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March 05, 2008

Insurance and Assurance

A lot of people get confused about the difference in meaning between the words insurance and assurance. It's an important one and understanding it will save you a lot of money.

Insurance is the process of spreading risks. There might be some very unlikely event, but one that would be very expensive indeed if it did happen. Say, your house burning down. It's not very likely that it will happen, not very likely at all, actually. But if it did there's no way you would have enough money to rebuild it and buy all your possessions again. So you take out an insurance policy. You pay a premium and the insurance company then signs similar contracts with millions of other people. Amongst those millions, some people's houses will indeed burn down and your premiums go towards helping them, along with the guarantee that if it happens to you then you will get such help from everyone else.

Assurance is rather different: this is something which is likely to happen (although still not certain). Here what you are doing is not so much spreading risk, as saving up for that thing happening. A pension is like this. You are likely to live long enough to collect your pension so it makes sense to save for that time. An assurance policy helps you do this.

Where the confusion comes in is that over time some of the tax breaks for insurance have been added to assurance contracts: this gets everyone confused.

To become unconfused it might be worth visiting Courier Insurance, they'll offer you free quotes on any kind of insurance you might be interested in and you can see the way in which the different policies work.

March 5, 2008 in Paid Blogging | Permalink

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