Insurance vs Assurance: Key Differences Explained for Better Understanding

When it comes to buying an insurance policy, many prefer to reach out to an insurance agent or a middleman. This is because insurance documents are riddled with jargon making it confusing for a layman to grasp it quickly. Two such terms are ‘insurance’ and ‘assurance’ which are commonly found in insurance policies depending on the policy you are looking at. If you are someone wanting to know how they differ from each other, continue reading to know more: Insurance and assurance are two terms that are often used interchangeably in life and general insurance policies, but they actually have different meanings. While both offer some form of protection against financial loss, they differ in their scope and purpose.

What is the meaning of Insurance?

Insurance is a contract between an individual and an insurance company that provides financial compensation for unexpected events, such as accidents, illness, or damage to property. In exchange for regular payments of premiums, the insurance company agrees to cover the cost of any losses incurred by the policyholder. The compensation paid by the insurance company is usually equal to the amount of the monetary loss. Further, insurance plans have a specified validity during which the company offers coverage. *

To explain it with an example

Mr Rajesh purchased a new car. With its registration came the requirement of a car insurance policy, a form of general insurance coverage. To ensure compliance with the law, he intended on buying a third-party policy. However, the dealer convinced him that a third-party plan is not sufficient to safeguard against damages to his vehicle. That’s when Mr Rajesh decided to opt for a comprehensive car insurance policy that offers own-damage cover along with the minimum required third-party coverage. In addition, personal accident cover ensures financial coverage for injuries and death to him. Being a broader insurance coverage, there also is an option to enhance it using add-ons. While car insurance is one example to explain the term insurance, there are also other insurance plans such as travel insurance , property insurance, crop insurance, and more.

What is the meaning of Assurance?

Assurance, on the other hand, is a type of insurance that provides protection against a certain event that is certain to occur, such as death or disability. Unlike insurance, assurance policies do not have an expiration date, or if they do, are valid for a long period. Insurance policies that provide assurance, typically, require regular payments over a longer period of time. The policyholder or their dependents are the beneficiaries of the pay-out paid by the insurance company. *

To explain it with an example

Mr Kamlesh purchased a term insurance plan for himself. Since a term insurance policy provides pay-out only on the demise of the policyholder, it is a guaranteed payment for his dependents during the policy’s tenure. For other types of life insurance plans, there are also maturity benefits, such as an endowment policy, where the policyholder can take the benefit of the maturity proceeds. Another example of a policy that has assurance is a critical illness health insurance plan that pays compensation to the policyholder on the diagnosis of specified ailments. One way to understand the difference between insurance and assurance is to think of insurance as protection against risks that might happen in the future, while assurance is protection against events that are inevitable. It is important to note that the terms insurance and assurance can vary in meaning depending on the country and the industry. In some countries, for example, the terms are used interchangeably, while in others they are used to describe different types of policies. Therefore, it is essential to read the terms and conditions of any insurance or assurance policy carefully to fully understand the coverage and benefits provided.

Difference Between Insurance and Assurance

As described above, insurance is mostly associated with general insurance policies such as health insurance, travel insurance, bike insurance or car insurance, while assurance is used with life insurance policies. Here’s a table that enlists the differences:

Aspect	Insurance	Assurance
Objective	The objective of insurance is to compensate for the loss incurred such as theft, accidents, fires, floods, etc.	Its objective is to provide monetary support to a future certain event such as the death of the policyholder.
Claim Amount	The claim amount for plans with insurance is approximately equal to the loss suffered. *	The claim amount for plans with assurance is defined from the start. *
Number of Claims Permitted	Depending on the policy terms, multiple claims are allowed for plans with insurance benefits. *	Only one claim is allowed for plans that offer the assurance benefit. *
What is Insured?	People and property, both are insured under these types of policies. *	Only people are insured under policies that provide assurance benefits. *
Nature of the Risk Covered	Plans with insurance benefits cover risks that are uncertain and unpredictable such as an accident, burglary, theft, natural calamities, etc. *	These plans cover uncertain but predictable risks like the death of a person. *

When to Choose Insurance vs. Assurance

The decision between insurance and assurance should align with your specific needs and financial objectives:

1. Choose Insurance if your goal is to safeguard yourself against potential financial losses, such as property damage, medical expenses, or liability.
2. Choose Assurance (Life Insurance) if your primary focus is securing your loved ones' financial stability in the event of your untimely demise. The guaranteed death benefit from a life insurance policy can help them cover immediate expenses, settle debts, or secure long-term financial goals.

Additional Considerations

1. Age: Younger individuals may benefit from general insurance plans, like health insurance or term life insurance with affordable premiums. As you age and accumulate assets, property insurance or whole life insurance may become more relevant.
2. Financial Dependents: If you have dependents relying on your income, life insurance becomes vital to ensure their financial security in your absence.
3. Financial Goals: Consider your broader financial aspirations. For instance, if wealth creation is a priority, you might explore whole life insurance or endowment plans.

Remember: Insurance and assurance can complement each other. Combining various plans can create a comprehensive financial protection strategy tailored to your needs.

Beyond Terminology: Choosing the Right Plan

After understanding the distinction between insurance and assurance, the next step is to select a plan that fits your requirements. Here are some tips to guide you:

1. Identify Your Needs: Assess your financial situation, responsibilities, and future goals to determine whether insurance or assurance (life insurance) best addresses your priorities.
2. Compare Plans: Research and compare offerings from different insurance providers. Pay close attention to coverage details, premiums, exclusions, and claim settlement processes.
3. Consider Riders: Many term insurance plans offer optional add-ons, such as accidental death benefits or premium waivers. Evaluate whether these riders enhance your coverage.
4. Seek Professional Advice: A financial advisor can provide tailored recommendations based on your unique circumstances, helping you make an informed decision.

Conclusion

Insurance and assurance are terms used in policies to define the payout structure. Understanding the differences between these two can help you make better decisions when choosing a plan.

1. Insurance typically reimburses specific losses and is equivalent to the amount lost. For instance, health insurance plans cover treatment costs.
2. Assurance, on the other hand, guarantees a fixed payout to the policyholder or their beneficiaries, ensuring financial support in critical situations.

While insurance and assurance share similarities, they cater to different financial needs. By combining the two, you can build a robust financial plan that offers protection and peace of mind. * Standard T&C Apply Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.