Skip to content

Understand life assurance

Understand life assurance and how it differs from life insurance

Rachel Ditchburn
Written by  Rachel Ditchburn
5 min read
Updated: 26 Mar 2024

Life assurance and life insurance might sound similar, but they work in different ways. Our guide lays out the differences, so you have all the information you need to make the right choice

This page gives information about a financial product that’s not currently available through MoneySuperMarket. We hope you find this information useful, but bear in mind that we’re unable to help you buy this product at the moment.

In a world filled with uncertainties, securing the financial future of our loved ones remains a top priority for many. This article explores the intricacies of life assurance, a product designed to offer peace of mind and financial stability, no matter what life throws your way.

While MoneySuperMarket does not offer whole life insurance, it provides deals on term insurance. For those over 50, an over 50s life insurance policy is a viable alternative, offering lifelong coverage without a fixed term. Individuals under 50 can explore deals on level term and decreasing term policies, which may better suit their needs.

What is life assurance?

Life assurance is a unique type of life insurance that offers indefinite coverage as long as monthly premiums are met. Unlike term life insurance, which protects you for a specific period, life assurance, or whole life insurance, is there for the entire journey, ensuring that your beneficiaries are taken care of financially after you pass away. This continuous coverage comes with a guarantee of a payout, making it a reliable form of protection for your family's future.

Smiling elderly couple

No expiry date

One of the most compelling features of life assurance is its perpetual nature. There's no expiry date to worry about, no need to renew or face potential increases in premiums as you age. This coverage endures, providing a stable and predictable form of financial support for your beneficiaries, irrespective of when the inevitable occurs.

Whole life coverage

Given that life assurance covers you for your entire lifespan, it's no surprise that the premiums are typically higher than those for term life insurance. The absence of a term limit means that insurers are almost certain to have to pay out at some point, which is factored into the cost. However, this also means that your loved ones are assured of financial support, making the investment worthwhile for many.

How life assurance works

When you decide to take out a life assurance policy, you'll select a payout amount that suits your needs and budget. Your monthly premiums will be calculated based on this figure, alongside other factors such as your age, health, and lifestyle.

Some policies offer the flexibility to stop paying premiums after reaching a certain age while still maintaining coverage. Additionally, there may be an investment component to your policy, potentially increasing the value of the payout over time, though this does introduce an element of market risk.

Tax considerations

Life assurance is not only about securing financial support for your loved ones; it's also a savvy tax move. Generally, the payout from a life assurance policy is not subject to income or capital gains taxes. However, there's a catch: a potential 40% inheritance tax on your estate if it exceeds £325,000. This hefty tax can be sidestepped by placing the policy into a trust, ensuring that more of your legacy goes directly to your beneficiaries.

Cost of life assurance

The cost of life assurance is influenced by a myriad of factors, including your age, health, occupation, and the desired payout amount. To find the most suitable deal, it's wise to compare offers and utilize tools like a life insurance calculator to ascertain the appropriate level of cover for your unique situation.

Mortgage considerations

For homeowners, life assurance is an essential consideration. It acts as a financial safety net for dependents, ensuring that they won't be burdened by mortgage repayments in the event of your passing. A decreasing term life insurance policy is a cost-effective alternative that aligns the coverage amount with the diminishing balance of your mortgage.

Payout details

The payout process for life assurance is designed to be straightforward. The lump sum is directed to a named beneficiary, the surviving policyholder in joint policies, or trustees if the policy is held in trust. This ensures that the funds reach the intended recipients with minimal complications.

Tax implications

While life assurance payouts are usually exempt from income and capital gains taxes, the 40% inheritance tax looms if the estate's value is above the threshold. Proper estate planning and the use of trusts can significantly mitigate this tax burden, preserving more of your estate for your loved ones.

Making the right choice

Deciding between life insurance and life assurance is a matter of personal needs and financial objectives. 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.

Additional coverage options

When considering life assurance, it's worth exploring additional coverage such as critical illness cover. This option provides a lump sum upon the diagnosis of a specified illness, which can be a lifeline for covering living expenses or medical costs during a difficult time.

Additional information on tax

To reiterate, the final payout from life assurance is typically free from most taxes, but the inheritance tax could take a significant bite out of your estate without careful planning. Setting up a trust is a strategic move to avoid this tax, ensuring that your beneficiaries receive the full benefit of your foresight and planning.

One significant advantage of life assurance is that the [final pay-out to your loved ones isn’t subject to most taxes – but it might face a 40% inheritance tax. To avoid paying this tax, it’s worth considering putting your life assurance into a trust.

Life assurance is a promise—a promise that no matter what tomorrow holds, you have taken steps today to secure your family's financial future. It's a commitment that deserves careful consideration and an understanding of the long-term benefits it can provide.

Looking for life insurance?
Get a quote