Term life insurance is considered “pure insurance.” This means that it defines a specific time period during which it will pay its death benefit.
If the insured person dies during that period, the insurance pays off. If he is still alive at the end of the term, the insurance company pays nothing. In this way, it operates just as automotive and liability insurance do.
Features of Life Assurance
Life assurance covers the insured person for his entire life, paying out the death benefit no matter when the insured person dies. In addition, each payment made on a life assurance policy adds an amount of cash value to the policy. When the cash value of the policy equals the death benefit, that policy is said to have “matured,” and no further payments are required.
Advantages of Term Life Insurance
The advantage of term life insurance lies in its price. Because of its limited time frame and lack of cash value, term insurance is very inexpensive. This means you can buy more insurance coverage or you can buy a reasonably sized policy for a low rate. Financial guru Dave Ramsey advises buying a 20- to 30-year term life policy and depositing the price difference into a savings account or money market fund. By the end of the insurance term, that account will have grown such that you no longer need life insurance.
Advantages of Life Assurance
Life assurance covers the insured for her entire life, thus guaranteeing something to leave to future generations. The cash value of a life assurance policy also creates a degree of flexibility. At any time, the policyholder can choose to leverage the cash value of the policy. She can cash out the policy or borrow from the cash value. A cashed out policy ceases to be in effect, but the policyholder gets the entire cash value. A policy with a loan attached continues to be fully in effect. If the insured person dies with the loan outstanding, the value of the loan is deducted from the death benefit. A final option with life assurance policies is taking a paid-up benefit. This means the policyholder stops making payments but does not cash out the account, resulting in a reduced death benefit when the insured individual dies.
Buying Life Assurance/Insurance
Choosing whether to buy life assurance or life insurance is a personal matter based on your priorities and financial goals. Whichever you buy, take into account multiple policy discounts and group discounts. Multiple policy discounts are a standard insurance practice by which an insurance company gives discounts to customers who take out more than one policy with them. This means your life insurance may be cheaper if you buy it from the people who insure your car and home. Group discounts apply to anybody who buys insurance through membership in a group, such as an employer, labor union or hobby group. Because the group negotiated as a unit, group insurance prices are almost always better than individual rates.