When it comes to financial planning and security, terms like insurance and assurance are often thrown around. However, not everyone understands the difference between the two. While both of these terms may be used interchangeably by some people, there are several key differences between insurance and assurance, and it is important to understand what those differences are. In this blog post, we will explain the difference between insurance and assurance to help you make more informed decisions when it comes to your financial planning.
What is Insurance?
Insurance is essentially an agreement between the insurer and the policyholder, where the insurer agrees to compensate the policyholder in the event of a specific type of loss or damage that is covered under the policy. In exchange for this coverage, the policyholder pays a premium. Insurance policies can cover a wide range of risks such as automobile accidents, fire damage, theft, and more.
What is Assurance?
Assurance, on the other hand, is a type of financial product that provides a guarantee to the policyholder that a certain amount of money will be paid out upon the occurrence of a specific event. This event could be death, critical illness, or retirement. Assurance policies typically require the policyholder to pay premiums for a specified period of time, and the sum assured will be paid out to the policyholder or their beneficiaries upon the occurrence of the specified event.
Differences between Insurance and Assurance
The key differences between insurance and assurance are as follows:
Purpose: Insurance is designed to provide protection against specific risks, while assurance is designed to provide financial security and peace of mind to policyholders.
Payout: Insurance policies pay out only if a covered loss or damage occurs. Assurance policies, on the other hand, are guaranteed to pay out upon the occurrence of a specific event, such as death or critical illness.
Premiums: Insurance premiums are typically lower than assurance premiums, as the risk of a covered event occurring is lower than the risk of death or critical illness.
Which one do you need?
The type of policy that is right for you will depend on your specific needs and financial goals. If you are looking for protection against specific risks, such as damage to your car or home, then insurance is the right option for you. On the other hand, if you are looking for financial security and peace of mind for yourself and your loved ones, then an assurance policy may be a better fit.
In conclusion, understanding the difference between insurance and assurance is crucial for making informed decisions about your financial planning. While these terms may seem similar, they are two distinct financial products that serve different purposes. Insurance provides protection against specific risks, while assurance provides financial security and peace of mind in the event of certain life events. If you are still unsure about which type of policy is right for you, it is important to speak with a financial advisor who can help you make the best decision for your needs and goals.