What is the difference between life insurance and general insurance?
Although many things in life can be left to chance, you can take steps to make sure that you are ready for them. Insurance is an important financial decision that can help you deal with the uncertainties of life. You can rely on your insurance policy to provide support in times of need.
Many people have only a limited understanding of insurance policies. In return for a premium, the insurance provider will offer financial compensation in case of an insured event. Different types of insurance policies cover different scenarios.
There is a big difference between general and life insurance. To make sound financial decisions, it is important to understand the differences fully.
What’s Life Insurance?
Simply put, a life insurance policy is life coverage. It’s a contract that obligates the insurance provider to provide financial compensation to the beneficiary for unfortunate events, such as the insured’s death. The policyholder will pay a predetermined amount in either single or regular premiums.
Life insurance policies cover a period. If the policyholder dies during that period, they can claim a maturity benefit according to the terms of their contract. People often choose life insurance policies to provide financial protection in unimaginable circumstances.
Types Of Life Insurance
- Term Life Insurance
Term life plans provide financial protection for the beneficiary if the insured’s life is lost. This type of coverage is preferred because it offers comprehensive coverage with a low premium.
Term insurance with return of premium (TROP), another type of term plan, offers both maturity and death benefits. This type of plan requires a higher premium. To calculate the right premium amount, it is important to understand your financial needs fully.
- Whole Life Insurance
Whole Life Insurance plans offer coverage for the entire insured’s life or until the premiums are paid. This insurance plan is a great choice for those who need extensive live coverage and want to ensure their family’s financial security at all times.
- Plan for Endowment
Endowment plans combines insurance and investment. The premium is used to secure the sum assured, and part of it goes towards investment. It is used to build savings and provide financial protection for loved ones. The insured will be paid the assured sum upon maturity.
- Unit Linked Insurance Plans (ULIPs)
ULIPs enable policyholders to invest in mutual funds while also ensuring life insurance. They are ideal for wealth creation and long-term financial goals. You can choose to invest in different fund options depending on your risk appetite. Equity (high risk), Deb (low risk), and Hybrid funds (medium-risk).
ULIPs, in addition to the death benefit, offer partial withdrawals after the lock-in period for five years has expired. They also allow switching between funds.
- Money-Back Policies
Money-Back policies pay a percentage of the insured’s assured amount at set intervals. These payouts are called survival benefits. The policy matures, and the insured receives the remaining sum assured, along with any bonus accumulated.
- Child Plans
With the help of a plan for children, a policyholder can raise funds for their child. It creates a corpus that can be used in the future to fund a child’s education and marriage. The beneficiary will receive the assured sum in the unfortunate event of the policyholder’s premature death.
- Retirement Plans
Planning for retirement is a way to make financial plans for the years after retirement when you might not have any income. These plans pay a fixed amount each month to build a corpus used to provide lifetime income for the insured after retirement.
What’s General Insurance?
General Insurance covers any policy that protects assets and valuables, such as vehicles, homes, travel, health, and against loss, theft, or damage. The key difference between general insurance and life insurance is that the former provides financial protection against loss or damage other than to life.
What Types of General Insurance are There?
There are many types of general insurance policies:
- Health Insurance
The insured can get medical and surgical expenses through their health insurance. It protects against medical emergencies. The terms of a medical plan will determine whether the insurance provider pays the hospital directly or reimburses the insured.
- Motor Insurance
Motor Insurance offers personal and commercial vehicles financial protection against damage, theft, accident fire, natural calamities, and other factors. There are two types of motor insurance policies that are important:
- Comprehensive insurance – This protects both parties in an accident. It also protects against the situations mentioned above.
- Third-Party insurance – This covers the third party involved in an accident. Motor Vehicles Act requires that all four-wheelers and two-wheelers have third-party coverage.
- Travel Insurance
A travel insurance policy is a good investment if you are prone to frequent travel. This insurance policy protects against baggage loss, delays or cancellations of flights, injuries, and hospitalization costs during a trip.
- Home Insurance
A house is an important asset in someone’s life. Home insurance offers financial protection against damage to the house and its contents from natural or artificial disasters.
Life Insurance Vs. General Insurance – Differences
Life and general insurance offer different types of coverage, as we have already discussed. Let’s compare the key differences between general and life insurance to understand what they mean.