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Difference Between Life Insurance and Life Assurance

dateKnowledge Centre Team dateSeptember 08, 2022 views234 Views
Life Insurance Vs Life Assurance

The difference between life insurance and life assurance is so subtle that it’s easy to confuse them as one of the same thing. You and your spouse have dreamt of so many life goals such as building a house, educating your children, and so on. You are diligently saving towards your goals but you are keen to mitigate risks so that your family gets a financial safety net even in your absence.

What is Life Insurance?

If you sign up for life insurance, the insurance company will issue a policy to you promising to pay a pre-fixed amount to your nominee in case of your unfortunate demise.

In return for this promise, you must pay nominal amounts, called “premiums”, periodically from the date of signing up for such a policy.

The insurance amount “promised” by the insurance company is called “life insurance coverage” or “sum assured” and is generally ten times your annual income. This amount ensures that your family is not deprived of necessities, in your absence.

What is Life Assurance?

Life assurance covers you for life. It is more popularly called the “whole life policy”. Life assurance policies have 2 key benefits:

1. Coverage for Life: You have peace of mind that irrespective of when you pass away, your nominee/loved ones will get the insurance amount and will not face financial hurdles.

2. Create Inheritance: Death is certain. An insurance policy can help create an inheritance for your family/children even if you could not create any other major corpus to leave as a legacy.

Difference Between Life Insurance and Life Assurance

Both life insurance and life assurance are risk mitigation instruments and pay out a fixed amount after your demise. So, the risk cover is guaranteed.

Life Insurance Life Assurance
Fixed Term Whole Life
Premium is lower as compared to Life Assurance Premium is higher as compared to Life Insurance
No coverage after the term ends No term. Whole life coverage
Sum assured paid out only if the insured person dies during the policy term Sum assured paid out whenever the insured person dies
Sum assured can be decreased Sum assured cannot be decreased.

How does Life Insurance and Assurance Work?

Life insurance and assurance work in the same way and are similar to any insurance policy. You pay a premium and get a financial risk covered in return. The risk differs in the type of policy-health, life, and motor.

  • In life insurance and assurance, the risk is similar in nature. In case of your unfortunate demise, your family will face financial challenges apart from the grief of losing you. The financial challenges could be severe if you are the sole/significant breadwinner of the family.
  • The premium paid is used by the insurance company to cover the financial loss so that the family can sustain its livelihood. The insurance company pays the “sum assured”, which is defined in advance, to your nominee, on your unfortunate demise.
  • Life insurance policies have affordable premiums and are light on the pocket. The benefits far outweigh the premiums that you pay. This contribution is worthwhile because death is unpredictable.

Example of Term Life Insurance

For example, Ramesh is 40 years old and earns about Rs 12 lakhs per annum. He has no known illnesses and his medical history is clear. He avails a pure life insurance policy of 20 years tenure, also called the “term plan” with a sum assured of Rs 1 crore.

If Ramesh passes away at 58, his nominee is paid the sum assured. However, if Ramesh passes away at 65, no sum assured is paid out because the term of the policy is 20 years.

Example of Whole Life Insurance/Life Assurance

Ramesh is 40 years old and earns about Rs 12 lakhs per annum. He has no known illnesses and his medical history is clear. He avails a life assurance policy, with a sum assured of Rs 1 crore. Ramesh passes away at the age of 75. His family is paid the sum assured of Rs 1 crore.

When to Use Whole Life/Life Assurance?

Saving money to build a corpus is a time-tested method to plan your future. This method is definitely useful in creating wealth, albeit, in the long run. What if, life has some other plans for you? Risks to life and health do not come with advance notification.

  • Life insurance is the most reliable way to mitigate risks and financially safeguard your family irrespective of when the almighty comes calling. The family can still sustain and children can continue education as you had planned and envisioned.
  • Whole life policies go one step further. They cover the risk of financial loss so that your family does not struggle for money. At the same time, it covers you for life, implying, that your nominee/spouse/child will get the sum assured whenever you pass away. Even if they are not facing any hardships then, they will get a lumpsum amount from the life assurance plan. It is a kind of legacy that you leave behind. So, life assurance is also a type of saving, albeit, a smart one.

Life Insurance Policies by Canara HSBC Life Insurance

Canara HSBC Life Insurance offers the iSelect Smart360 Term Plan. The plan offers features which combine the benefits of term life insurance and whole life insurance:

- Lifetime cover with a policy term of up to 99 years of age
- Terminal Illness benefit with immediate payment of sum assured upon diagnosis of covered illnesses
- Critical illness and accidental death and disability (Accidental total and permanent disability) cover
- Premium protection benefit in the case of critical illness or accidental total and permanent disability.

iSelect Smart360 Term Plan | Features of iSelect Smart360 Term Plan

You can also choose other features to help you maintain an adequate life cover without having to buy a new term life cover. Apart from this the plan also gives you the option to cover your homemaker or employed spouse under the same plan.

Also Read - Online Term Insurance

When to Use a Life Insurance?

Term life insurance is ideal if you are exploring insurance coverage only for a specific period.

  • Let’s say you are 40 and have a 10-year-old child. You want an “income-replacement” risk cover until your child grows up and starts earning on his/her own. A 15-20-year term policy should be sufficient because your child would be 25-30 years of age by then.
  • Term insurance plans are more affordable as compared to whole-life plans. If you cannot invest in higher premiums, you can buy a term plan.

Click here to use - Term Insurance Premium Calculator

If you are the sole income earner in your family, your untimely demise can bring your family to a standstill.

A life insurance policy can come to their rescue so that they do not face any hardships. Your timely contribution in the form of a premium can play an important role in your family’s well-being forever.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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