Life Assurance vs Life Insurance: What's the difference?
It’s easy to think that life assurance and life insurance are the same thing. They certainly sound very similar and are sometimes used interchangeably. But there are key differences between the two types of product, which are useful to know so that you buy the right cover. In this guide we’ll explain these differences and how each one works. This should give you a clear understanding of the differences between life assurance and life insurance.
What is Life Assurance and Life Insurance?
In a nutshell, both types of insurance pay out on death. Life assurance pays out when you die – whenever that may be. Life insurance pays out if you die during the time the plan is in place.
Life Insurance (Term Cover)
Life insurance gives your loved ones a cash lump sum when you pass away or if you’re diagnosed with a terminal illness. They can use the money for anything, like paying off a mortgage and funeral costs.
Life insurance is used as shorthand for term life insurance. Term life insurance covers you for a chosen number of years, which is called the ‘term’ of the policy.
If you die within your chosen time frame, say 25 years, then your beneficiaries will receive a cash lump sum. If you die after the 25 years have expired, then they won’t receive anything.
There are different types of term life insurance. For example, decreasing term insurance can be used to cover the cost of paying off a repayment mortgage. The amount of cover decreases as you pay off your mortgage. Level term insurance pays out the same amount for the duration of the plan. And with increasing term insurance the cover amount rises each year in line with inflation. This helps your cover keep track of the cost of living.
Learn more: Term life insurance explained
Life Assurance (Whole Of Life Cover)
Life assurance also gives your loved ones a cash lump sum when you pass away.
When you die, the payout goes to your beneficiaries. This type of insurance is often used to help pay an inheritance tax bill, so the cost doesn’t need to come out of your estate. Or some people use it to cover funeral costs.
Life assurance is guaranteed to pay out as long as you keep paying your premiums. Whole of life insurance and over 50s life insurance are both types of life assurance.
Learn more: Whole of life insurance explained
What's the difference between Life Assurance and Life Insurance?
Comparing life assurance vs insurance:
| Life Assurance | Life Insurance | |
|---|---|---|
| What it does | Pays a tax-free lump sum when you die. | Pays a tax-free lump sum if you die or are diagnosed with a terminal illness while the plan is in place. |
| Purpose | To provide financial security to loved ones. Can be used to pay an inheritance tax bill as well. | To provide financial security to loved ones. |
| Types of cover |
|
|
| Length of plan | Lasts for the whole of your life. | You can choose how many years you want the plan in place for. |
| Age limit | Can be bought up to age 85. | Can be bought up to age 75. |
| Cost | Monthly premiums will probably be higher as the payout is guaranteed. | Cover from as little as £5.00 per month. |
| Suitable for |
|
|
Should I choose Life Assurance or Life Insurance?
When looking at life insurance vs life assurance, think about what you need the payout for.
Both policies are designed to pay out when you die. But life insurance has an end date, whereas life assurance runs for the rest of your life.
This makes life insurance useful for paying off debts that also have an end date, such as a mortgage or large loan. There are a range of life insurance policies tailored to the type of mortgage you have. Repayment mortgages can be covered by decreasing term insurance. Interest only mortgages by level term insurance.
Raising a family can be very expensive. Providing for your children if you die is one way to make sure they’re financially secure. It’s particularly important if you earn more than your partner or are a sole parent. A life insurance payout can help to:
- pay for day-to-day living expenses
- cover education costs
- maintain your family’s standard of living
- supplement a lack of savings.
As life assurance runs for the rest of your life and is guaranteed to pay out, you know for certain your loved ones will receive a cash payout. This makes it useful for paying bills incurred when you die, like inheritance tax and funeral costs.
Any payments to your beneficiaries from life insurance or assurance will not be taxed for income or capital gains. However, unless the policy is in trust, the payout will become part of your estate and may be liable for inheritance tax.
If you think you’ll need to pay inheritance tax on your estate when you die, you can take out a life assurance policy in trust to cover the tax bill. The policy sits outside of your estate, so is not subject to probate and can be paid quickly. This means the people looking after your estate can settle your inheritance tax bill.
Life insurance premiums tend to be cheaper than life assurance premiums because the cover has an end date. It pays out only whilst the policy is up and running. Once it comes to an end, the cover stops.
Because life assurance always pays out, the premiums can be more expensive. And you’ll need to keep paying them until you die. Although some providers cap payments at a certain age or after a set number of years, but allow your cover to continue until you die.
So, there are a few things to consider when deciding whether life assurance or life insurance is right for you. If you’re undecided about what to do, speak to your insurance adviser, or one of our team at Vitality.
Key takeaways
- Life assurance and life insurance sound very similar and are sometimes used interchangeably. But there are key differences between the two types of product.
- The main difference is that with life insurance, you can choose how long the cover is in place for. With life assurance, cover is in place for the rest of your life.
- So, with life insurance, you’ll receive a payout if you die during the term of the plan. With life assurance you’re guaranteed a payout whenever you die.
- With life insurance, if you take out a 30 year life insurance plan when you’re 30 and die when you’re 55, your family will receive a payout. If you die when you’re 65, they won’t. But if you take out a life assurance plan when you’re 30, and die at 65, your family will receive a lump sum.
- Life insurance premiums tend to be cheaper than life assurance premiums because the cover has an end date. Because life assurance always pays out, the premiums can be more expensive.
- Take time to look carefully at the differences between the two insurance types. And read the terms and conditions before you commit to buying either.
Related: The benefits of life insurance
Vitality life insurance
Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:
- A brand you can trust - In 2024, we paid out 98.9% of all Life Cover claims.*
- Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
- Access to Vitality partner discounts and rewards.
- Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
You're not alone in choosing Vitality. Over 2 million lives in the UK are now covered by our insurance, and we’re here to support you too.
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*VitalityLife Claims and Shared Value Report 2025
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Pays out to your loved ones if you die or become terminally ill.
