Difference Between Life Insurance and General Insurance

All you need to do is pay a certain amount as regular premiums to the insurance company in exchange for the life cover offered by the policy. However, depending on what your insurance policy covers, they are categorized as Life insurance and general insurance. In this article, we will discuss the difference between life insurance and general insurance in detail and their several aspects.

What is Life Insurance?

Life insurance covers your death and in case life assured dies within the policy period, death benefit is paid by the insurance company to the nominee in policy. Life Insurance policies not only provide financial support to the family in case of death of the deceased but also the policy may include insurance plus investment or savings features besides the term policy that is mainly used for providing the life cover at the least premium.

Let us take a look at the different types of life insurance.

What Are The Types of Life Insurance?

1. Term Life Insurance Plan

   Term insurance, a pure life protection plan is the most common plan available as it is affordable and provides high coverage at low premium rates. The term plan offers death benefits as lump sum life cover, which is provided to the nominees/beneficiary in case of unforeseen death of the policyholder.

2. Term Return of Premium Plans

   Term return of premiums is a type of term insurance plan that offers the premiums paid towards keeping the policy active, back to the policyholder at the end of the policy term in case of policy survival whereas, if the policyholder suffers an unfortunate death during the policy term, then the nominee will receive the death benefit. The premiums returned are subject to GST deductions and the plan can be extended to a policy term of 100 years.This variant of term insurance is especially suitable for those who have dependants

3. Zero-Cost Term Plans

   Zero-cost term plans are a variant of term life insurance plans that allow policyholders to gain life cover until a specific age (decided by the insurer) and receive the premiums paid, back at the end of the policy tenure. These plans provide a death benefit to the nominee of the policyholder in case he/she suffers an unfortunate death, or a return of all the paid premiums (excluding GST) if the policyholder survives the policy term.

4. Whole Life Insurance Plans

   Whole life insurance policies offer protection under the plan for your entire life i.e., 100 years. They give you the chance of creating wealth by saving regularly while being protected under the plan’s insurance portion. In this plan, you only have to pay the premiums for a limited period of time and gain life cover for your whole life. It is an ideal plan for those who want to remain insured for their whole life.

5. Endowment Plans

   Guaranteed return plans or endowment plans provide dual benefits of insurance and investment in a single plan. In this, a part of the premium amount is used for the life cover, while the remaining amount is used for investments. In case the policyholder dies of unforeseen reasons, the nominee receives the sum assured amount as a death payout. If the life assured survives the policy term, then he/she receives both the maturity payout and the accumulated bonus.

6. Money-Back Plans

   This type of life insurance policy works just like an endowment plan, but the only main difference is that the Money-back policies pay a specific amount at intervals. For example, if you have bought a plan with a 15 year time period. As per the terms of the plan, you get a certain amount at the last of the 5th and 10th policy years. You receive the life cover and accrued bonus at the end of the policy.

7. Unit Linked Insurance Plan (ULIP)

   In ULIPs, a portion of the premium paid by the policyholder is invested in an insurance cover, and the remaining amount is invested in the market. You can select the type of funds you want to invest in, depending on your preferred risk parameter. The insurance company distributes the fund in bonds, equity, or hybrid assets. The lock-in time for ULIPs is 5 years. It provides both, life cover benefits and the opportunity to create a substantial corpus for the future.

8. Retirement Plans

   Retirement plans are meant to secure your post-retirement life by providing a regular pension after the end of your regular monthly income. In this plan, you have to pay your premiums regularly and at the onset of your retirement, you will receive the collected amount. These are most suitable who want to secure their retirement life by staying financially independent.

9. Child Plans

   Children's plans can help you secure your child’s future by providing financial aid in case of your unfortunate death. This investment cum insurance plan can create a large corpus over time for your child’s needs. The returns from these plans can be used to fulfill your child’s dreams or pay for their higher education.

What is General Insurance?

General Insurance is a general term for all the insurance policies that protect things other than life. It provides coverage to other assets and aspects in an individuals life such as health, travel, car, home, etc. This cover also insures assets against theft or damage because of natural calamities, accidents, fires, man-made disasters such as terrorist attacks or riots, etc. Premiums are required to be paid on time for the protection amount chosen by the policyholder. The insurer is then eligible to pay the life cover if any theft or damage occurs to the assured.

What are the Types of General Insurance

General Insurance is an umbrella term for all the insurance policies that protect things other than life. It provides coverage to other assets and aspects in an individual's life such as health, travel, car, home, etc. These types of plans also provide insurance for assets against theft or damage caused by natural calamities, accidents, fires, man-made disasters such as terrorist attacks or riots, etc. In this type of plan, you need to pay the premiums regularly to be eligible to receive life cover against any theft or damage occurred.

1. Health Insurance

   Health insurance plans are the most common general insurance that helps you insure your health. Once you purchase the policy the plan will cover any critical illnesses, ICU charges, daycare procedures, and pre & post-hospitalization expenses. They provide various benefits like cashless hospitalization, regular medical check-ups, and mental healthcare coverage.

2. Motor Insurance

   This type of insurance safeguards vehicles and offers cover against damage because of theft, accident, terrorist attacks, riots, or natural disasters such as cyclones, floods, etc. Whether a policyholder has a 2-wheeler or 4-wheeler vehicle, he/she should have at least third-party insurance according to the Motor Vehicles Act. There are three types of motor insurance coverage offered in India, third-party insurance cover, standalone OD cover, and comprehensive insurance cover.

3. Home Insurance

   The home insurance plans secure your home and its possessions against loss or damages because of man-made or natural disasters. It helps in rebuilding the damaged house or property and covers expensive personal belongings such as jewellery and paintings. Some insurance plans also provide coverage for temporary living expenses if your house is under renovation.

4. Travel Insurance

   Travel insurance is specifically for a trip and an individual can opt for the insurance right before he/she starts a journey. This type of insurance offers financial security against the baggage loss, cancellation or delay of flights, hospitalization or accident expenses, etc. at the time of a trip. If an individual meets an unforeseen event such as an accident or loses their luggage, then they can claim travel insurance to cover these costs.

What Is The Difference Between Life Insurance And General Insurance?

The difference between life insurance and general insurance can be better explained by examining their coverage validity settlement of claims, savings features and how the policy value gets affected as and when premiums are paid.

The table below illustrates the difference between life insurance and general insurance

How Do Life Insurance and General Insurance Claims Differ?

The difference between life insurance and general insurance is also visible in how claims are filed and settled.

Life insurance claims

Making a claim against a life insurance policy usually consists of notifying insurer about the incidence and submitting a filled-out claim form and the relevant evidence. In case of a death claim, one has to submit the policy document, death certificate, identity documents and any other documents that the insurer has asked for. If the claim is accepted, then the beneficiary nominated in the policy gets the benefit amount.

General insurance claim

For general insurance, the policyholder needs to generally notify the insurer of the incident and deliver the pertinent documents. Such evidence may vary with the kind of claim including bills, repair estimate, medical evidence photographs FIR or other supporting records. After verifying the claim, a policy's insurance company will pay the insured amount considering the terms of the policy, coverage and deductibles.

Wrapping It Up!

Knowing the difference between life insurance and general insurance will allow you to make an appropriate choice of insurance which not only matches your family's financial condition, but also covers those risks that you would like to cover. Life insurance plans provide financial security to your family in case of an unforeseen event, whereas general insurance plans protect your assets against any harm caused due to natural or man-made reasons. Choose plans wisely based on your needs.

Note: Check all the best term insurance plan in India.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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