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Difference between Insurance and Assurance – Understand the key differences

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Difference between Insurance and Assurance – Understand the key differences
February 15, 2024

Table of Content

 

While looking for financial protection, people often rely on insurance as a popular choice. Understanding the policy to be purchased is the most crucial task to optimize the benefits of the insurance. This is exactly where many falter as the policy documents are jargon-heavy, and often confusing. However, one should have clarity of the basic concepts of insurance to choose the best policy according to his/her requirements. One such important aspect is the difference between insurance and assurance, which are the most commonly used terms in the policy document.

However similar they might seem and used as interchangeable words, it’s critical to understand that the words insurance and assurance refer to two different scenarios in insurance. Simply put, insurance is meant to cover situations that might happen in future while assurance refers to coverage for inevitable situations. For example, general insurance like car insurance covers the damage or loss which might happen. This is a case of insurance. Whereas assurance implies coverage for inevitable situations like death, which is done by life insurance.

Let us now look into further details of both concepts for better clarity.

What is the meaning of insurance?

An insurance is a legal contract between an individual or an entity and an insurance company wherein the insurer agrees to financially compensate the losses from an unexpected event, in exchange for premiums paid by the policyholder. General insurance like regular health insurance, car insurance, travel insurance etc. falls into this category. Here, the compensation depends on the amount of the monetary loss and these short-term policies have a specified validity period, usually a year, beyond which a renewal is required to continue enjoying the coverage.

To explain with an example: 

Let us take the case of individual A who has just purchased a car. The car dealer suggests that he should get comprehensive vehicle insurance along with the mandatory third-party policy. Here, the comprehensive policy is an example of insurance which will compensate A for the monetary loss if the car gets damaged in an accident. The amount of the compensation will depend on the amount of loss if the accidental damage occurs. Similar examples of insurance are property insurance, travel insurance, crop insurance etc.

What is the meaning of assurance?

Assurance is also a legal contract between an individual or entity and an insurance company offering compensation against premiums. But unlike insurance, here the insurance provider protects the insured against a loss due to an event that is inevitable, like death. Life insurance or critical health insurance policies are thus examples of assurance. These policies are long-term in nature and require regular premium payments. Here, the policyholder and the beneficiary or the nominee are entitled to the benefits and payouts by the insurer.

To explain with an example: 

Suppose individual B has purchased an endowment plan of life insurance which has his wife as the enlisted nominee. Now, if B dies an untimely death, his wife gets the sum assured as a death benefit, while B himself receives the maturity benefit if he survives through the policy term. Here, the sum assured payable as death benefit is a pre-defined amount, fixed at the time of purchase of the policy and usually equates the monetary loss that can emerge from B’s death. Meanwhile, the maturity benefit is the return of premiums paid with accrued bonuses, if any. Apart from term life insurance or endowment plans, the Unit Linked Insurance Plan (ULIP), retirement plan, child plan etc. are examples of assurance.

Here is the difference between insurance and assurance

While definitions and examples have explained the basics, let us now focus on the difference between insurance and assurance. The following table illustrates the comparison of insurance vs assurance based on the differentiating factors.  

Parameters

Insurance

Assurance

Type

General insurance

Life insurance

Nature

Short term

Long term

Aim

Compensating for the loss from unexpected events like accident, fire, theft, etc. 

Compensating for the loss from inevitable events like death or critical illness

Examples

Car insurance, general health insurance, travel insurance, mobile insurance etc.

Term plan, endowment plan, ULIP, critical illness health insurance etc. 

Compensation

Depends on the approximate monetary loss arising from the damage, like the cost of repairing the car or hospital bills 

Is a pre-specified amount to compensate for a terminal disease or death

Number of claims possible

Multiple

Single

Renewal

Mostly after one year or when the policy expires 

Not applicable

Insurance for

Person or property

Only for people

Number of insured

One or more based on the plan

One

Nature of risks

Unpredictable and unexpected like accident or theft

Unexpected but predictable like death

Why is insurance so important?

Any unfortunate event, whether a death or damage, comes as a threat to our financial stability. Offering monetary compensation for the loss, insurance plays a substantial role, in helping one cope with the unexpected struggle. A health insurance for instance takes care of a medical emergency and covers the hospitalization costs. Indeed, this can bring peace of mind and thus makes insurance so important.

Conclusion

Assurance and insurance are thus extremely important terms that can help you understand your insurance needs better. Subsequently, the comparison of sum assured vs sum insured refers to the difference in compensations from the respective categories of insurance. Having clarity of these terms can therefore empower you to choose the right policy and reap the maximum benefits from your insurance plan.

FAQs about the difference between insurance and assurance

Q. What is the difference between life assurance and insurance?

Life assurance refers to the compensation of monetary loss arising from inevitable events like death. On the other hand, insurance refers to the coverage of losses emerging from unexpected events like accidental damage, theft, natural calamity etc.    

Q. What is the sum insured and sum assured?

The sum insured of a policy is the compensation paid to the insured for an unexpected loss like damage to a car in an accident. The amount here is approximately equal to the cost of damage. The sum assured, on the other hand, is a pre-defined amount payable to the policyholder’s nominee in the event of his/her death.

Q. Which is better, assurance or insurance?

Assurance covers the policyholder’s risk for a long term while insurance is a short-term cover. Thus, assurance requires long-term premium payment, whereas a single pay ensures the insurance policy coverage for a specified validity period. Here, which one should be a better choice can be decided according to the needs and affordability of an individual.

Q. What are the advantages of insurance and assurance?

Insurance provides you with compensation based on your actual monetary loss due to unexpected events like accidental damage of property or troubles in your travel. It thus helps you avoid draining your funds. Meanwhile, assurance offers a pre-defined amount based on the assumption of losses arising out of inevitable situations like death. This helps the policyholder’s family to cope with the financial struggles.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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