What are the Major Differences between Insurance and Assurance?
Insurance and assurance are the two popular bustling words in the field of the insurance sector. But very often, these two terms are misunderstood by policyholders. Both of them are used when insurance companies offer financial assistance once policyholders initiate claims. In this article, we are going to illustrate the difference between insurance and assurance so that you can purchase the best policy without any misperception.
What is Insurance?
Insurance is a legal contract between the policyholder and the insurance company. Insurance is applicable when a policyholder wants to safeguard his property, car, etc. in case of untoward incidents that can damage or hurt policyholders. Under these scenarios, the insurance company offers compensation to policyholders in exchange for a premium. Thus, policyholders don’t need to pay anything from their side. But to stay protected under a policy plan, a policyholder needs to pay premiums till the tenure period. If you don’t pay on time or don’t renew your policy, you won’t get any coverage from the insurance company.
Every insurance plan comes up with a validity period and offers a fixed sum insured amount for which the insurer is bound to compensate during the policy tenure period.
Let’s understand this with an example.
Samar has started his career with a reputed private company. Samar purchased a bike two years ago after joining the company. In India, it is compulsory to have a third-party liability insurance policy. A bike owner should purchase a comprehensive health insurance policy that will offer entire coverage to you and the third party. Comprehensive insurance offers coverage for any damage to the bike, theft, injury, personal accident cover, loss of life, etc. Samar purchased a comprehensive insurance plan along with his bike.
One day when returning from his office, he met an accident at a sharp turn. Since Samar had a comprehensive insurance policy, hence his policy offered him financial assistance for the damage to the bike and also personal injury.
But if Samar didn’t pay the insurance or renew it on time, then he didn’t get any coverage for the damage and personal injury from the insurance company.
What is Assurance?
Assurance is a word that is related to term and life insurance policies. Assurance meaning your insurer will compensate only for a specific occurrence. In a life insurance policy, a policyholder is assured by the insurer that he/she will receive compensation in case of unfortunate incidents like death or disability. If the policyholder survives the tenure period, he will receive the entire amount as a monthly pension from the insurance company.
Let’s understand it with an example.
Samar purchased a life insurance policy from a reputed insurance company. He purchased an endowment plan with a sum insured amount of Rs. 50 lakh. This type of plan embraces policyholders with two types of benefits. If Samar survives the maturity period, he will receive a lump sum amount from his insurance company. But if he passed away during the maturity period, then his nominee/beneficiary will receive the sum insured amount from the company. Some other types of life insurance policies are term insurance, ULIP, and whole life policies.
The Difference between Insurance and Assurance
The word insurance is commonly applied in general insurance like car and bike insurance that will cover accidents and damages to the car. On the other hand, assurance is mainly related to life insurance policies where the death benefit will be covered for the policyholder by the insurer.
Assurance Vs Insurance
|Category||General Insurance||Life Insurance|
|Objective||The prime aim is to recuperate the losses. For example, the loss incurred during an accident, fire, theft, flood, etc.||To offer monetary assistance for a particular situation. For example, a major illness, death, disability, etc.|
|Types of policies||Motor insurance, Health insurance, mobile insurance, etc.||Life insurance, Term insurance, Endowment plans, ULIP, etc.|
|Claim payment||The company offers almost an equal amount of loss. For example, the cost of repairing/replacing vehicle parts, hospitalization bills, etc.||The amount is pre-decided at the time of policy purchase to cover a specific event. For example, a major illness like cancer, the death of the policyholder, etc.|
|The number of claims allowed||Numerous||Single|
|Renewability||Most policies come up on an annual basis or when the policy expires||Not applicable|
|Coverage||Medical insurance, home insurance, property insurance, motor insurance, etc.||Life and death/disability cover|
|Number of insured||Depending on the nature of the insurance policy||One|
|Nature of risks||Unforeseeable risks like theft, burglary, calamities, fire, accidents, etc.||Commonly uncertain but predictable risks like death|
|What is insured?||People and/or property||People|
The role of insurance is undeniable in a person’s life as it offers monetary assistance which is extremely beneficial in managing the expenses of an untoward event. Health insurance is a type of insurance that helps you to stay protected against various diseases and also, provides financial assistance. If a person’s financial portfolio is not strong, then it could be very difficult for him to manage all the expenses related to a disease. At the time of need, he may not get quality treatment. But here comes health insurance that safeguards against uncertain liabilities and also, ensures the policyholder gets the best medical treatment.
An assurance offers certain plans or ways for saving as well as a definite benefit at maturity. Assurance policies could be life insurance policies like whole life insurance, endowment plans, and term insurance plans.
Though the purpose of both terms is the same, their usages are different. To strengthen your security, you can go for both. Once you understand the difference between insurance and assurance, you will clasp all the products that are offered by various insurance companies. Based on your requirements, you should choose the right plan that will fulfil all your goals.