Difference Between Insurance and Assurance

Posted on: Aug 11, 2023 | 3 mins | Written by: HDFC ERGO Team

Difference Between Insurance and Assurance

Insurance vs. Assurance: Understanding the Difference

In the insurance industry, the terms "insurance" and "assurance" are frequently used to describe the provision of financial aid to policyholders after a claim is accepted. While these terms may seem interchangeable, it is important to understand that there are significant differences between insurance and assurance. By grasping the distinctions, individuals can make more informed decisions when selecting coverage that suits their needs. If you are wondering what is the difference between insurance and assurance, we will tell you in this article.

What is insurance?

Insurance is an agreement between the insurance company and an individual (insured). The insurer agrees to provide financial coverage to the policyholder for any expenses or losses incurred in an unforeseen event, such as illness and accidents. The insured pays a certain amount as a premium in exchange for the compensation. The compensation the insurance company pays is usually equal to or less than the expenses/losses incurred. All insurance policies have a sum insured, that is, the maximum amount that you can claim. Also, an insurance policy has a fixed tenure. To stay covered, you have to renew the policy before its expiry. If you don’t pay the premium on time, the policy will lapse, and any loss/expenses during this period will not get covered by insurance.

Here’s an example to help you understand.

Five years after purchasing a health insurance plan, Rohini met with an accident, leaving her severely injured. She had to undergo surgery, which cost INR 4.5 lakh. As the sum insured of her healthcare plan was INR 6 lakh, her insurer reimbursed the medical expenses except the deductibles and other exclusions, if any. She could not have claimed the expenses if she had not renewed the policy on time.

What is assurance?

Assurance is a type of insurance used in the context of life and term insurance policies. In assurance, the policyholder is assured compensation of a predetermined amount in case of eventualities like death or disability. If you live through the maturity period, you will have two options — receiving the amount as a monthly pension or as a lump sum amount. Compared to general insurance policies, these policies have a longer duration.

Here’s an example to help you understand.

Shivam bought a life insurance policy of INR 25 lakh for a tenure of 30 years. There are 2 options – if Shivam survives the policy tenure of 30 years, he will receive the maturity amount. If he dies during the policy term, the nominee will get the assured sum of INR 25 lakh.

Key differences between insurance and assurance

To provide a clearer understanding of the differences between insurance and assurance, let’s examine them in a tabular form:

	Insurance	Assurance
Objectives	Insurance aims to provide compensation for specific losses or risks.	Assurance focuses on offering financial protection over a lifetime or a specific period.
Type	Insurance is risk-based, covering events that may lead to losses.	Assurance is savings-based, offering a means of accumulating funds over time.
Scope of Coverage	Insurance has limited coverage, typically specified by events/risks.	Assurance provides coverage for a lifetime or a specific situation like death, disability, etc.
Renewability	Insurance policies are often renewable for a fixed term.	Assurance policies are usually non-renewable.
Claim Payment	Insurance provides compensation when the specified risk occurs.	Assurance pays out upon policy maturity, regardless of risk occurrence or when a pre-condition is met.
Number of Claims	Insurance policies usually allow for multiple claims.	Assurance policies generally allow for a single claim or payout.

Choosing between insurance and assurance

While both insurance and assurance are important, you must choose one depending on your investment requirements.

• Insurance:

If you are looking for financial security against specific events, you can opt for an insurance policy. For example, if you want to secure your health and finances during medical emergencies and planned hospitalisations, you can opt for a health insurance policy. Similarly, if you want to secure the financial future of your loved ones in case of your untimely demise, term life insurance is a good option.

Insurance policies do not offer a definite payout to the insured. Thus, you will receive financial compensation only if the specified events occur. For example, if you survive the term of your life insurance policy, you will not receive any benefit from the insurer.

• Assurance:

This is a good option to secure the financial future of your family. In the event of your demise, the insurer will give a lump sum to your dependents. They can use this amount for their day-to-day expenses, pay loans, etc. A life assurance policy does not have a definite tenure. It stays active till you survive, provided you pay the policy premiums on time. However, some policies, such as endowment plans, offer a guaranteed payout or maturity benefit if the policyholder survives the policy term.

Conclusion

Both insurance and assurance provide financial compensation, but they are different in many ways, as mentioned above. Hope you have got a clear understanding of insurance vs assurance to help you understand what each plan offers. Sign up for the one that meets your requirements. You can also buy both insurance and assurance plans for added protection. Buying the best health insurance will shield your finances against unexpected medical expenses. Choose the right options and shield yourself and your loved ones from unanticipated life-changing circumstances.

FAQs

1. What is the difference between life insurance and life assurance?

Life insurance offers coverage to the policyholder for a specific term, such as 10 to 30 years. If the policyholder dies before the completion of the policy term, the insurer will pay a death benefit to the policyholder’s beneficiaries. If the policyholder outlives the life insurance plan, he/she will not receive any benefit.

On the other hand, life assurance comes without a definite tenure, and the policy stays active till the policyholder survives, provided he/she pays the premiums on time. The beneficiaries receive a death benefit, and the policy ceases to exist. However, endowment is a type of assurance policy that comes with a predetermined tenure. The policyholder or his/her loved ones receive the maturity benefits once the policy tenure ends.

2. Should I choose insurance or assurance?

The choice between insurance and assurance depends on your specific needs. If you are looking to secure your family’s financial future in the event of your untimely demise, you can choose a term life insurance policy. Insurance companies also offer protection against unforeseen events related to health, home, vehicle, etc.

If you want to ensure financial protection for your loved ones after your demise, life assurance is a good option. The policy has no definite term, so the beneficiaries will receive the maturity benefit whenever the policyholder dies.

3. How to choose the right insurance or assurance policy?

Before you zero in on an insurance or assurance policy, it is important to identify your needs and compare different plans. Insurance companies also offer add-ons or riders with these insurance products, so make sure you check those as well and make an informed purchase decision.

4. Is health insurance a type of insurance?

Yes, health insurance is a type of insurance that covers the medical bills of the policyholders. A comprehensive health insurance policy offers coverage against many healthcare expenses, such as hospital bills, home healthcare, daycare procedures, and organ donor expenses. If you want to cover yourself under this healthcare plan, you can opt for an individual health insurance policy. Insurance companies also offer family health insurance, senior citizen’s health plans, critical illness insurance, and many other products to suit different customer requirements. Hence, make sure you check the available options before zeroing in on one.

5. What if the policyholder outlives the term life insurance plan?

If the policyholder survives the term life insurance plan, he/she will not receive any payout or benefit from the insurance company.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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