Understanding the Difference between Insurance and Assurance
When planning for your financial future, one of the crucial decisions you’ll have to make is securing your financial well-being in the event of misfortune. Two commonly used terms in the financial industry are insurance and assurance. While they may sound alike, they’re designed to meet different needs in terms of covering financial risks.
The Definition of Insurance
Insurance refers to a contract between the insurer, who is usually an insurance company, and the policyholder, who is normally an individual or organization who has agreed to pay a regular premium. In exchange for the premium, the insurer agrees to provide a specified amount of financial protection to the policyholder if the insured event happens. The insured event could be a natural disaster, accident, theft, or illness that requires medical treatment.
In a case where the insured event occurs, the policyholder submits a claim to the insurer to access the agreed-upon financial protection. Insurance, therefore, transfers the financial burden of the insured event from the policyholder to the insurer.
The Definition of Assurance
Assurance, also known as life assurance, is a type of life insurance policy that provides a payout to the beneficiaries after the policyholder dies. Unlike insurance, which pays out only in case of an insured event, assurance provides a guarantee of a lump sum payout, regardless of when the policyholder dies. Assurance policies typically require the policyholder to pay regular premiums over an extended period.
The fundamental difference between insurance and assurance is that insurance protects against a specific event occurring, whereas assurance provides a guarantee of a lump sum payout to beneficiaries upon the policyholder’s death.
Summary
In summary, insurance and assurance are two essential tools in managing financial risks. While insurance helps reduce the financial impact of adverse events, assurance provides a guarantee of a lump sum payout upon the policyholder’s death. Knowing the difference between the two terms can help you choose the appropriate financial product that meets your insurance or assurance needs.
Table difference between insurance and assurance
| Insurance | Assurance |
|---|---|
| Protection against risk or loss | Guarantee or promise to provide support or help |
| Guarding against potential harm or damage | Ensuring confidence, trust and peace of mind |
| Insured pays regular premiums for coverage | Assured pays a lump sum for a certain level of security |
| Focuses on protection from unforeseen events | Focuses on providing certainty and assurance for the future |
| Examples: car insurance, health insurance, life insurance | Examples: quality assurance, satisfaction assurance, financial assurance |