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Difference Between Life Insurance and General Insurance?

Know all about Life Insurance and General Insurance

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While many things in life are left to chance, there are ways to ensure that you are prepared for them. Insurance is a crucial financial decision to help deal with life’s uncertainties. When you invest in an insurance policy for yourself and your loved ones, it promises to help you deal with times of crisis.

Many people only have a basic understanding of insurance policies. You pay a certain amount of premium to the insurance provider, and in return, they offer financial compensation in the event of happening of the insured event. There are different kinds of insurance policy that cover various scenarios.

Many might not be aware that there is a difference between life insurance and general insurance. It is essential to understand them thoroughly to make a sound financial decision.

What is Life Insurance?

A life insurance policy is a life cover to put it simply. It is a contract that bounds the insurance provider to offer financial compensation to the beneficiary in case of the unfortunate events covered under the policy, like the insured’s untimely demise. In exchange, the policyholder pays a predetermined amount as regular premiums or single premium.

The life insurance policy covers a certain period, and if the policyholder survives it, they are eligible for a maturity benefit, as per the terms of the contract. People opt for life insurance policies to provide financial protection in case of unprecedented circumstances.

Read More: What is Life Insurance?

Types of Life Insurance

1. Term Life Insurance 

Term life plans are the most basic life insurance plans offering financial protection to the beneficiary, in case the life insured does not survive the covered period. It is often preferred as it provides comprehensive coverage at an affordable premium.

Term Insurance with Return of Premium (TROP) is another type of term plan that offers maturity benefits along with death benefit. It requires a slightly more expensive premium. It is helpful to understand your specific financial requirements to calculate a suitable premium amount.

2. Whole Life Insurance 

Whole Life Insurance plans provide cover to the insured for their entire life, or as long as the premiums are paid. It is an ideal choice for people who require extensive life coverage and want their family to be financially protected at all times.

3. Endowment Plan

Endowment plans are a combination of investment and insurance. A portion of the premium goes towards securing the sum assured, and the rest is utilized for investment purposes. It serves the purpose of amassing savings at lower risks and providing financial protection to loved ones during the policy term. Upon maturity, the insured will receive the sum assured. 

4. Unit Linked Insurance Plans (ULIPs) 

3. Endowment Plan

Endowment plans are a combination of investment and insurance. A portion of the premium goes towards securing the sum assured, and the rest is utilized for investment purposes. It serves the purpose of amassing savings at lower risks and providing financial protection to loved ones during the policy term. Upon maturity, the insured will receive the sum assured.

4. Unit Linked Insurance Plans (ULIPs) 

ULIPs allow the policyholder to invest in mutual funds and ensure life cover at the same time. It is ideal for long-term financial goals as they help in wealth creation. Depending on one’s risk appetite portfolio, one can invest into various fund options i.e. equity (high risk), debt (low risk), or hybrid funds (medium risk).

Along with the death benefit, ULIPs offer partial withdrawal after the lock-in period of five years is over and also allows switching between funds.

Also Read: What is ULIP?

5. Money-Back Policies 

Money-Back policies provide the insured with a percentage of the sum assured at predefined intervals. These pay-outs are known as survival benefits. When the policy matures, the remaining amount of the sum assured is offered to the insured along with the accumulated bonus, if any.

6. Child Plans 

A policyholder can generate funds for their child with the help of a child plan. It helps build a corpus that can be utilised in the future for child’s education or marriage. In the unfortunate case of the policyholder’s early demise, the beneficiary will get the sum assured.

7. Retirement Plans 

A retirement plan helps you to plan do financial planning for post-retirement years when one might not have any source of income. Under such plans, a specific amount is regularly paid to build up a corpus which is used to provide lifetime income to the insured at regular intervals after retirement.

What is General Insurance?

General Insurance is any policy that covers assets and valuables such as a vehicle, home, travel, and health against damage, loss or theft, and many other liabilities. The critical difference between life insurance and general insurance is that the latter offers financial protection against damage or loss other than life.

 

What is General Insurance?

General Insurance is any policy that covers assets and valuables such as a vehicle, home, travel, and health against damage, loss or theft, and many other liabilities. The critical difference between life insurance and general insurance is that the latter offers financial protection against damage or loss other than life.

What are the Types of General Insurance?

