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In the financial market, insurance and assurance are two very widely used terms. The two terms, although have different meanings, are used by people interchangeably. This is because both of them are related to protecting the financial interests of individuals, families, and corporations. It is important for one to know about the difference between insurance and assurance in order to make the right decisions while making financial plans and purchases.
Before we discuss ‘insurance vs assurance’ it is important to know the exact meaning of both the terms individually.
Insurance is a contract or agreement wherein the insurance company indemnifies to compensate for the insured’s losses. In case of any mishaps, man-made or natural calamities, or any other uncertain event, the insurance company provides coverage for the losses. This compensation is given in return for a premium paid by the policyholder.
It is an agreement in which the insurance company assures to provide compensation or remuneration for an event that is certain to happen, for instance, death. Assurance policies promise to provide persistent coverage till the death of the policyholder.
Let’s understand the difference between the two on various parameters.
It provides compensation for temporary losses.
It provides compensation for losses that are irreversible and irreplaceable
To help the policyholder regain financial stability and overcome the unforeseeable losses.
Provide compensation to the beneficiary for his loss.
The principle of indemnity forms the basis of insurance.
The Principle of certainty forms the basis of assurance.
All general insurance plans, such as fire insurance, marine insurance, health insurance, etc are an agreement of ‘Insurance’.
Life insurance plans, such as annuity plans, whole life insurance, endowment plans, etc (except term life insurance) are a type of ‘Assurance’.
Payment of the claim
The claim is paid only on the happening of the event. If the event does not take place before the maturity of the policy, the policy becomes void.
The sum insured is paid to the policyholder on the occurrence of the event or on the maturity of the policy.
Duration of the contract
Insurance plans are generally short-term plans that can be renewed after their tenure expires.
Assurance plans are long-term contracts, covering the entire lifespan of the policyholder.
Coverage is offered against events that may or may not occur in the future like, fire, etc.
Coverage is provided against events that are definite to occur like death.
Payment of premium
In an insurance contract, the premium is paid periodically to get protection against the insured risk.
In a contract of assurance, the premium is paid periodically to avail the benefits after the happening of the event.
Insurance and assurance, both of these elements are extremely and equally important to have a financially sound life.
Although they go hand-in-hand, there is a difference between the services or coverages offered by both. Both of these contracts are offered by the insurance companies, you must rightly choose the one that matches your needs.