When someone advises you to get insurance either for yourself, your possessions or your loved ones, they don’t really tell you about the different kinds of insurance that are available. Most of you know are aware of the two most common types of insurance policy: life insurance and general insurance. But what is the difference between the two and how can they benefit you and your family in the hour of need?
Selection of a right insurance policy is vital for everyone who wants to avail and reap all its advantages. Here is a simple guide on the difference between general insurance and life insurance that could help you in understanding both these two terms better.
General insurance
General insurance is a general term used for all the insurance plans that provides security for all entities other than life. Examples of this include your health insurance and insurances against theft, natural disasters, accidents and so on.
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Timely premiums are needed to be paid for the value of protection you choose. The insurance company is then liable to pay the assured sum if any damage occurs to the insured thing.
Life insurance
Life insurance promises specific financial compensation to the beneficiary in case of the death of the insured person. To avail the insurance benefits, the policyholder is liable to pay the premium amounts timely as per the chosen plan policies. There are different types of life insurance policies offered by insurance companies based on requirements like Term life insurance plan, endowment plans, money back plans etc.
Difference between general insurance and life insurance policy
1. Terms of contract
One major difference between general insurance and life insurance is the duration of the policy. The life insurance plan is a long term plan and requires the policyholder to either pay a lump sum or monthly, quarterly, or yearly based regular and timely premiums for a specified amount of time. For example, upto 15-20 years or for the entire lifetime of the policyholder.
On the other hand, a general insurance is a short term plan that is normally renewed on a yearly basis.
2. Purpose
The main purpose of life insurance is to provide financial stability to your family and dependents in your absence. Financial stability for your family would help them in maintaining their lifestyles, providing for kids’ education, squaring off your liabilities and helping them in satisfying their daily needs through the amount received on such plans after the demise of the policyholder.
Most importantly, the life insurance death benefit is paid out in case of death of the policyholder, or the maturity benefit is paid in the event of the policyholder surviving the policy duration.
On the contrary, the general insurance makes claims settlement and payouts in cases of an unexpected material loss, for eg, accidental damages, theft, disfigurement of vehicle, travel glitches etc. These are important in the context of compensation for the loss, to the extent they covered the losses in accordance with the policy plan.
Thus, the difference between general insurance and life insurance on the basis of the purpose they serve is an important factor.
3. Claim of insurance amount
In case of a life insurance policy, the sum assured is paid to the nominee in the event of the policy holder’s death during the policy term. The sum assured may also be returned to the policyholder in the event of maturity of the policy plan.
In case of endowment and money back plans, the interest earned on investments is also paid by the insurance company. Another important point to remember is that in case of a critical illness, the policy holder is allowed to claim life insurance benefits in the event of diagnosis of the disease or other health conditions covered under the policy.
The time period for claim of insurance amount serves as yet another factor of difference between general insurance and life insurance policy. The insurance claim of a general insurance depends on different events.
For example, a general health insurance is only allowed to be claimed after hospitalisation in case of a medical emergency or ailment diagnosis. In the similar manner house, motor vehicle or travel insurance can only be claimed if any actual loss or damage happens to the insured asset due to an unfavorable event of robbery, accident and so on.
This is thus yet another factor that serves as a major difference between general insurance and life insurance policy.
4. Insurable Interest
In the case of life insurance in India, the policyholder may likely be present only at the time of issuance of the policy and not at the time of claim because the claim occurs upon the event of his/her demise.
On the contrary, for general insurance, there is a compulsion that the policyholder has to be present both at the time of issuance of contract and at the time of filing of the claim. This is another point of difference between general insurance and life insurance policy.
5. Policy Value
The policy value for a life insurance plan depends on the choice and preference of the policy holder. One fixes the amount of sum assured depending on the requirements of his/her family and his/her ability to pay premiums. The sum assured is then paid back to the policyholder at the time of maturity period or to the nominee in case of his/her demise.
On the contrary to life insurance, the policy value of a general insurance is influenced by the value of the asset against which insurance is done. The policy value in the case of general insurance is based on the damage suffered and not on the sum assured.
6. Benefits of maturity
Another factor of difference between general insurance and life insurance lies on the benefits of their maturity. Life insurance can also be seen as a form of investment apart from insurance as it offers maturity benefits after completion of specific tenures.
On the other hand, general insurance mostly does not offer any confirmed maturity benefits but just promises a payout amount in case of any loss to the insured asset caused due to unavoidable circumstances.
Conclusion
It is undeniable that there is a difference between general insurance and life insurance and that both have different applicability and benefits. When on one hand, life insurance helps you to protect your loved ones after your demise, a general insurance protects your assets against all sorts of future damages and losses on the other.
For example, a simple travel insurance policy worth Rs 5000 will save you from all the unnecessary expenses and hassles during travelling and a life insurance policy plan will ensure that if you pay a regular premium of Rs 7,500, your family will receive around Rs 10 lakhs after your demise.
Talking over what is better, we can conclude that despite the difference between general insurance and life insurance, they both offer and ensure a unique blend of benefits in their own way! You should go in for the plan according to your need.
Availing a plan with required benefits offered by a high-rated insurance company can surely help you in the management of your liabilities and securing yourself better.