Insurance vs Assurance: Understanding the Differences

Insurance and assurance are similar concepts, in that they both protect you from major financial losses in case of unexpected events or accidents. However, the two concepts differ in their scope and in the length of coverage they provide. In simple terms, insurance provides financial protection against unexpected events for a set period of time. On the other hand, assurance financially protects your loved ones in case of your untimely death for the entirety of your life, meaning that a payout is assured no matter how many years pass by.

The Basics of Insurance

Insurance policies are short-term financial contracts that offer you financial protection in exchange for a modest premium. You pay the insurance company, and they ensure that you do not face any financial trouble in case of an unexpected crisis. You can get a general insurance plan for your car, house, appliances etc. Any asset that is vulnerable to damage can be insured. If your asset is damaged or lost during the course of your insurance policy term, then you will receive a sum insured to cover for your losses.

If you want to protect your loved ones against financial hardship in your absence, then you can get a term insurance plan. Term plans are life insurance plans that offer life cover for a predetermined time period. Whether it be life insurance or general insurance, any plan that only provides coverage for a limited time is considered to be an ‘insurance plan’.

Key Features of Insurance

• Short-term or for a set period of time
• Covers against unexpected losses, depending on the type of insurance purchased
• Low entry cost
• Can be renewed

The Basics of Assurance

Assurance is a financial contract where you receive coverage for the rest of your life. Generally, only ‘whole life insurance’ plans fall into this category.

Assurance plans are ideal for those who want permanent life cover. While term insurance plans may be more affordable, they usually have a set policy term that cannot be extended. This means that your family is unsecure when your term plan comes to an end. Moreover, term plans generally don’t have any other benefits besides pure life cover.

Assurance plans offer lifelong cover while also providing other benefits such as savings, guaranteed returns, or cash bonuses. Assurance is an indispensable asset for those who have multiple loved ones who are dependent on their income for a secure lifestyle.

Other than whole life insurance plans, certain critical illness plans may also come under the umbrella of assurance. A critical illness is a disease of health condition that is debilitating, preventing you from functioning normally. If you are diagnosed with a critical illness, it is unlikely that you will be able to continue with your normal working schedule. Critical illness plans not only help you with the medical costs of treatment, but they also offer a sum assured to cover for the loss of your income.

If you want a permanent plan that can not only act as a safety net for your family but also as a long-term savings scheme, then opt for an assurance plan.

Key Features of Assurance

• Life cover for the entirety of your remaining life span
• Permanent once premium paying term ends
• Can come with a host of other benefits, including maturity returns or regular income

Examples of Insurance & Assurance

Let’s assume that a person named Raj recently got married and purchased a new house. To safeguard his finances in case of any damage to his new home, Raj should purchase a home insurance plan. Home insurance is paid out in case of any structural damage to your property, which allows you to recoup the losses you will incur during renovation. Home insurance or property insurance is an example of general insurance.

Moreover, as Raj is now married, his wife will be dependent on his income for a healthy standard of living. Plus, Raj and his wife plan to have children soon. This means that if Raj unexpectedly passes away, his wife could face serious financial hardship in his absence. To avoid such a crisis, Raj should purchase a life insurance/assurance plan. An assurance plan will ensure that Raj’s wife get’s a sum assured as compensation in the unfortunate event of Raj’s death. This sum assured will let her continue to maintain her standard of living and avoid any financial crisis due to outstanding loans etc.

Conclusion

Both insurance and assurance are important assets that safeguard you or loved ones from financial hardship. General insurance is a must have when you purchase expensive assets such as a new house or car. Moreover, general health insurance is pretty much indispensable nowadays due to the rising cost of medical care. On the other hand, a permanent assurance plan can guarantee the financial security of your loved ones, even when you’re gone. Assurance is certainly important for those who have multiple financial dependents who depend on their income for security and a healthy lifestyle.

 

Aastha Mestry - Portfolio Manager 

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.