Life assurance is a title in the UK given to a specific type of life insurance and terms, namely investment type. Unlike other forms of life insurance, where the insurer only pays out if the policy holder dies, these policies are guaranteed to pay out even if you outlive the insurance term.
This is because you build up a cash fund with a life assurance policy which you receive at the end of the term. It is possible to cash in the fund before the policy term is complete, however experts strongly advise against doing this because you are likely to incur hefty charges. If you are considering cashing in a life assurance policy early, it is recommended that you seek financial advice first.
There are a number of different life assurance policies:
These policies can be 'with-profits' or 'unit-linked'. At the end of the agreed policy term you receive a lump sum. If you die before the term ends, the insurer pays your family the sum you are insured for, or the value of the investments, whichever of the two is greater.
This is where your insurance contributions are 'pooled' together with other funds and invested into a number of different areas. Your policy receives regular profit bonuses, which once added cannot be withdrawn. When the policy matures, you receive the amount you were insured for, as well as any bonuses that have been accumulated.
Here you can choose the fund that your money is linked to. This policy only guarantees a minimum pay-out sum if you die before the policy matures. If you survive longer than the policy term, you recoup the money invested plus the fund's current value, regardless of whether or not it has made a profit.
This type of investment usually takes the form of a single premium lump sum. Despite this, it is sometimes possible to make regular payments. The insurance company invests your money on your behalf, either into a single with-profits fund or into a unit-linked single premium bond fund, which can represent a number of different investment vehicles.