So, what is life assurance and why do people buy it? For that matter, what is the difference between life insurance and life assurance? The answers to these and many more questions can be found once we understand a little more of how things work.
Insurance is designed to provide compensation should you suffer a financial loss as a result of a given circumstance.
For the purposes of these articles, I will focus on life insurance.
A few hundred years ago, a form of gambling was prevalent whereby one person 'bet' that another (usually famous) person would die within a given time frame.
It does not take too much imagination to predict a dramatic increase in unexplained deaths if this practice were to be allowed to continue unchecked.
For that reason, laws were introduced that forbade a person from benefiting from a life insurance policy unless they suffered a financial loss on the death of the insured person.
The maximum insurance that could be paid out was limited to the loss incurred.
These laws, fell under the general heading of 'Insurable Interest'.
Since their introduction a few centuries ago, these laws remain virtually untouched today, with only a few amendments due to the Inland Revenue.
In the family home, a spouse is deemed to have an unlimited insurable interest on the life of their partner, as far as the law is concerned.
However, insurance companies would question a life assurance quote for an amount of cover that they would deem to be excessive.
We will look into these amounts in later articles, when considering how much life cover someone should have.
The marketplace for the life insurance industry was being formed and generally split into three areas.
The first being 'Family Protection', whereby a breadwinner wanted to provide their dependents with cash to cover expenses and replace their earnings should they die.
The second can be broadly termed 'Business Assurance' whereby an insurance policy is used to provide cash to a company on the death of a 'keyman' or 'key person'.
The calculation of insurable interest in these cases needs to follow defined rules and regulations to determine the appropriate amount of life cover.
The third is 'Liability Protection' designed to repay a loan or debt on death, rather than pass it down to the estate and dependents.
Inheritance tax planning and mortgage protection may use this type.
So, we now have the marketplace but what of the products to be sold? It is here where the difference between the life insurance and life assurance becomes clearer.
There are three main headings for life cover policies; Term, Whole of Life and Endowment.
With basic Term cover, the plan has a start date and an end date.
If the insured dies between those dates and premiums have been paid when due, the life insurance benefit will be paid out.
The life insurance company gives the policyholders that "assurance".
With Whole of Life, there is a start date but the end date is the earlier of the insured's death or when premiums have been stopped by the policyholder.
The insurance company gives an assurance that the life cover will be paid out on death of the insured as long as premiums are being paid.
Life assurance cover therefore lasts for the whole of the insured's life.
Endowment policies are more akin to a savings plan than an insurance policy.
They have a start date and an end date, with the insurance company giving an assurance that provided premiums have been maintained, they will pay out an amount of benefit at the end of the plan or if the life assured dies during the term.
In the next article, we will understand a little more about these various types of life assurance plans available and how life assurance rates are calculated by the life insurance company.
Life assurance quotes offered by Independent Financial Advisers, Mortgage Brokers and online quotes from Insurance companies will often be very different.
It helps to understand why this is true.