Insurance is one of the important aspects of financial planning. It covers you, your dependents, and your assets against any financial losses experienced in case of an unfortunate event.
*Tax benefit is subject to changes in tax laws. *Standard T&C Apply
** Discount is offered by the insurance company as approved by IRDAI for the product under File & Use guidelines
The insurance concept is quite simple to understand – the policyholder is required to pay a certain amount as a premium 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. Lets discuss both types of insurance in detail and their several aspects:
As the name suggests, Life insurance covers your life. In case of the life assureds premature death within the policy term, the insurer pays the life cover (sum assured) in the form of a death benefit or maturity benefit to the nominee. One of the important financial tool, life insurance, offer your loved one financial relief in difficult times and helps them stay independent. It is one of the smart ways for securing your familys financial future and creating wealth in case of an unforeseen event. Heres all you need to know about life insurance:
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 benefit as lump sum life cover, which is provided to the nominees/beneficiary in case of unforeseen death of the policyholder. There is a variant of term insurance that offers maturity benefits along with death benefits, called Term insurance with Return of Premium (TROP). In comparison to the traditional policy, TROP is more expensive in terms of premium rates.
Individuals who are looking out for insurance and investment benefits in a single plan can choose to invest in endowment plans. In this, some section of the premium amount is used for the life cover, while the remaining amount is used for the purpose of investments. In case of the death of the policyholder, the nominee receives the sum assured amount as a death payout. If the life assured survives the policy term, then he/she receives both maturity payout and the accumulated bonus.
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 15 years 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 last of the policy.
In ULIPs, the premium a policyholder pays is half invested in an insurance cover and the remaining amount is invested in the market. Depending on the risk parameter, the insurance company distributes the fund in debt, equity, or hybrid assets. The lock-in time for ULIPs is 5 years. It provides the life cover benefits and the opportunity to create an important corpus for the future.
The whole life insurance plan provides life coverage to the life assured for their entire life until the premium amount is paid. If the policyholder dies, the beneficiary/nominee gets a maturity benefit. It is an ideal plan for those who want to remain insured for their whole life.
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 on time are required to be paid for the protection amount chosen by the policyholder. The insurer is then eligible to pay the life cover if any theft or damage occurs with the assured.
With the rising costs of healthcare, a health insurance plan offers financial support by paying off the expenses incurred for any medical emergency. It is one of the most common types of general insurance that provides coverage against hospitalization expenses and medical emergencies. The policyholder can purchase individual insurance cover, senior citizen health insurance, and family floater health insurance. Also, if you are at risk of suffering from a life-threatening ailment, you can buy a critical illness insurance plan.
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 two types of motor insurance plans, third-party insurance that provides the liability coverage only and compensates the loss of a third party and a comprehensive policy secures vehicle, hospitalization expenses, and third party coverage.
Home insurance secures your home and its possessions against loss or damages because of man-made or natural disasters. Some insurance plans also provide coverage for temporary living expenses if your house is under renovation.
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 meet with an unforeseen event such as an accident or loses their luggage, then they can claim travel insurance to cover these costs.
As discussed, life insurance and general insurance are different types of insurance. General Insurance covers any risk except for the life-risk of the insured individual. Whereas, life insurance covers only the risk of the life of the policyholder.
The below table illustrates the difference between life insurance and general insurance
|Criteria||Life Insurance||General Insurance|
|Meaning||Life insurance covers the risk of the life of the insured person||General insurance covers the non-life assets|
|Type||It is a type of investment||It is an indemnity contract|
|Contract term||It is a long tenure contract||It is a short tenure contract|
|Savings||Various insurance plans provide a saving component inclusive of the plan. They help the life assured to create wealth by building a corpus for the future||These plans have no such savings component. They are indemnity plans.|
|Premium||Premium is to be paid throughout the year at regular intervals such as monthly, quarterly, or annually.||Premium is to be paid as a lump sum|
|Claim||The insurable amount is payable either on the happening of the event or on maturity||The loss is reimbursed or the benefit based amount is paid in case of any eventuality|
|Insurable interest||It should be present during the contract||It should be present during the contract and loss|
|Policy Value||The policy value depends on the policyholders preferences. One can fix the sum assured based on the familys requirements and the ability to pay premium amounts.||The policy value is influenced by the assets value. It is based on the damage suffered and not on the sum assured amount|
|Role in planning finances||It is an investment avenue for several financial objectives such as retirement corpus, money for a childs education, etc.||It protects your valuables against any type of financial crisis|
We live in a world full of unpredictability. Insurance helps in tackling these uncertainties by offering financial assistance when you require it the most. You should understand that every type of insurance i.e., life and general insurance is specifically designed to serve your requirements to live a comfortable life.
Both life insurance plans and general insurance plans have different benefits and applicability. Life insurance plans help you secure your family in your absence, whereas general insurance secures your assets. A policy with relevant benefits, offered by top-rated insurers can help in managing your liabilities and protect against financial crisis.
13 May 2022Many Individuals consider life assurance and life insurance as...
11 May 2022Are you planning to purchase a life insurance policy? If yes...
06 May 2022Whether your life insurance policy coverage will remain in force...
05 May 2022Understanding the importance of life insurance and its small...
05 May 2022Life insurance plans secure your life goals and protect your...