The term ‘insurance’ is defined as a contract between two parties, whereby one party (insurer or insurance company) promises to indemnify the specified loss or damage incurred to the other party (insured) for an adequate consideration, i.e. premium. In short, it is the provision; wherein the insurance company gives the guarantee of compensation for the financial loss happened to the insured, in exchange for the premium.
The document in which the terms and condition of the insurance are stated is known as an insurance policy. It outlines the type of losses covered by the insurance policy and also indicates the maximum amount that will be paid by the company if the uncertain event occurs.
Insurance is a risk transfer mechanism, which guarantees monetary compensation, for the loss or damage, as a result of an event beyond the control of the insured party. The types of insurance are:
Life insurance: The insurance that covers the life risk of the person is known as life insurance. This type of insurance is considered as assurance. Here the total sum assured is paid to the insured on the maturity of the policy or the family of the insured after his/her demise.
General Insurance: Any insurance other than the life insurance is known as general insurance. It includes fire insurance, marine insurance or miscellaneous insurance. Here the compensation paid is equivalent to the loss incurred to the insured.
Definition of Assurance
A form of financial coverage, which provides reimbursement, for an event that is sure to happen (sooner or later), is known as assurance.
One of the best examples of assurance is life insurance, which covers the risk of the life of the policyholder. On the demise of the insured, the nominee will get the sum assured. In life insurance, insurance policy amount is payable only the occurrence of the event, i.e. death. Although, the life insurance also provides for payment of the policy amount at the maturity of the policy by installments. Life insurance is classified into three types:
Whole life assurance: When the sum assured is payable only on the event of the death of the insured is the whole life assurance.
Term life assurance: When the sum assured is paid in lump sum on the maturity of the policy term is called term life assurance.
Annuity: When the sum assured is disbursed in the installment on the maturity, rather than one shot payment is called annuity.
Key Differences Between Insurance and Assurance
The following points describe the differences between insurance and assurance:
A contract, which provides cover for an event that can happen but not necessarily, like flood, theft, fire, etc. is known as insurance. A provision for coverage of an event, whose happening is certain, such as death, is called assurance.
While insurance is based on the principle of indemnity, assurance is a bit different, which relies on the principle of certainty.
Insurance provides protection against an anticipated event. On the other hand, Assurance tends to provide protection against a definite event.
In the case of insurance, the reimbursement of the loss or damage will be paid only on the occurrence of the uncertain event. Conversely, in assurance, the insurable amount is paid either on the death of insured or at the maturity of the policy.
The duration of insurance is only one year, in essence, the policy is renewed on the expiry of the term. On the flip side, assurance is for the long term, which operates over a number of years.
Insurance, covers general insurance, i.e. fire insurance, marine insurance or miscellaneous insurance. Assurance covers life insurance, such as whole life insurance, term life insurance and annuity.
Insurance aims at identifying the insured against any risk. On the contrary, the main purpose of assurance is to assure payment, on the happening of the specified event.
Insurance policy prevents the specified risk or provides protection against it. Unlike assurance, wherein the policy is taken against a definite event.
In insurance, the insurer commits to reinstate the insured to his/her previous position; that was occupied before the event took place. In contrast, assurance commits to pay the sum assured, when the event takes place.
In insurance, it is the duty of the insured to pay premiums at regular intervals so as to receive indemnity against risk. As opposed to assurance, in which the insured undertakes timely payment of premium, in return for the benefit, on the happening of the event covered.
Conclusion
To sum up this article, insurance and assurance are quite similar, but there is a thin line of difference between them, as in insurance provide protection to the holder to policy, from the incidents that are likely to happen, and they are compensated when the event occurs. On the other hand, assurance covers those incidents whose happening is unquestionable, but their time of occurrence is uncertain.
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