Some of the types of general insurance policies are:

1. Health Insurance 

Health Insurance offers coverage for medical and surgical expenses for the insured. It acts as a safeguard against medical emergencies. Depending on the terms of a health plan, the insurance provider either settles the bill directly with the hospital or reimburses the insured for their expenses.

2. Motor Insurance 

Motor Insurance provides financial protection for personal and commercial automobiles against loss due to damage, theft, accident, fire, natural calamities, etc. Two significant types of motor insurance policies are:

  • Comprehensive Insurance – This covers both the parties involved in an accident. Additionally, it offers protection against the scenarios mentioned earlier as well.
  • Third-Party Insurance – This provides coverage for the third-party involved in an accident. According to the Motor Vehicles Act, all two-wheelers and four-wheelers must have third-party insurance.

3. Travel Insurance 

If you travel frequently, it is beneficial to invest in a travel insurance policy. It offers security against loss of baggage, delay or cancellation of flights, accidents, or hospitalization expenses, during a trip.

4. Home Insurance 

A house is a valuable asset in a person’s life. Home insurance provides financial security against damages due to natural or human-made disasters that can damage the house or its belongings.

Life Insurance Vs. General Insurance – Differences 

As discussed above, life and general insurance provide different kinds of coverage. Let’s discuss the difference between life insurance and general insurance in detail by comparing their key points.

 

Life Insurance Vs. General Insurance – Differences 

As discussed above, life and general insurance provide different kinds of coverage. Let’s discuss the difference between life insurance and general insurance in detail by comparing their key points.

Key Points

Life Insurance

General Insurance

Coverage

It offers financial cover for the life of the insured.

It offers financial cover for valuable assets other than life, such as home, health, travel, automobiles.

Duration

It is a long-term plan. Depending on the contract terms, it can offer coverage up to a specified duration, such as 15-20 years or a lifetime.

It is a short-term plan that has to be renewed at regular intervals.

Premium

The policyholder is required to pay the predefined premium amount at regular intervals, such as monthly, quarterly, or yearly.

Generally, the policyholder pays a lump sum amount at the time of purchase or renewal. It may vary in travel insurance, as required only when a specific trip needs to be insured.

Policy Value

The policyholder can decide on the sum assured according to the financial situation of their family.

The policy value is influenced determined according to the value of the asset being insured.

Insurance Claim

The beneficiary of policy receives the sum assured in case of the policyholder’s demise. Upon maturity, the policyholder may receive the sum assured. In the case of Money-Back or Endowment plans, the policyholder also gets the interest earned on investments.

The policyholder is eligible to receive the assured benefits upon an unfortunate event, covered in the contract.

Insurable Interest

The policyholder must be present during the purchase of the plan.

The policyholder must be present during the purchase, as well as the pay-out. 

 

Key Points to Consider 

An insurance policy serves the purpose of creating a safety net for life. Here are some things you must consider while investing in a plan:

  • Consider your financial situation and requirements in the present as well as the future. It will help determine suitable coverage and premium amount.
  • Different insurance providers offer varying benefits under specific terms and conditions. Remember to compare insurance policies to find a suitable plan that optimizes the benefits.
  • While it is preferable to go for an enormous sum assured, it must not exceed your affordability in the present.
  • It is essential to understand the inclusion terms under which the benefits are offered within the policy to avoid any dispute at the time of settlement.

 

Frequently Asked Questions (FAQs)

Q. Why should an individual buy life insurance? 

A. In case an earning member of a family meets with an unfortunate incident, life insurance will help provide their family the benefits to pay off any debts, cover ongoing expenses and meet high costs, such as education.

Q. What should I consider while buying an insurance policy? 

A. You must check the policy for the availability of guarantee of return, lock-in period, payable premium details, revival conditions, and the terms for a settlement claim.

Q. What is No-Claim Bonus? 

A. Most insurance policies offer a no-claim bonus if there are no claims of settlement made for a year. This applies to both life insurance and general insurance plans.

Q. What is the term “Waiting Period” for claims under a policy? 

A. The waiting period of an insurance policy is a predefined amount of time, after which the insurer can make any claims towards settlement.

Q. What are riders or add-ons? 

A. Riders or add-ons are additional benefits that can be attached to an existing policy. It helps provide comprehensive coverage.

Sources: https://www.policyholder.gov.in/what_life_insurance_to_buy.aspx (2020)

https://en.wikipedia.org/wiki/General_insurance (2021)

ARN No: Aug21/bg/13