People usually get confused with the two most commonly used insurance jargons, i.e. Insurance and Assurance, and consider both to be the same. However, there is a considerable difference between these jargons. In this article, we have highlighted the key difference between these two terms to make it easy for you to understand the distinguishing factors and clear the confusion, if any.
What is ‘Insurance’?
Insurance is a contractual agreement between the insured and the insurer, wherein the insurer compensates for the losses or damages caused to the policyholder in case of man-made or natural calamities or any other inevitable situation.
In this case, the insured must be regular in paying the premiums, and the insurance company is liable to pay for the specified sum insured and validity period. In case the insured fails to renew the policy on time and meets an unfortunate incident, then the insurer shall not provide any coverage to the insured.
What is ‘Assurance’?
This term used in the insurance industry refers to an agreement to provide compensation for events such as disability or death. The assurance is provided to the insured in two categories:
1. If the insured survives the maturity period, they will receive the amount as a pension
2. If the insured dies during the policy term, the nominee or the beneficiary receives the insured amount
What is the difference between the two?
Following are some of the key differences between Insurance and Assurance:
Insurance provides protection to the insured against unprecedented situations such as natural calamities, burglary, accidents etc. In contrast, assurance offers coverage against events that are certain to happen to the insured, i.e. death. Most of the life insurance plans except term insurance fall under the category of assurance policies.
The objective of insurance is to keep the insured financially equipped when an unseen or misfortunate incident such as earthquake, theft, accident, fire damage etc. occurs. On the other hand, assurance pays out the sum assured when the occurrence is certain or when the event occurs, e.g. death.
Insurance is based on the principle of indemnity, and the protection is offered for anticipated or uncertain events, whereas assurance is based on certainty and offers protection for definitive events. The immunity of insurance is offered by the insurer to the policyholder in return to the premiums paid.
Type of Insurance
Policies such as health, motor, liability, etc come under insurance, whereas policies such as life and endowment fallsunder the assurance category. One or more insureds can be covered under an insurance policy (depending on the nature of the plan one opts for). While, assurance policy offers protection to a single insured under one plan.
Coverage is provided only after the definite event occurs in case of assurance, whereas insurance provides protection against various risks that may arise due to unforeseen situations.
Duration of the Policy
The insurance policy duration is usually short term (either for a year or on an annual renewal basis). On the other hand, the duration for assurance is long term. One can renew the insurance policy annually or post the policy expiry.
Assurance is provided in either the case of event occurrence or policy maturity, whereas insurance is provided to the insured only after the occurrence of the uncertain event. The claim payment in case of insurance is equal to the amount of the loss that occurred, while that for the assurance is a pre-decided amount covering a specific event.
While both might look similar, the meaning, scope and services offered by each of them is different. Understanding these terms better will help you take informed decisions while selecting an insurance plan. You need to comprehend these terms well in advance by reading the policy documents, understanding your needs, comparing online plan options to pick the best and suitable one.
Views expressed in the article are the personal opinion of Rakesh Goyal, Director, Probus Insurance.