Assurance

What Is Assurance?

In insurance, assurance is a contract that pays a defined sum when a certain future event happens, most often the death of the insured person. Because death is certain to occur eventually, the key question is when the payout happens, not whether it does. In the United Kingdom and several other countries, the word is used for this kind of life cover, while insurance more often describes protection against events that may or may not happen, such as fire, theft or accident. Whole-of-life policies are a common example of assurance.

How It Works

The policyholder pays regular premiums, or sometimes a single lump sum, to the insurer. When the insured person dies, the policy pays the agreed sum to a beneficiary, provided the premiums have been kept up as the contract requires. Some assurance policies also build a cash value over time, which may be borrowed against or withdrawn, though early withdrawal can trigger a surrender charge. Premiums are set using estimates of how long people in a group are likely to live, prepared by an actuary, along with the insurer's expenses and expected investment returns.

Assurance in Auditing

The word has a separate meaning in accounting. An assurance engagement is one in which an independent professional examines information, such as a company's financial statements, and states a conclusion about it. Auditors commonly give "reasonable assurance" that statements are free of material misstatement. This is a high level of confidence but not an absolute guarantee, since audits rely on sampling and professional judgment.

Why It Matters to Investors

Individual investors are most likely to encounter assurance through life policies, which tend to be long-term and can carry costs that are heavy in the early years. Comparing them involves examining the premium structure, the surrender terms, and the financial strength of the insurer. Terms differ by country and provider, so the policy document is the authoritative source for any specific product.