April 11, 2018
What is life assurance? Frequently we hear people use the terms ‘insurance’ and ‘assurance’ as if they are synonymous, and yet there are some fundamentally different features that should be grasped before any policy is taken out.
Please understand that there are many different aspects to life insurance or life assurance, and so do not accept the following text as advice. Rather regard this as pure information, as expressed by some individual(s) or organisation(s). Please seek the professional guidance of a registered financial advisor when you are inquiring about life insurance, life assurance, and life cover products.
To be able to understand what life assurance cover is, let us first see what life insurance cover is all about.
According to ‘USwitch,’1 life insurance is a type of cover that protects you for a particular period of time that is specifically chosen by you. This period commonly varies between 10 to 25 years and is often referred to as ‘fixed-term’ life insurance. Life insurance cover is taken out to protect your loved ones from having to face all the financial commitments that a husband or wife would leave behind upon their death.With the breadwinner gone, how will a family be able to financially address all those commitments without the means to do so? The ‘means’ in some cases may be some wealthy grandparents that could step in and save the day. But, in most cases, the ‘means’ refers to a payout by life insurance cover that was triggered by the insured’s death.
Some parents only take out life insurance cover for the time it takes for their children to become qualified and financially independent.
You may have paid premiums for 15 years of financial cover after you bought a life insurance policy, but, if you did not die during those 15 years, then there won’t be a payout. Yes, your beneficiaries were protected during that time. The same applies to car insurance or home insurance – if there were no payouts, it’s because you either did not crash your car or your home wasn’t broken into.
Life assurance cover is not for a fixed period of time (or ‘fixed term’), but is in force until the day you die. Cover may last a few months or even 30 years after you have bought the policy. According to ‘USwitch’,1 this refers to a whole life insurance or permanent insurance. It makes sense that it costs more, because the period could be for quite a long time. The policy ends upon death of the insured, with a guaranteed payout.
This is not always the case from a South African perspective. Some insurance companies provide life assurance as an investment or with an investment component, which is an endowment policy or a life assurance plan linked to investment.Essentially, with life assurance as an investment, you will still enjoy cover until the day you die, but with a guaranteed minimum payout though. The other part of your premium is used for investment purposes by the insurer. The size of the final payout will depend on how well the investment part of the policy fared.