviewed by  Saarrah Mussa
Updated: 21 May 2024

What are differences between life insurance & life assurance.? This guide helps you understand key features to decide what's best for your needs.

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What are the differences between life insurance and life assurance? 

While life insurance and life assurance sound very similar, they refer to different types of policies. Life insurance is a policy that provides financial protection for a set term (e.g., 10, 20, 30 years) while life assurance, typically known as whole of-life insurance, is a policy that will provide cover for your entire lifetime, ensuring a payout whenever the policyholder dies, as long as the premiums are up to date.

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How does life assurance work? 

When you take out a life assurance policy, you choose the amount of money you want your family to receive when you die. Your monthly payments (premiums) are based on this amount, along with factors like your age, health, and lifestyle. Some policies let you stop making payments after a certain age, upwards of 85, but still keep the coverage. Additionally, some policies include an investment part that can grow the payout amount over time, but you be aware that this comes with some financial risk.

Can I have both life insurance and life assurance? 

Deciding between the two is a matter of your personal needs and financial goals. Life assurance offers a lifelong security blanket with a guaranteed payout, making it a solid choice for those looking to provide long-term protection for their family, but premiums tend to be more expensive than those for life insurance.

What are the benefits of life insurance? 

Life insurance acts as a safety net that provides money to your loved ones and dependants after you pass away. This money can be used to cover essential financial obligations relieving your family of worry, and giving them peace of mind, such as:

  • Peace of mind that your family will be looked after

  • Mortgage repayments

  • Everyday expenses and debts

  • Funeral costs

  • Ensure long-term financial stability for dependents

What are the benefits of life assurance? 

Life assurance, also known as whole life insurance, offers several key benefits that provide financial security and peace of mind. Here are the main advantages:

  • Lifelong coverage: Ensures beneficiaries receive a payout whenever the policyholder dies.

  • Fixed premiums: Often comes with fixed premium payments, making budgeting easier.

  • Investment component: Some policies include an investment element that can grow, potentially increasing the payout.

  • Tax benefits: The death benefit is generally tax-free, and the investment component grows tax-deferred.

  • Estate planning: Useful for long-term financial and estate planning, helping to reduce estate taxes and provide for heirs.

Who needs life insurance and who needs life assurance?

Life Insurance:

  • Young families:

    Those with children who need financial protection for a specific period (e.g., until children are financially independent).

  • Mortgage holders:

    Individuals looking to cover debts and mortgages that will be paid off within a certain timeframe.

  • Temporary financial needs:

    Those who want coverage for a specific period to cover financial obligations.

Life Assurance:

  • Long-term planners:

    Individuals seeking lifelong protection and guaranteed payout regardless of when they die.

  • Estate Planners:

    Those looking to reduce estate taxes and leave a financial legacy.

  • Those Needing Cash Value:

    People who want a policy that accumulates cash value that can be accessed if needed.

How much do life insurance and life assurance policies cost?

The cost of life insurance and life assurance policies varies widely based on several factors:

  • Term Life Insurance:

    Typically cheaper than life assurance. Costs can range from a few pounds a month to hundreds, depending on coverage amount, term length, and personal factors.

  • Life Assurance:

    Generally more expensive due to lifelong coverage and cash value component. Premiums can range from tens to hundreds of pounds per month, depending on the policy and individual circumstances.

What factors affect the cost of life insurance and life assurance?

The cost of life assurance is influenced by factors, including your age, health, occupation, lifestyle, gender -the policy type and length and the desired payout amount.

To find the most suitable deal, compare offers with MoneySuperMarket to find the appropriate level of cover for your needs.

Are pay-outs from life insurance and life assurance taxable?

  • Life Insurance: In the UK, the death benefit is usually paid out tax-free to beneficiaries. However, it may be subject to inheritance tax if the estate exceeds the threshold, unless written in trust.

  • Life Assurance: Similarly, the death benefit is generally tax-free, but any investment gains within the policy might be subject to tax depending on how the policy is structured and used.

Can I cash out my life insurance or life assurance policy?

No, you cannot cash out a term life insurance or a life assurance policy as it does not accumulate a cash value.

How to choose between life insurance and life assurance?

Term insurance offers a range of policies for different needs. You might have one policy to pay off your mortgage if you die, another to provide income for your family, and a third to leave a lump sum. It's often cheaper than life assurance, and you can stop paying once you no longer need the coverage. Whole-of-life insurance is more expensive but will last longer.

Which one you choose will depend on your personal circumstances and your budget. It's worth considering the following factors:

  • What are my coverage needs? Do you need coverage for a specific term or lifelong protection?

  • Budget: Can you afford higher premiums for lifelong coverage, or do you need a more budget-friendly term policy?

  • Financial goals: Do you want to pay off a mortgage or clear debts?

What are the common terms in life insurance and life assurance policies?

  • Premium: The amount you pay for your policy, usually monthly or annually.

  • Death benefit: The amount paid to beneficiaries upon the policyholder’s death.

  • Term: The length of time the policy provides coverage (for term life insurance).

  • Cash value: The savings component of a life assurance policy that grows over time.

  • Beneficiary: The person or people designated to receive the death benefit.

  • Underwriting: The process by which the insurer evaluates the risk of insuring you, often involving a health assessment.

What happens to my life insurance or life assurance if I stop paying premiums?

If you stop paying your life insurance premiums, the policy will lapse, and you will lose your cover. The same applies to life assurance, the cover will stop and you will not get back any of the premiums paid.

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