How does life assurance work?

Buying life insurance is a big commitment, therefore it’s best to learn about the options available. Life assurance is a popular alternative to a standard life insurance policy, but how do they differ? 

In this article, we’ll help you understand all there is to know about life assurance and why you might need it.

What is life assurance?

Life assurance (also known as whole life insurance) is a form of life cover providing financial protection for your family in the event of your death. Unlike a standard term life policy, life assurance covers you permanently, with no expiry date. 

When you die, your insurer pays out a lump sum payment to your loved ones, to support them during this difficult time. Life assurance is typically more expensive than life insurance due to its guaranteed payout. 

Once you’ve taken out a life assurance policy, you start paying monthly premiums to your insurer. If you fail to keep up with these payments, your provider may end your cover. In this case, you won’t be reimbursed for any of the premiums paid up to this point.

Do I need life assurance?

None of us wants to leave our loved ones in a vulnerable financial position when we die. Therefore, if your family depends on you financially, then you will likely require life assurance.

The pay-out from life assurance is generally considered tax-free if the overall value of your estate is below the inheritance tax threshold (£325,000 - as of the 2021/2022 Tax Year). Some individuals who are concerned that their policy could be affected by inheritance tax consider writing their policy intro trust - for more information regarding what this means please see our writing your policy in trust page. 

What's the difference between life assurance and life insurance?

Though they both share the same goal - protecting your family financially, life insurance and life assurance have several differences. For starters, life insurance policies typically work on a term basis. Unlike life assurance, life insurance covers you for a set period of time rather than indefinitely, therefore your family can only claim if you die within the policy term. 

Here are the main features of these cover types:

Life assurance:

• Premiums are usually high

• Your family is assured of pay-out when you die (so long as you keep paying your premiums).

• Can be used in estate planning

Life insurance:

• Premiums are generally cheaper

• Your cover has an expiry date (i.e. a fixed policy term)

• Your family only receive a pay-out if you die within the policy term

Types of life assurance

There are two types of life assurance - standard & unit linked cover.

Standard whole of life insurance - This is the version of whole life cover that Cavendish Online offers. This product has no investment value, you simply pick how much you would like to be assured for and pay your monthly premiums. This is the simplest form of whole life cover. Your premiums can be guaranteed or reviewable, so discuss your preference with an adviser first. 

To talk to a Cavendish Online adviser about whole of life cover, please call us on:

01392 436193

Unit linked cover - This is an investment based product where part of your premium goes towards insuring your life, and part is invested. Unfortunately, Cavendish Online is not authorised to discuss this product with you.

It’s also worth noting that over 50s life insurance can sometimes fall under life assurance. For more information please see our guide on life insurance for over 50s.

Types of life insurance 

There are 3 types of term life insurance:

• Standard term cover - Both your premiums and pay-out value are fixed throughout the length of your policy.
   

• Decreasing term cover - This level of cover is taken out alongside large payments that your family would struggle to pay off alone such as a mortgage. Your payout value decreases over time as you make repayments on the amount owed.
   

• Increasing term cover - The payout increases overtime to protect its value from inflation. The downside of increasing cover is that your premiums also rise.

How much does life assurance cost?

While life assurance can be expensive, the permanent cover it offers provides your family with peace of mind. The cost of your life assurance policy generally depends on the amount of cover you take out.

The higher the pay-out value of your policy, the more expensive your premiums will be.  Therefore, it’s best to assess your family’s finances before you take out life cover. This way you can avoid taking out more cover than your family needs, saving you money on premiums.

Can I get cover for more than one person?

Joint life assurance allows two people to share cover under a single policy.  Many couples opt for a joint policy as it can often work out cheaper and easier to manage than individual policies. 

For more information on joint life cover, please read our article - How does joint life insurance work?

Is life assurance tax-free?

The pay-out from life assurance is generally considered tax-free if the overall value of your estate is below the inheritance tax threshold (£325,000 - as of the 2023/2024 Tax Year).

Some individuals who are concerned that their policy could be affected by inheritance tax consider writing their policy into trust - for more information regarding what this means please see our writing your policy in trust page.

How can Cavendish Online help?

With Cavendish online, you could get a policy in as little as 30 minutes! It doesn't matter what stage of life you are in, or your financial situation. So why wait? Take advantage of our cover options and protect your loved ones now.

We provide 3 routes for getting cover:

Apply online:

For the cheapest life insurance, use our online quotation tools to get a quote. Quotation tools are great for people who want to save money, have very few disclosures and know exactly what type, duration and level of cover they want.

Please note that at present you can only quote and apply for term-based life insurance products on the Cavendish Online website. To purchase a whole life or life assurance policy you will need to either apply with guidance or apply with advice.

Our fees

Applying online

When you apply online, you can either pay a one-off £25 fee, in which we take no commission from the Insurer, or you can opt for a ‘no fee’ option. In this case, we receive a small amount of commission from the insurer.

When you select the fee-based option, the fee is due once your policy goes live. If you choose the ‘no fee’ option, Cavendish Online receives a commission from your selected insurance provider only once you have decided to purchase the policy.

Applying over the telephone

When you apply over the telephone through either the Cavendish Online Guidance or Advice services no fee is payable. Instead, if you proceed with a policy we will receive some commission from your chosen product provider for the work that we do. However, we do sacrifice a proportion of this commission to bring costs down for you.

For information please get in touch as we will be more than happy to help.