There are two terms that confuse policy seekers - insurance and assurance. Both terms relate to the promised financial aid that the insurance company provides upon claim filing, based on the nature and scope of your policy. In popular usage, sum assured and sum insured are used interchangeably; however, note that they are not the same. In this article, we will look at the meanings of insurance and assurance and understand the insurance and assurance differences.
- Author :
- TATA AIG Team
- Published on :
Many people wonder if a few sun salutations or calming yogic breathing can help in becoming healthier. Over the past several years, yoga has gained immense popularity in the western world. It is a spiritual, mental, and physical practice with several associated benefits. First, it is a form of workout that involves both the body and mind. It doesn’t only burn calories and strengthen muscles but also helps in dealing with stress and anxiety.
A yoga session leverages over 100 different forms and targets almost all areas of the body - back, core, arms, and legs. In addition, you can perform asanas as preventive measures. Some forms of yoga, like Hatha and Iyengar, are relaxing with gentle movements. Others like Bikram and power yoga are faster and more strenuous. Practising yoga asanas regularly can prevent many diseases like hypertension, diabetes, asthma, arthritis, PCOS, back pain, and respiratory conditions.
While practising yoga is essential for the prevention of diseases, it is essential to have the right health insurance policy. With Tata AIG, you can get a comprehensive health insurance plan that fulfils all your needs. It will keep you protected in case a medical emergency arises. Moreover, you get a vast network of hospitals where you can file cashless claims at the time of a health-related emergency.
What is Insurance?
*Before we look at the meaning of insurance, let us understand insurer vs insured. *
The difference between an insurer and an insured is quite simple. The insurer is the financial institution that offers the insurance policy and coverage, i.e., the insurance company. The individual or group of individuals who are the beneficiaries of the cover offered by the insurance company are the insured.
For instance, if you buy a health insurance policy from Tata AIG, you are the insured, and Tata AIG is the insurer. Thus, this is what you need to understand about insurer vs insured.
Now that you understand the difference between an insurer and an insured, let us understand what insurance means.
An insurance policy is basically a legal contract between the insured and the insurer, in which the insurer makes a promise to pay for certain losses or expenses incurred, and the insured pays a certain premium for continued coverage.
Under an insurance policy, you only receive an amount equal to or less than the losses/expenses incurred. There is a maximum sum insured, i.e., the maximum amount that the insurer will pay/reimburse to the insured. Any claim amount that falls within this limit will be paid out.
Similarly, there is a fixed tenure to the policy. Therefore, all claims filed before the policy due date will be honoured by the insurance company.
We will explain this further with an example:
Mrs Pathak bought a health insurance plan from Tata AIG for a sum insured amount of ₹6,00,000 with annual renewal. She used a health insurance premium calculator to determine the exact premium and ensure that she could pay the annual premium comfortably.
Three years after purchasing the mediclaim insurance, she was hospitalised for some medical treatment, which led to a total bill of ₹4,00,000.
Since she had renewed the mediclaim insurance policy on time and the claim amount was within the sum insured amount, she received reimbursement of ₹3,50,000 subject to certain deductibles and exclusions.
What is Assurance?
Assurance or sum assured are common phrases when it comes to life insurance plans. In life insurance policies, insurance companies ‘assure’ the ‘life assured’ that they will pay out or compensate a predetermined amount in case of certain eventualities like death or permanent disability.
Pure life covers, like term insurance plans, pay out the sum assured only in case of the death of the policyholder during the policy term. Other life covers like endowment plans, guaranteed returns plans and ULIPs have a component of savings and insurance, which are paid out during the course of the policy as well as on maturity. The tenure of life insurance plans is longer, with some insurers offering a whole life cover. Policyholders have to pay a premium to keep the policy active. However, they can pay a single lump-sum premium at the time of policy purchase, and the policy will remain active until the expiry period.
Let us further understand what assurance is with an example:
Mrs. Shah bought a guaranteed returns insurance plan with a sum assured of ₹25,00,000 for a tenure of 30 years. There are two aspects here: the guaranteed returns that Mrs Shah will receive upon maturity if she survives the policy term of 30 years. However, if she meets with an unfortunate demise during the policy term, her nominee will receive the assured sum of ₹25,00,000.
We have discussed the meaning, scope and means of payouts for insurance and assurance. The following section lists the major insurance and assurance differences based on a few factors.
Assurance vs Insurance: Difference Between Insurance and Assurance
- Objective of the coverage :
Insurance entails the insurance company compensating for the exact amount of loss/expenses incurred by the policyholder within the scope and tenure of the policy. For example, medical expenses under mediclaim insurance, damages to the car under a car insurance policy, etc.
When it comes to assurance, insurance companies will ‘assure’ a specific sum as compensation for certain eventualities. For example, the sum assured is paid to the nominee in case of the life assured’s death in a life insurance plan.
- Types of plans included :
Insurance includes most general insurance plans such as health insurance, bike insurance, car insurance, home insurance, property insurance, travel insurance, etc.
Assurance or sum assured is associated with life insurance plans such as term insurance, endowment plans, ULIPs, etc. In addition, certain mediclaim insurance plans like defined benefit plans can be clubbed under assurance plans as they pay out a pre-defined sum assured upon certain eventualities.
For instance, a Covid-19 benefit health insurance plan will pay out the entire sum assured in case of a coronavirus diagnosis, irrespective of the treatment expenses incurred
- Type of coverage:
Insurance plans include coverage for health expenses under mediclaim insurance, damages to/theft of the insured vehicle as well as third-party liabilities under motor insurance, damages to the property under property insurance and so on.
Under assurance-based plans, the life of the assured individual is covered. Some life insurance policies also cover disability. In addition, defined benefit mediclaim insurance plans cover specific health conditions such as cancer, heart issues, diabetes, coronavirus, etc.
Insurance plans generally have annual renewability. However, some health insurance and motor insurance plans can have a 2-year or 3-year tenure.
Assurance-based plans have longer policy tenures, up to 30-40 years. Some life insurance plans have whole life coverage and can continue up to 100 years of age. As long as the policyholder pays the premium, the policy remains active.
- Claims allowed:
Insurance plans allow multiple claims subject to the maximum sum assured, tenure of the policy and the scope of the policy.
Assurance-based plans only allow a single claim. As they pay out a lump sum amount in case of certain eventualities, the policy will expire after paying the assured amount.
- Nature of claim payment:
Insurance plans will pay the exact amount of losses or expenses incurred by the insured. However, the policy should be active, and the claim amount should be equal to or less than the maximum sum insured amount.
For assurance-based plans, the sum assured is predetermined for every eventuality covered. Therefore, the insurance company will disburse the entire sum assured in case the stated eventuality occurs.
These are the major points of difference between insurance and assurance.
After going through the points detailing assurance vs insurance, we hope you have a clear idea about the insurance and assurance differences.
Remember that insurance policies - general insurance as well as life insurance - provide a sense of security to you and your loved ones and provide the necessary financial support in times of need.
No matter the type of policy you opt for, do not forget to research, compare, and calculate the premium before proceeding with the purchase.