Definition of Assurance§
Assurance is an insurance product that provides financial protection or compensation against an eventuality that is certain to happen, such as death. Unlike typical insurance which covers potential risks, assurance pertains to predictable outcomes and essentially guarantees a payout upon the occurrence of the covered event. The most common form of assurance is life assurance, often referred to as whole life insurance.
Examples§
-
Life Assurance Policy:
- Mr. Smith purchases a life assurance policy to provide financial security for his family. Upon his death, a guaranteed sum is paid to his beneficiaries.
-
Endowment Assurance:
- Ms. Johnson buys an endowment assurance policy that will pay a lump sum either on a fixed maturity date or upon her earlier death.
-
Critical Illness Assurance:
- Mr. Brown gets a critical illness assurance policy, guaranteeing a payout if he is diagnosed with any of the specified critical illnesses covered by the policy.
Frequently Asked Questions (FAQs)§
What is the difference between assurance and insurance?§
Assurance covers events that are certain to happen, such as death, whereas insurance covers risks that might happen, like accidents or theft.
How does life assurance work?§
Life assurance provides a financial payout to the insured’s beneficiaries upon death. Payments might also be made on specific maturity dates for policies combining elements of savings and investment.
Is assurance the same as life insurance?§
Assurance, often referred to as life assurance, is a type of life insurance but specifically denotes products where the event (such as death) is guaranteed to occur, resulting in a certain payout.
What are some benefits of buying a life assurance policy?§
Benefits include providing security and financial stability to beneficiaries, potentially building savings over time, and peace of mind knowing that a guaranteed payout is assured.
Can critical illness coverage be included in life assurance?§
Yes, many life assurance policies offer riders or additional coverages, including critical illness coverage, providing a payout upon diagnosis of specified illnesses.
Related Terms with Definitions§
- Insurance: A financial product that provides protection against potential future losses or risks.
- Term Life Insurance: A life insurance policy that provides coverage for a specified term or period. The death benefit is only paid if the death occurs within the term.
- Whole Life Insurance: A type of life assurance providing lifetime coverage with both a death benefit and a savings element.
- Endowment Policy: An insurance policy that pays a lump sum after a specific term or on earlier death.
Online References§
- Investopedia - Life Assurance
- The Balance - Understanding Assurance Policies
- PolicyBazaar - Life Assurance Plans
Suggested Books for Further Studies§
- “Life Insurance: A Consumer’s Handbook” by Joseph M. Belth
- “Essentials of Insurance: A Risk Management Perspective” by Emmett J. Vaughan and Therese Vaughan
- “Principles of Risk Management and Insurance” by George E. Rejda and Michael McNamara
Accounting Basics: “Assurance” Fundamentals Quiz§
Thank you for exploring the concept of assurance and testing your understanding through our detailed quiz. Continue building your expertise in financial planning and risk management!
