In India, insurance is broadly classified as life insurance and general insurance. In this article, we will discuss what life and general insurance are and the difference between the two.
What is life insurance?
Life insurance is a contract between you and the insurance company, wherein the latter promises to pay a specific amount to your family member in the event of your sudden demise, during the policy period. In return, you must pay the premium diligently on time throughout the policy tenure.
There are different types of life insurance policies such as term insurance, endowment plan, ULIP (Unit-linked insurance plan), whole life insurance money back plan, etc. Each of these plans serve a specific purpose that have unique features and benefits.
What is general insurance?
General insurance is an indemnity contract that provides coverage against the risk of loss and damage to your valuables such as health, vehicle, business, and home. General insurance does not come under the purview of life insurance, and it covers everything other than life.
Common examples of general insurance are motor insurance, health insurance, travel insurance, home insurance, marine insurance, and so on.
Now that you know what life and general insurance are, let us look at the difference between the two.
Life insurance vs General insurance
The difference between lifeand general insurance can be drawn on the parameters discussed below:
Different types of life insurance policies such as ULIP, endowment plan, etc., come with maturity benefit along with a death benefit after specific tenures. Thus, life insurance can also be seen as an investment to accomplish your long-term goals.
In contrast, general insurance does not offer any maturity benefits. It only promises compensation for the loss of your valuables due to unfortunate incidents.
Flexibility in premium payment
In life insurance, the insurance companies give you the flexibility to choose the premium payment mode based on your needs and financial condition. The popular premium payment modes in life insurance are regular, one-time, and limited pay.
In general insurance, you must pay the premium in a lump sum when you buy the policy. You don’t have any choice.
Life insurance is generally considered as a long-term financial product. You can purchase life insurance for tenures ranging from 5-40 or more years based on your specific need. Some life insurance policies like whole life insurance provide coverage for entire life.
General life insurance policies are generally short term.
Payment of sum assured
In life insurance, the insurer pays the sum assured to the beneficiary upon demise. If you outlive the policy period, you can get back the sum assured along with the accrued returns/interest/bonus.
In general insurance, the insurance company compensates for the losses you may incur due to unfortunate incidents, as per the policy terms and conditions.
Role of insurance in financial planning
Since life insurance policies have investment and savings components, you can use them to accomplish your financial goals, such as building a retirement corpus, buying a home, etc.
General insurance policies only protect your valuables against the crisis; such plans don’t have an investment component.
Buy insurance and get security against uncertainties
Both life insurance and general insurance serve different purposes and offer different benefits. Ensure that you assess your needs and choose the right plan to suit your needs from a reputed insurance company.