Insurance and Assurance are two words in close proximity used in the financial sector. They are used to stipulate financial coverage. It is associated with the protection of people’s valuables and lives. Although they are similar kinds of words their usage is different in the financial domain. This article will help you to understand the main differences between Insurance and Assurance. For that, first, we have to understand what Insurance and Assurance means.
What is Insurance
Insurance is an official agreement or contract between two parties. One of them is the client and the other is the insurance company.
We know how hard it is to buy a house or motor vehicle. So if it gets damaged due to some uncertain events it will be hard for an individual to replace it. That’s why people insure their properties or their vehicles where the insurance company agrees to insure their belongings for an agreed sum of money to be given to them for a certain period of time. Specifically for one year.
If their property gets damaged by then, then the insurance company will pay the client for their losses. Otherwise, the sum that they have paid will lapse. You have to renew the contract for another year to be able to enjoy the facility.
A Few Types of Insurance
#1: House Insurance:
A person usually buys his house taking a loan from the bank as buying a house is a costly affair. Bank will hold your documents until the loan is paid. So buying a house insurance policy protects the bank as well as the individual who is buying it.
#2: Car Insurance:
Buying a car is also a dream for every individual. It is mandatory to buy car insurance at the time of purchase. If the car gets damaged due to an accident the insurance company will pay for the damage that is done.
#3: Health Insurance:
People often buy health insurance. So that if they get sick the insurance company will pay their hospital bills according to the sum insured by the client. If they don’t get sick then the money lapses and you have to renew it in the next financial term.
There are other types of insurance also like Fire insurance, Theft insurance where you can claim your damages or losses from the Insurance Company. You can insure old artifacts and paintings which have historical value.
What is Assurance
It is an agreement or contract where the insurer covers an event that is going to take place sooner or later. Life Insurance is a kind of assurance. Some companies offering assurance policies are Allianz Life, AIG, etc.
It is more like an investment where the value increases as the bonuses add up. There is a date of maturity where you can get your money back. The policy can be canceled at any point in time and you are eligible to get your investments back by paying some penalty for it.
Assurance gives a person a sense of security that if anything happens to him his family will get the sum that is insured. It gives the person a kind of mental peace so that he can enjoy his life to the fullest without constantly thinking about his future actions.
Types of Assurance
#1: Whole Life insurance:
This type of assurance policy usually covers the total life span of the insured person. It matures at the time of the person’s death. The duration of the policy is determined by the life span of that person.
#2: Term Life Insurance:
In Term Life insurance you have to deposit a certain amount of money in a financial year. The sum is determined by the maturity of the policy.
When the sum that is insured is disbursed in installments rather than one-time payment is called an annuity.
It is a type of insurance where you pay a regular amount of money for a specific period of time. And after your death, the insurance company will pay the beneficiary the sum that you have saved with an added bonus. In this kind of policy, the sum to be paid is not fixed.
Here are the Differences Between Insurance and Assurance
Key differences between Insurance and Assurance are:
- Insurance is done to reinstate the insured property to its original position whereas in assurance the sum is paid when the event takes place.
- Also, insurance is usually taken to prevent a risk on the other hand assurance is taken whose occurrence is inevitable.
- Insurance is based on indemnity but the assurance is based on certainty.
- In insurance, there is no added bonus but in assurance, there is an added bonus.
- Insurance is usually short term (maximum 1 year) but the assurance is a long term process.
- And, insurance is a general insurance policy while assurance is a life insurance policy.
- Insurance is an annual commitment and it is renewable but the assurance is a long term commitment.
- You cannot stop your insurance but in assurance, you can always stop your policy and get your deposited sum by paying penalty.
The difference shown makes it clear that although insurance and assurance are two tools used in the financial domain and sold by Insurance companies. There is a basic difference between them. In fact, they work on different principals and offer different benefits.
Insurance and assurance make our lives easier. They have become an integral part of our modern-day life. In case of an accident, insurance will cover your damages. While in the case of death, life insurance will certainly help your family. But an uninsured person’s life is full of uncertainty. His financial position can get ruined at any point in time. So it is better for you to get insured and live your life to the fullest rather than worrying all the time. It is always better to consult with a financial advisor before you take any policy as he can guide you on the perfect path which will help you to prosper in life.
If you find this article informative do share it with your other friends who want to know about it. In case you want to know more about the differences between insurance and assurance feel free to contact us.