What is 'Assurance'

Assurance refers to financial coverage that provides remuneration for an event that is certain to happen. Assurance is similar to insurance, with the terms often used interchangeably. Insurance refers to coverage over a limited time, whereas assurance applies to coverage for extended periods or until death. Assurance may also apply to validation services provided by accountants and other professionals.

BREAKING DOWN 'Assurance'

One of the best examples of assurance is whole life insurance as opposed to term life insurance. (In the United Kingdom, "life assurance" is another name for life insurance.) The adverse event that both whole life and term life insurance deal with is the death of the person the policy covers. Since the death of the covered person is certain, a life assurance policy (whole life insurance) results in payment to the beneficiary when the policyholder dies. 

A term life insurance policy, however, covers a fixed period, such as 30 years, from the policy's purchase date. If the policyholder dies during that time, the beneficiary receives money, but if the policyholder dies after the 30 years, no benefit is received. The assurance policy covers an event that will happen no matter what, while the insurance policy covers an incident that might occur (the policyholder might die within the next 30 years).

Assurance as Professional Services

Assurance can also refer to professional services provided by accountants, lawyers, and other professionals. These professionals assure the integrity and usability of documents and information produced by businesses and other organizations. Assurance in this context helps companies and other institutions manage risk and evaluate potential pitfalls. Audits are one example of assurance provided by such firms for businesses to assure that information provided to shareholders is accurate and impartial.

Example of Assurance Services

As an example, investors of a publicly traded company may grow suspicious that the company is recognizing revenue too early. Early realization of revenue might lead to positive financial results in nearby quarters, but it can also lead to worse results in the future. Under pressure from shareholders, the management of the company in question agrees to hire an assurance firm to review its accounting procedures and systems and provide a report to shareholders. The summary will assure shareholders and investors that the company's financial statements are accurate and revenue recognition policies are in line with generally accepted accounting principles (GAAP)

The assurance firm reviews the financial statements, interviews accounting and other department personnel, and speaks with customers and clients. The assurance firm makes sure that the company in question has followed GAAP and assures stakeholders that the company's results are sound.

RELATED TERMS
  1. Traditional Whole Life Policy

    A traditional whole life policy is a type of life insurance contract ...
  2. Term Life Insurance

    Term life insurance, also known as pure life insurance, is life ...
  3. Without Evidence of Insurability

    Without evidence of insurability refers to an insurance policy ...
  4. Life Insurance

    Life insurance is a contract in which the insurer guarantees ...
  5. Whole Life Insurance

    Whole life insurance provides coverage for the life of the insured ...
  6. Easy-To-Borrow List

    The easy-to-borrow list of securities is deemed to be readily ...
Related Articles
  1. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  2. Personal Finance

    The Best Life Insurance for Military Families

    Two of the most common types of life insurance are term and whole life. Here's why the latter isn't a good idea for most military families.
  3. Retirement

    Beware the Sneaky Math of Universal Life Insurance

    Universal life insurance's cash value can be a cash cow – if there's any left. Read on to see if it'll work as an income source after you've retired.
  4. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  5. Insurance

    Choosing Between Whole and Term Life Insurance

    For most people, term life insurance is more suitable than whole life insurance. Here's why.
  6. Insurance

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
  7. Insurance

    Dividend-Paying Whole Life Insurance: What to Know

    Many whole life insurance policies pay dividends. Here are what policyholders need to consider.
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center