Insurance is a massive market that offers many types of products to shield you and your kin from the uncertainties of life. These insurance products range from health to motor to life to travel. Each type of insurance has a different style of functioning and provides you with diverse benefits and features.
For instance, a health insurance plan protects you from healthcare expenses. Life insurance offers your loved ones a sum of money if something happens to you and also helps you cover your financial goals. Motor insurance covers any damage or loss that happens because of or to your vehicle. And so on
In this article, we’ll be talking about two major types of insurance - Life Insurance & General Insurance. So, read on!
Life insurance, as the name suggests, covers your life. It is a contract between you and your insurance company wherein the company promises to pay your family a sum assured if you pass away during the policy term. The payout can help your loved ones cover expenses such as funeral costs, outstanding debts, and other financial obligations. For this, you will be required to make regular premium payments.
In addition to the death benefit, some life insurance plans also offer a maturity and survival benefit if you survive the policy term.
There are different types of life insurance policies to choose from, with their own sets of features and benefits. These include –
- If you're simply looking to protect your family's financial future by assuring them a fixed amount of money if you pass away during the policy term, you can opt for Term Insurance.
- If you're looking for coverage that lasts for your entire life, i.e., up to 99-100 years of age, you can opt for Whole Life Insurance. It guarantees a death benefit to your nominee/s if you pass away during the policy term or a maturity benefit if you survive the policy term.
- If you're looking for a combination of insurance and savings, an Endowment Plan might be suitable for you. This type of policy provides a lump sum amount to your nominee in case of your untimely death or to you if you outlive the policy term.
- If you're looking for a policy that provides both insurance and investment, a Money-Back Plan could be an ideal option. This type of policy offers periodic payouts during the policy term along with a life cover.
- If you're seeking a policy that allows you to invest in the stock market, you can consider a Unit-Linked Insurance Plan (ULIP). This type of policy provides life insurance coverage while parallelly investing a portion of your premiums in the stock market as per your risk appetite.
- If you're concerned about your children's financial security, you can consider purchasing a Child plan. Depending on the product, the insurer provides a sum of money for their milestones.
For example, Javed is a married man with two young children. He is the sole breadwinner of his family and wants to ensure that his loved ones are financially protected in case something happens to him. He decides to buy a term life insurance policy with a sum assured of Rs. 50 lakhs for a policy term of 20 years and chooses his wife to be the nominee. Unfortunately, Javed meets with a fatal accident after 5 years and passes away. His wife raises a claim and the insurance company pays out the sum assured of Rs. 50 lakhs to her. She can use the money to pay off any outstanding loans and for their children's education and future expenses.
General insurance provides coverage for risks other than life. This type of insurance protects assets like your health, property, vehicle, etc. from a range of potential risks that could lead to financial loss.
There are various types of general insurance policies to choose from, depending on your needs and circumstances. Here are some of them -
- Motor Insurance
It provides coverage for your vehicle against damage, theft, accidents, etc.
- Home Insurance
It protects your home against damage or loss due to events such as fire, flood, theft, etc.
- Health Insurance
It provides financial protection against the costs of medical treatment in case of an illness or injury.
- Travel Insurance
It covers unexpected events such as trip cancellations or medical emergencies while travelling.
When you purchase a general insurance policy, you enter into an indemnity contract with the insurance company. In exchange for paying a premium, the insurance company agrees to compensate you for any expenses you may incur due to damage or loss to your assets. By having the right general insurance policy in place, you can protect yourself from unexpected financial losses without having to dip into your savings.
For example, Harsh recently purchased a car and bought a comprehensive car insurance plan. She was driving on the road and accidentally crashed into a vegetable stall, causing significant damage to both the stall and her car. Her comprehensive car insurance will cover both the damage caused to the stall and her own car.
While both policies provide a safety net in case of unexpected events, let us now compare the differences between them.
Life Insurance Vs General Insurance
The main purpose is to cover life.
General insurance does not cover life. It covers assets like your health, vehicle, house, etc.
It provides financial security to you and your loved ones. Depending on the type of policy you choose, you or your nominee will receive the sum assured - depending on the circumstances.
General insurance policies operate on the principle of indemnity. This means that if there is any damage or theft of the covered assets, the insurance company will pay up to the limit specified in the policy.
A long-term contractual agreement that provides coverage for a specific period of time or for the duration of an individual's life.
Typically short-term plans that can be renewed periodically based on the chosen policy term.
Fixed premiums that are to be paid at regular intervals during the policy term.
The payment can be made annually, half-yearly, quarterly, monthly, as a lump sum, or for a limited period - depending on the option you select at the time of policy purchase.
Premiums are determined based on various factors such as the condition, value, depreciation of the insured asset, etc.
As these policies are usually short-term contracts that need to be renewed periodically, the premiums are typically paid at the start of the policy term - but you have the option of paying it monthly, quarterly, etc.
If you pass away during the policy period, your nominee will receive the claim amount. On the other hand, if you survive the policy term, you will receive the claim amount (except for term insurance).
Claims are paid out in the event of loss or damage occurring during the policy year.
For example, in the case of health insurance, a claim can be made only after you have been diagnosed with a covered illness, undergone hospitalisation, or incurred other eligible medical expenses as specified in the policy. Similarly, travel, home, or vehicle insurance claims can only be made if there is damage or loss because of an accident or specific event.
The claim amount payable to you or your nominee is referred to as the "sum assured".
Depending on the policy type, the sum assured and benefits of the insurance policy will be paid to your nominee if you pass away during the policy term or to you if you survive the policy term.
The claim amount is known as the "sum insured".
This amount is paid out up to the actual loss or damage amount, according to the policy limit.
Life Insurance and General Insurance are both critical components of financial planning. They provide different types of coverage to protect you and your family members from unforeseen circumstances. By understanding the differences between the two, you will be able to choose the ideal insurance policy depending on your needs.