What is the difference between life insurance and life assurance
If you’re looking into protecting your loved ones financially, you may come across both “life insurance” and “life assurance” policies in the UK. What exactly is the difference between the two?
While the terms tend to be used interchangeably in casual conversation, life insurance and life assurance do have some technical distinctions in the UK.
Legally, life insurance refers to policies covering a 12 month term or less. This is defined by the UK Life Assurance Act 1774.
Life assurance is the legal term for policies covering over 12 months, defined separately in the UK Life Assurance Act of 1837.
So in the eyes of regulators, life insurance offers short term coverage and life assurance provides longer term or permanent coverage spanning multiple years.
In everyday discussions, most people use “life insurance” as the catch-all term for both short and long term life policies. You’ll often see phrases like “term life insurance” or “whole life insurance” even though these technically fall under life assurance definitions.
Many UK providers also commonly group all life coverage under the label of insurance rather than assurance.
So in practice, life insurance and assurance are used interchangeably to refer to the same array of policies and products. The legal definitions are mainly relevant for precise regulatory discussions.
While there are legal nuances, some common forms of life insurance/assurance include:
Term Life Insurance – Covers a set period of time, such as 10-30 years. The legal definition of life insurance.
Whole Life Assurance – Provides lifelong protection as long as you pay premiums. Legally a form of life assurance.
Critical Illness Cover – Pays out if diagnosed with a major illness like cancer. Typically a life assurance policy.
Income Protection – Replaces income if you cannot work due to illness/injury. Usually viewed legally as a life assurance product.
Level vs. Decreasing Policies
Both life insurance and assurance policies can be level or decreasing.
Level – The death benefit payout remains the same throughout the policy lifetime.
Decreasing – The payout amount gradually reduces over time. Often used to cover a debt that decreases like a mortgage.
So a level term life insurance plan keeps the payout consistent year after year. A decreasing whole life assurance policy slowly lowers the death benefit.
Does It Matter?
For most consumers purchasing life policies, the nuances between insurance and assurance do not typically matter. It usually comes down to picking the coverages and options that best fit your financial situation and goals.
But it is helpful to understand the distinction since you may come across both terms used in materials from financial institutions and advisers. Some may stick strictly to the legal definitions, while others use the terms interchangeably.
Now you know that life insurance refers to short term coverage under a year, while life assurance means protection exceeding 12 months. But don’t get too caught up classifying policies, and instead focus on how they provide for your loved ones!