Insurance V/S Assurance

The specific uses of the term "insurance" and "assurance" are sometimes confused. In general, the term insurance refers to providing cover for an event that might happen while assurance is the provision of cover for an event that is certain to happen. When a person insures the contents of their home they do so because of events that might happen (fire, theft, flood, etc.) They hope their home will never be burgled, or burn down, but they want to ensure that they are financially protected if the worst happens. This example of Insurance shows how it is a way of spending a little money to protect against the risk of having to spend a lot of money.

When a person insures their life they do so knowing that one day they will die. Therefore a policy that covers death is assured to make a payment. The policy offers assurance on death; even if the policy has a prescribed termination date the policy is still assured to pay on death and therefore is an assurance policy. Examples include Term Assurance and Whole Life Assurance. An accidental death policy is not assured to pay on death as the life insured may not die through an accident, therefore it is an insurance policy. (This set of distinctions does not really apply to United States jurisdictions where both forms of coverage are called "insurance".)

A policy might also be assured for other reasons. For example an endowment policy is designed to provide a lump sum on maturity. Under certain types of policy the lump sum is guaranteed. Therefore, this may also be called an assurance policy.

The test of whether a policy is assurance or insurance is that with an assurance policy the insured event will definitely occur (at some point) whereas with an insurance policy there is a risk the insured event might occur.

With regard to Whole Life policies, the question is not whether the insured event (in this case death) will occur, but simply when. If the policy has nonforfeiture values (or cash values) then the policy is assured to pay.

During recent years, the distinction between the two terms has become largely blurred. This is principally due to many companies offering both types of policy, and rather than refer to themselves using both insurance and assurance titles, they instead use just one.

What is insurance, and what kinds are there?

Insurance is a means of guaranteeing your financial protection against various risks. There are different kinds of insurance to cover different circumstances. Policies are available for business purposes and for personal needs. Personal insurance is divided into:

Property/Casualty Insurance—Provides protection for property like homes, cars and house-hold possessions, in addition to protection from liability as a result of their use.

Life Insurance—Provides funds to a designated beneficiary or beneficiaries in the event of an insured’s death.

Health Insurance—Pays for costs related to your health (e.g., doctor visits, hospital stays and diagnostic tests). Disability Insurance, a form of insurance that combines elements of life and health insurance, pays you for income lost due to a disabling injury or illness. Life, health and disability insurance are often provided through employers. Ask your employer about these coverages and check with your agent to make sure they meet your needs.

Government Benefits—As a working person, you pay for insurance programs run by the federal government. Social Security is a retirement and disability program in which almost all workers in the U.S. are required to participate. Medicare is the federally-sponsored health program for persons over 65 and individuals with disabilities. Medicaid is jointly funded by the states and the federal government to extend health coverage to poorer Americans. In addition, laws in most states require employers to carry workers compensation insurance so that workers injured or exposed to an illness on the job can receive compensation. Many states also require employers to pay into unemployment insurance, so if a worker is laid off, he or she will receive some money while seeking a new job.

You bet your life: Tips for buying life insurance

10 Tips: How to find the policy that is right for you and your family

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Let’s face it: Life insurance isn’t the most fun subject to dwell on at length or think about during your time away from work.

In fact, most of us don’t want to think about this subject at all. According to the Insurance Information Institute, one-third of all U.S. families with a new baby at home don’t update their life insurance coverage.

advertisementAs unpalatable as the idea of planning for your own death might seem, there are plenty of reasons to look into buying life insurance now – even if you already have a policy.

For one thing, having the right kind of coverage can give you incredible peace of mind. Another detail to consider: Prices have been dropping significantly. The Insurance Information Institute notes that premiums have plummeted 50 percent for standard-risk term insurance since 1994, and they’re expected to drop by another 4 percent this year.

Honestly, how often do you hear about rates dropping for anything these days? The following tips can help you secure good coverage without spending too much.

1. Figure out your needs. You can use online calculators to get a rough idea of how much money it would take to cover your surviving spouse’s expenses until retirement, and/or your children’s expenses until they reach adulthood or finish college. The Life and Health Insurance Foundation for Education offers this calculator. MSN Money offers this one as well.

2. Opt for term life. A term-life policy is the best and simplest option for most Americans ranging in age from about 20 to about 50. Cash-value life insurance can make sense for wealthy people over the age of 60 – but for most people, term insurance is the way to go.

3. Get quotes online. Web sites such as Accuquote.com, FindMyInsurance.com, LifeInsure.com and InsWeb can give you plenty of pricing information fast – although all of it will be subject to a more detailed application process and a medical exam.

4. Get in shape. To improve your risk class, you can take steps such as quitting smoking, losing weight and reducing your cholesterol and blood pressure if they’re high. You also can get that exam before you apply for insurance so you’re not hit with any surprises. In some cases, the changes you make can save you tens of thousands of dollars over the life of a policy.

5. Decide how to buy. You can go it alone and buy insurance directly from the company, seek guidance from a fee-only financial planner, buy it through a commission-based financial planner, or buy it through an insurance agent.

6. Understand how these folks get paid. Insurance agents and commission-only financial planners don’t make money unless they sell you insurance products. Fee-plus-commission (or fee-based) planners charge both a fee and a commission on products. Fee-only planners charge a fee for their guidance but don’t sell products; you would buy the insurance coverage on your own.

7. Do your homework. Whether you decide to buy a policy on your own or hire a professional to help you, you should bone up on life insurance on the sites mentioned in Tip No. 3. This will help you feel more confident and informed.

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Advice for buying affordable life insurance

Next week's 10 Tips topic Get ready for hurricane season Hurricane season is upon us. Depending on where you live, it might be a good idea to take careful inventory of your possessions and even have some of your valuables professionally appraised. Do you have tips about tackling this kind of prep work for hurricane season? If so, please share it here.

8. Buy from a financially strong company. The insurance company should have an “A” rating or higher from rating agencies such as A.M. Best, Standard & Poor’s, Duff & Phelps, Weiss, Moody’s and Fitch Ratings.

9. Be alert for red flags. Avoid advisers who say they’re more knowledgeable about the insurance company than the rating agencies, or who claim the ratings are unimportant or unavailable. If you have a complaint, contact the adviser’s customer service department and speak up. You also can file a complaint with your state’s insurance department or attorney general’s office. To start the process of finding the correct contact information for your state, click here.

10. Make adjustments as needed. Your life insurance needs will change over the years – most notably when you marry, divorce, have a child or start caring for an aging parent. At a certain point – once your kids are all grown up, and once you know you’ve saved enough for retirement – you can decide to stop paying for life insurance entirely.