Difference Between Life Insurance And General Insurance

Life Insurance is a contract between the policyholder and the insurance company where the beneficiary is designated to receive stated monetary benefits in case of death of the insured person. General insurance provides cover for risks other than life-risk. It may ensure your health, car, house, property and other valuables from accidents and disasters.Let’s further discuss life insurance vs general insurance .

Life insurance promises specific financial compensation to the beneficiary in case of the demise of the insured person. To avail the insurance benefits, the policyholder is liable to pay the premium amounts regularly and timely, as per the policies of the chosen plan. There are different types of life insurance policies available in the market based on various requirements:

1. Term life insurance plan:

This type of insurance is the most preferred policy as it is affordable and offers decent coverage. The policy offers death benefit in the form of lumpsum sum assured, which is provided to the beneficiary if the policyholder has a sudden demise. There is also one more variant of term insurance that provides maturity benefit along with death benefit. It is known as Term insurance with Return of Premium. As compared to the traditional plan, TROP is much expensive in terms of premium.Read also : The Basics of a Unit Linked Insurance Plan or a ULIP

2. Endowment plans:

Those seeking investment and insurance benefits in a single policy choose to invest in endowment plans . Some part of the premium is used for sum assured, while the rest amount is used for investments. In case of policyholder's death, the nominee receives the sum assured as a death benefit. If the policyholder survives, he/she gets both maturity amount as well as the accumulated bonus.

3. Money Back Plans:

This type of insurance works like an endowment plan, but the only difference is that Money Back Plans pay a certain amount at intervals. For instance, if you have purchased a policy with a term period of 15 years. As per the terms of the policy, you receive a certain amount at the end of the 5th and 10th year. You get the sum assured and accumulated bonus at the end of the policy.

4. ULIP (Unit linked insurance plan):

Under ULIPs , the premium you pay is half invested in insurance coverage, and the rest amount is invested in market securities. Based on your risk factor, the insurer diversifies your fund in equity, debt, or hybrid assets. ULIPs have a lock-in period of 5 years. It allows partial withdrawal. It offers the benefit of life cover and the opportunity to create a significant corpus for your future.

5. Whole life insurance plan:

As the name suggests, Whole Life Insurance Plan offers life cover to the policyholder for their entire life until the premium is paid. If the insured person passes away, the beneficiary receives maturity benefit. Those who want to remain insured for the whole life is an ideal plan.

General insurance is a general term used for all the insurance plans that safeguard things other than life, such as your health and valuables against theft, natural disasters, accidents, etc. Timely premiums are to be paid for the value of protection chosen by you. The insurance company is then liable to pay you the assured sum if any damage or theft happens to the insured entity.

1. Health insurance:

With healthcare costs rising rapidly, a health insurance cover provides financial assistance by compensating for the expenses incurred for any medical issue. You can either buy individual cover or family floater health insurance or senior citizen health insurance. In case you think you are at risk of suffering from a life-threatening disease in the future, you can also opt for Critical Illness Insurance Policy as a standalone.

2. Motor insurance:

Whether you own a two-wheeler or a four-wheeler vehicle, you must have at least third-party insurance as per the Motor Vehicles Act. This is one type of Motor insurance; there is another policy known as Comprehensive Motor insurance. As against the third party that provides only the liability cover and compensates for third-party loss, a comprehensive policy covers right from safeguarding your vehicle, your hospitalization costs, and Third-party coverage.

3. Home insurance:

This type of insurance protects your home and its belongings against damages or loss due to man-made or natural calamities. Some insurance policies also cover temporary living expenses if your home is undergoing renovation.

4. Travel insurance:

Whether you're a frequent traveler or love to go on an international trip once in a year, you should always think of buying travel insurance. It offers a host of coverage and benefits such as compensation in case of loss of baggage, valuables, loss of passport, missed flight, trip cancellation, medical expenses, etc.

1. Benefits of maturity: Life insurance can be seen as an investment apart from insurance as it offers maturity benefits after specific tenures. General insurance, mostly, doesn’t give any maturity benefits but just promises a payout amount in case of any loss due to unavoidable circumstances.
2. Premium payments: In case of life insurance, generally a fixed amount is to be paid annually, for a specific tenure like 10 or 20 years. For general insurance, mostly the entire premium is paid in one go when you are buying the policy.
3. Policy Duration: The duration of life insurance policy is generally long-term, whereas that of general insurance is short term.
4. Role in planning finances: Life insurance can be an investment avenue for different financial goals such as money for a child’s education, retirement corpus, etc. General insurance just protects your valuables against any crisis.
5. Claim of Insurance Amount: In case of life insurance, the assured sum is paid either on the death of the insured person or maturity of the policy. For general insurance, the loss is compensated in case of unfortunate events, as per the policy terms and conditions.

Read also : What Is Health Insurance – Features You Must Know

Both, life insurance and general insurance have different applicability and benefits. Life insurance helps you to protect your loved ones in your absence, whereas general insurance protects your assets. A plan with required benefits, offered by high-rated companies, can help you manage your liabilities and be secured.

• Both life insurance and general insurance policies help in fulfilling your financial goals. The former aims to provide coverage to you and your loved ones, while the latter safeguards health and valuables against unpredictable situations.
• Life Insurance: Whether you’re living with dependent on your family or not, having a life insurance policy is significant as it protects your loved ones financially if you die in an unfortunate event.
• General insurance: Similarly, buying general insurance policies like motor insurance, home insurance, travel, and health should be a priority. For instance, if you’re suffering from any illness, the health insurance company takes care of the expenses while receiving quality medicare. In case your vehicle or home gets damaged in any disaster, you’re liable to get compensation.
• In a way, life insurance and general insurance types help protect your hard-earned income and savings.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.