Insurance is one of the most important aspects of financial planning. It covers you, your dependents, and your assets against financial losses experienced in case of an unfortunate event.
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. Let us discuss the difference between life and general insurance in detail and their several aspects:
Life insurance plans cover your life, whereas general insurance plans cover things other than life. In life insurance plans, if the life assured suffers a premature death within the policy term, the insurer pays the life cover (sum assured) in the form of a death benefit to the nominee. If the policyholder outlives the policy term, then he/she will receive a maturity benefit at the end of the policy tenure. Life insurance plans offer your family financial help in your absence by helping them stay independent. The major difference between life insurance and general insurance is that it allows you to create wealth over time while being protected and covered under the plan. Let us take a look at the different types of 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 benefits as lump sum life cover, which is provided to the nominees/beneficiary in case of unforeseen death of the policyholder.
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
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.
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.
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.
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 end of the policy.
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.
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.
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.
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.
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 individual's life such as health, travel, car, home, etc. These types of plans also provide insurance for assets against theft or damage caused due to 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.
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.
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.
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 jewelry and paintings. 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 meets an unforeseen event such as an accident or loses their luggage, then they can claim travel insurance to cover these costs.
As discussed, the difference between life and general insurance is that both provide coverage for living and non-living things. General Insurance covers any risk except for the risk to the life of the insured individual whereas life insurance policies cover the risk to the policyholder’s life.
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.|
|Claim||The policy’s beneficiary receives the life cover in case of the policyholder’s death. On maturity, the life assured may get the sum assured.||The life assured is eligible to receive the guaranteed benefits upon an unforeseen event such as loss or damage of assets which are insured as per the coverage offered in the agreement.|
|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 policyholders preferences. One can fix the sum assured based on the family's requirements and the ability to pay premium amounts.||The policy value is influenced by the value of the assets. 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 child's education, etc.||It protects your valuables against any type of financial crisis|
Life insurance and general insurance plans are both necessary for an individual to lead a stress-free life. 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.
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