What is life assurance?
Key takeaways
Life assurance provides lifelong cover and guarantees a payout when you die, as long as the policy remains in force
Unlike life insurance, life assurance doesn't expire after a set term, making it suitable for long-term financial planning and leaving a legacy.
Life assurance is often used interchangeably with whole of life insurance and can help support loved ones, cover funeral costs, or assist with estate planning.
Because a payout is guaranteed, premiums for life assurance are typically much higher than term life insurance
What is life assurance?
Life assurance is a type of policy that guarantees a payout when the insured person dies, provided the policy remains in force. Unlike some forms of life insurance that only pay out if death occurs within a specified term, life assurance covers the policyholder for their entire lifetime.
The term "assurance" is used because the payout is certain to be made eventually, as death is an inevitable event, whereas "insurance" typically covers events that may or may not happen during the policy period.
Click here to learn more about the different types of life insurance available.
How does life assurance work?
Life assurance provides lifetime cover, rather than protection for a fixed term. As long as you continue paying your premiums, the insurer guarantees a payout when you die.
When you take out a policy, you'll choose a guaranteed payout amount and name one or more beneficiaries who will receive the money. The policy remains in place for your entire life, provided premiums are kept up to date.
Your premiums will be based on factors such as the payout amount you choose, as well as your age, health, and lifestyle. When you die, the insurer pays the agreed sum to your beneficiaries, who can use the money however they wish.
What is the difference between life assurance and life insurance?
The key difference between life assurance and life insurance is how long the cover lasts and whether a payout is guaranteed.
Life assurance provides cover for your entire lifetime and guarantees a payout when you die, as long as your policy remains active and premiums are paid. Because a claim is certain to be made eventually, insurers use the term ‘assurance’.
Life insurance, on the other hand, provides cover for a fixed term, such as 10, 20, or 30 years. It only pays out if you die during the policy term. If the policy expires before you die, no payout is made.
As a result, life assurance offers lifelong protection and a guaranteed payout, while life insurance provides cover for a set period and only pays out if a claim is made during that time. Premiums for life assurance are often lower at the outset but are paid for life, whereas life insurance premiums are typically higher because the cover is concentrated over a shorter period.
When is the term life assurance used?
The term life assurance is primarily used in the UK insurance industry to describe policies that provide lifetime cover and guarantee a payout when the policyholder dies.
Insurers, financial advisers, and insurance providers commonly use the term to distinguish these policies from life insurance, which typically covers a person for a fixed period and only pays out if they die during that term.
In practice, life assurance is often used interchangeably with whole of life insurance or ‘whole life’ insurance, as both refer to policies that remain in force for the policyholder's entire lifetime and provide a guaranteed death benefit.
Who might consider life assurance?
Life assurance might be considered by people who want the certainty of a guaranteed payout whenever they die, rather than cover that ends after a set period.
For example, it can appeal to those who want to leave money to loved ones, help cover funeral costs, support estate planning, or provide a financial legacy. It may also be relevant for people whose need for cover is expected to continue throughout their lifetime rather than for a specific number of years.
Whether life assurance is suitable will depend on an individual's circumstances, financial goals, and long-term protection needs.
Frequently asked questions
Is life assurance the same as life insurance?
No, life assurance is not the same as life insurance. Although the terms are sometimes used interchangeably, life assurance and life insurance are not the same.
Life assurance provides lifetime cover and guarantees a payout when you die, provided the policy remains in force. Life insurance, by contrast, covers you for a fixed term and only pays out if you die during that period.
The key difference is that life assurance offers a guaranteed payout at some point in the future, while life insurance only pays out if a claim is made within the policy term.
Is life assurance the same as whole life insurance?
Yes, in most cases life assurance and whole life insurance refer to the same type of policy. Both provide cover for your entire lifetime and guarantee a payout when you die, provided the policy remains in force and premiums are paid.
The term life assurance is commonly used in the UK insurance industry, while whole life insurance is often used to describe the specific policy type. In practice, they are generally used interchangeably.
Does life assurance always pay out?
Life assurance is designed to provide a guaranteed payout when you die, as long as the policy remains in force. This means you must continue paying any required premiums and comply with the policy's terms and conditions.
However, a payout may not be made if the policy has lapsed due to missed payments or if there was material misrepresentation or non-disclosure when the policy was taken out. Subject to these conditions, life assurance is intended to pay out whenever the policyholder dies.
How long does life assurance last?
Life assurance typically lasts for your entire lifetime. Unlike life insurance, which covers you for a fixed term, life assurance remains in place until you die.
Because the cover does not expire after a set number of years, it guarantees a payout whenever the policyholder dies.
Why is it called life assurance?
The term life assurance is used because the policy provides a guaranteed payout when the policyholder dies. Since death is a certain event, the insurer can assure that a claim will be made at some point, provided the policy remains in force.
This differs from life insurance, which covers the risk of death occurring during a specified term. Because a payout is not guaranteed under a term policy, the word insurance is used instead of assurance.
How much does life assurance cost?
According to life insurance broker Reassured.co.uk, the average cost of life assurance is £59.93 a month.
The cost of life assurance varies depending on factors such as your age, health, lifestyle, the amount of cover you choose, and the type of policy. Because life assurance provides lifelong cover and guarantees a payout, premiums are generally higher over the long term than those for a fixed-term life insurance policy.
When is money paid out with life assurance?
A life assurance policy pays out when the policyholder dies, provided the policy is still in force and any required premiums have been paid.
Once the insurer receives the necessary documentation, such as a death certificate and claim form, the agreed payout is made to the policy's beneficiaries or, if no beneficiaries have been named, to the policyholder's estate.
Do I need to buy any other protection policies?
If you’re considering buying life assurance, you may also want to consider critical illness cover. This is often added to life assurance policies, and it can provide a lump sum of money to you if you are diagnosed with a specific illness and can no longer work.
Is tax due on life assurance?
A life assurance payout is usually free from income tax and capital gains tax (CGT) in the UK. However, it may be considered part of your estate for inheritance tax (IHT) purposes, depending on how the policy is arranged.
Many people place their policy in a trust, which can help keep the payout outside their estate and allow the money to be paid to beneficiaries more quickly. Tax treatment depends on individual circumstances and may change in the future, so professional advice may be appropriate if inheritance tax is a concern.
Speak to a financial adviser for more guidance.
Can you cancel life assurance?
Yes, you can cancel life assurance. If you no longer need cover, cancelling might be the best option, but it's advisable to consult with your adviser, broker, or insurer first to consider all scenarios. Keep in mind that cancelling means your cover will end.
Author
Rachel Ditchburn
Former Senior Commercial Manager
Rachel is a former Senior Commercial Manager at MoneySuperMarket, where she oversaw the Protection, Pet and Leisure Insurance channels. Outside of work, Rachel is a keen cook and enjoys live music,...
Reviewer
Emma Lunn
Personal finance expert
Emma has written about personal finance for almost 20 years, with a career spanning several recessions and their inevitable consequences. Emma’s main focus is helping people learn to manage their...
