Comparing Insurance and Assurance Notes and Exam Questions Business Studies Grade 12 Insurance and assurance are two commonly used terms in insurance policy documents. While both the terms describe the policy coverage, they have different meanings. While insurance provides monetary compensation for a covered event, assurance provides financial support in a covered situation.
Two commonly used terms in insurance are ‘insurance’ and ‘assurance’. Both these terms are used for financial coverage under an insurance policy. While you may have been using these terms interchangeably till now, there is a clear difference between insurance and assurance.
Insurance: Protecting Against Risk
Insurance is a contract between an individual or entity (the insured) and an insurance company (the insurer). The insured pays a premium to the insurer in exchange for financial protection against specific risks. These risks could include damage to property, loss of income, liability for damages, or even health-related expenses.
For instance, a business might purchase property insurance to safeguard its assets against fire, theft, or natural disasters. Similarly, individuals often acquire health insurance to cover medical expenses in case of illness or injury. The key aspect of insurance is that it provides financial compensation when an unexpected event occurs, mitigating the impact of losses.
Assurance: Providing Confidence in the Future
On the other hand, assurance is about providing confidence or certainty regarding future events. In business, assurance typically refers to the services offered by auditors or accountants to verify the accuracy and reliability of financial information. Assurance engagements aim to enhance the credibility of financial statements, providing stakeholders such as investors, creditors, and regulators with assurance that the information presented is accurate and trustworthy.
For example, a company might hire an external auditor to conduct an audit of its financial statements to ensure compliance with accounting standards and regulations. This process instills confidence in investors and other stakeholders regarding the company’s financial health and performance.
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Differentiating Between Insurance and Assurance in Exam Questions
Insurance Vs. Assurance
| Parameter | Insurance | Assurance |
| Insurance Category | General Insurance | Life Insurance |
| Based On | Principle of indemnity | Principle of certainty |
| Objective | To provide monetary compensation to cover a particular loss, like loss due to theft, fire, flood, vandalism, etc. | To provide financial support for a particular situation, like the death or disability of the insured person. |
| Protection Against | An anticipated event | A definite event |
| Types of Policies | Car insurance, bike insurance, property insurance, mobile insurance, health insurance, etc. | Term insurance, life insurance, endowment plans, etc. |
| Number of Claims Allowed | Multiple | Single |
| Claim Payment | Usually, equal to the monetary value of the loss incurred. | Predetermined amount to cover a specific situation or event. |
| Policy Renewability | Policy can be renewed upon expiry. The policy term is usually 1 year or more. | Not Available |
| What is Insured | People or Property | Only People |
| Nature of Risk Covered | Coverage for uncertain and unpredictable risks, such as accidents, theft, flood, etc. | Coverage for uncertain but predictable risks. Such as death. |
| Number of insured | Single or multiple, depending on the policy terms | Single |
