What is life assurance?

Life insurance gets more expensive the older you get, which is why it makes sense to take out a policy while you’re still young.

However, as term life insurance only covers you up to a certain number of years, if you take it out in your 20s or 30s, you are likely to outlive your policy term. On the other hand, life assurance covers you for the whole of your life (as long as you keep paying the premiums), taking away that worry.

What is life assurance?

Also known as a whole of life policy, life assurance is a type of life insurance that continues indefinitely, until the policyholder dies, as long as they maintain payment (and as long as there is no upper age limit to the policy). It then pays out a lump sum to the beneficiaries named on the policy.

Life assurance tends to be more expensive than term life cover, but you don’t have the risk of outliving your policy.

What is the difference between life assurance and life insurance?

Life insurance only covers you up to a specific number of years stated in the policy terms – usually between 5 and 30 years. This means that, if you take out a policy at 45 that covers you for 30 years, it will expire when you reach the age of 75. If you die after this age, your loved ones will not get a payout. You can take out a new life insurance policy when the old one expires, but this will likely be very expensive, as life insurance premiums are affected by age.

Of course, if you’ve paid off your mortgage and your children are financially independent, you might not want to take out a new life insurance anyway.

Life assurance covers you for the whole of your life. So, if you take out this type of policy at the age of 25, it will pay out regardless of your age when you die, even if you’re lucky enough to live past 100. The monthly premiums for this type of cover are more expensive, so it’s up to you to decide how much you’d like a guarantee on that payout.

Note that some policies cut off when you reach a certain age, so make sure you check the policy details.

How does life assurance work?

Life assurance works in a similar way to life insurance – you go through the application process with the insurer, purchase the policy and pay your monthly premiums. You can choose the amount of money you’d like to set as your payout, and this will affect your premiums, along with your personal details such as age, health and lifestyle.

As long as you keep up payments, your policy remains valid and your beneficiaries receive a payout upon your death. If your circumstances change, you can usually adjust the payout amount for your policy.

Another option for whole of life cover is an investment-based payout. This means that, rather than agreeing a payout amount with your insurer, the company invests your premiums and your eventual payout is affected by how well these investments do.

With this type of policy, also known as a “maximum cover”, your premiums will be regularly reviewed, and may increase as you get older.

Some insurers have a cut-off limit for life assurance policies (usually when the policyholder reaches the age of around 85 or 90), so make sure you check the policy details before purchasing it.

Can you cash in a life assurance policy early?

Yes – some providers do allow you to cancel your policy and cash it in early.

While you will likely receive the value of the fund, or at least what you’ve paid into it, penalty and admin charges will most probably be deducted from the total. This can make cashing in the policy unviable, as you might end up getting back less than you paid in.

Is a life assurance policy worth it?

Life assurance does cost more per month, but you get the added peace of mind knowing your loved ones will get a payout when you die, whenever that may be.

It’s up to you to decide whether this guarantee is worth the extra expense to you.

Which one is right for me?

This depends on your circumstances.

If you are taking out life cover at a young age, you might want to take out life assurance so that you are less likely to outlive your policy. However, bear in mind that you might pay off your mortgage and have no one financially dependent on you by the time you die, so consider whether paying the extra premiums is worth it to you.

If you just want to make sure that your loved ones get a payout to cover your funeral costs, any debts you have and your mortgage when you die, consider taking out a limited term life insurance policy, especially if you are older. Remember that this might expire before you die.

Pros and cons for life assurance

Frequently asked questions

• Is life assurance the same as death in service?

  No. Death in service is a type of life cover that is usually offered as a benefit by employers to their employees.

  Death in service provides a lump sum to your beneficiaries if you die while on the company’s payroll (regardless of whether the cause of death was work related or not). The policy does cover you for as long as you are employed by the company with no time limitation, but it expires when you leave the company or if the company shuts down and cannot usually be carried forward to your next role.

  Life assurance is private cover that can be taken out by any individual, regardless of their work situation. It covers you for the whole of your life, as long as you keep paying the premiums.

• Who needs life assurance?

  Life assurance is especially useful to those taking out cover early on in their life. This is because these people are more likely to outlive a life insurance policy with a limited term time.

  That said, if you’re younger, you also have more time to pay off your mortgage and put money aside for your dependents, which means you may end up paying higher premiums throughout the life of the policy for no reason.

  The main consideration should be how important it is to you to guarantee your loved ones will get the lump sum insurance payout when you die.