In India, around 35 crore individuals have life insurance policies, according to data from the Insurance Regulatory Development Authority of India (IRDAI) as of March 2021. When an individual buys an insurance policy, they either reach out to an insurance agent or buy it online. While buying, the terms insurance and assurance are used interchangeably, and people get confused. However, they are two different terms and have their significance. This blog will explain the difference between the two and which one you should buy. Let’s dive in.
What is Insurance?
Insurance is a contract between an insurer, an insurance company with a license to sell insurance, and the insured, the policyholder who purchases insurance from the insurance company. The policyholder pays a regular premium to the insurance company in exchange for financial security to the insured in case of unforeseen situations such as accidents, illness, or damage to properties. However, the insurance company sets a validity for the applicability of this benefit, which depends on the terms of the insurance policy.
Let us understand this better with an example:
Mr. Deepak purchased a new motorbike, and he was advised to buy insurance for the brand-new motorbike. Now, Mr. Deepak has two options to select from. A basic third-party plan to meet the legal requirements and a comprehensive plan include coverage for motorbike damage and personal accident cover, such as for injuries. The concept of insurance is explained with motorbike insurance, while other plans include travel, property crop insurance, etc.
What is an Assurance?
The word assurance applies to both life and term insurance policies. Assurance is a type of insurance that protects the insured in cases that are certain to happen, such as death. Assurance policies do not have expiry dates like insurance policies, or some assurance policies may have an expiry date, but they last for a long time. These types of policies require regular payments in terms of premiums for an extended period. The insured person has to select a nominee, a family member who is paid in case of the insured person’s unfortunate death.
Let us understand this better with an example:
Mr. Anand decided to buy insurance to secure their family financially. After understanding the need to buy insurance, he decided to buy a term plan, which covers a payout to his dependents in case of unforeseen events. Moreover, he explored different life insurance plans, such as endowment policies and ULIP, which included maturity benefits and a payout in unexpected circumstances. Another example of assurance can be critical health insurance plans. Mr. Anand then buys a Unit Linked Insurance Plan (ULIP) as it combines insurance and investment; Mr. Anand had his financial goals for his daughter’s marriage. Hence, this was the most suitable plan for him.
How to Make Sure Your Life Insurance Provides the Best Assurance
Determine Your Life Insurance Goal
Every individual can have different financial goals. You must select a life insurance policy that offers financial security for your family in case of your unfortunate death. Buying a term plan can also be a good option if you are young, as the premiums of term plans are affordable and offer higher coverage. On the other hand, if you have a specific financial goal, such as a child’s marriage or education or a downpayment on the house, you can buy a Unit Linked Insurance Plan (ULIP), which is a combination of investment plus insurance.
Find Out the Insurance Coverage That You Need
Your life insurance cover should be at least ten to fifteen times your annual income. While calculating the coverage for your life insurance, you must consider your monthly expenses and your liabilities, if you have any, because meeting these obligations might be challenging for your family in your absence. You can also use a life insurance calculator to find the correct coverage that fits your needs.
Select the Correct Insurance Provider
You must opt for a reputed life insurance company with a high Claim Settlement Ratio (CSR) of more than 95%. This shows that 95 out of 100 policies received their claim from the insurance company, which is a good sign. These records are readily available on the Insurance Regulatory and Development Authority (IRDAI) website.
Buy a Life Insurance at a Young Age
If you are young and healthy, it is the right time to buy a life insurance policy as you can save on the premium cost and get a higher sum assured. The right time to buy life insurance is when you start earning.
Select Correct Riders
Riders are additional benefits with insurance that are over and above your basic insurance. Riders such as waiver of premium, critical illness, accidental death rider, income benefit rider or permanent and partial disability rider, etc. You can select riders based on your needs and risk exposure.
Conclusion
Lastly, life insurance has its title of ‘Contract of Assurance’ as it offers financial protection for your family and gives you peace of mind. Following the strategies highlighted in this blog, you can select the right insurance for yourself and your family.