TeamAckoNov 2, 2023
Are you unsure about which insurance policy to invest in - General Insurance or Life Insurance? Grasping these differences in these plans is vital to securing the right protection for yourself and your loved ones. While both serve the purpose of providing financial security, they differ in terms of coverage, premium, and other key aspects. In this article, we will provide an overview of General vs. Life insurance in India, highlight the key differences between them, and help you make an informed decision.
General insurance, also known as non-life insurance, provides coverage against various risks and losses. Some common types of general insurance policies in India include health, motor, home, travel, and personal accident insurance. They are typically short-term, and the premiums are relatively lower than life insurance policies.
Life insurance provides coverage against the risk of premature death, ensuring financial security for the policyholder's family members. In case of the policyholder's death, the insurance company pays the nominee a lump sum (also known as the death benefit). Some life insurance policies available in India are term insurance, whole life insurance, endowment plans, and ULIPs (Unit Linked Insurance Plans). They are long-term, and the premiums are generally higher than general insurance policies.
Here are the differences between general and life insurance plans in India.
Term of contract
One of the major differences between Life Insurance and General Insurance is the duration of the policy. In case of Life Insurance, the term of contract is a longer period. The insured person will have to pay the premium for 15-20 years or more.
Whereas in General Insurance, the term of contract would be a shorter period.
The premium for a Life Insurance is paid regularly in intervals, like monthly, quarterly, half-yearly or yearly.
Whereas, for General Insurance, the premium is paid all at once, usually at the purchase of the insurance or at the renewal of the insurance.
In case of Life Insurance the sum assured is paid to the injured in either two cases. The payment is made to the nominee if the policyholder passes away, or if the policy term is completed, it is disbursed directly to the policyholder. This means if the policyholder is not dead upon the completion of a predetermined time, he/she would get the sum assured by the policy.
But in case of General Insurance you can claim the sum insured only in case of certain events like accidents, hospitalisation, damage, etc. You cannot claim your insurance in other situations.
While it is true that the policyholder can choose the type of policy and the amount of coverage they want, the insurance company ultimately sets the premium rate and the sum assured. The sum assured is calculated based on a formula called the Human Life Value, which takes into account factors such as the policyholder's age, income, expenses, and future earning potential. So, while the policyholder may choose a policy value or sum assured that they deem fit, the actual value is determined by the insurance company based on the human life value formula.
Whereas the policy value, or sum insured of a General Insurance, is determined by the value of the article insured (except for health and travel). You would not get more money than needed to compensate for the damage of your property or vehicle. In case of Health Insurance, you will only get the money that is needed to cover the hospital expenses and no more.
Some life insurance policies, such as endowment plans and ULIPs, offer maturity benefits in addition to death benefits. The maturity benefit is paid to the policyholder if they survive the policy term.
General insurance policies do not offer any maturity benefits as they are short-term policies.
Here are some of the types of policies you can buy under General Insurance in India.
This is one of the fundamental types of General Insurance. In this, the insurer agrees to pay the hospital expenses of the insured person or people. This is helpful with medical emergencies and grave illnesses. You can buy health insurance for specific health concerns like cancer cover, accident cover, etc. Also, one can buy health insurance for just themselves (for one individual) or for their whole family.
This is another common type of General Insurance where one can insure their motor vehicle against accidents and other damages. In case of an accident or any damage caused to your vehicle because of a natural disaster, fire etc. Motor Insurance can also be of two types: Comprehensive insurance and Third-party insurance.
Here, in case of a motor accident, both the parties will be paid the money to compensate for the damages caused. This type of Motor Insurance also covers the damage caused by natural disasters or human-made damages to the vehicle.
In case of an accident, the third party involved in the accident would be compensated. This type of insurance has only a lower premium than comprehensive insurance.
You can also insure your home against damages caused by natural disasters or accidents like earthquakes, cyclones, floods, or theft. The insured company will carefully assess the extent of the damage and pay for the loss of the individual.
A traveller can buy travel insurance just before travel. The travel insurance will cover for the unexpected situations in a trip, like the loss of your luggage, or delay or cancellation of a flight etc. They can also claim the travel insurance in case of an accident or hospitalisation during the trip.
Here are some of the types of policies you can buy under LifeInsurance in India.
It is a popular and straightforward option, providing life cover without any savings or profits component.
These policies typically pay out a lump sum amount at maturity or upon the death of the policyholder.
They combine Life Insurance with investment options, providing flexibility in terms of investment and asset allocation, allowing policyholders to choose from a variety of investment funds.
A retirement plan helps in financial planning for post-retirement years when one may not have a regular source of income. This type of insurance plan provides a guaranteed payout after retirement. The policyholder can choose the premium amount, the policy term, and the sum assured.
These plans provide life cover for the entire lifetime of the policyholder, and the policyholder is guaranteed a payout upon their death, regardless of when that may be.
Money back policies in life insurance offer periodic payouts during the policy term, providing a source of income for policyholders and their families.
Child insurance plan helps parents build a corpus for their child's future needs. The policyholder can choose the premium amount, the policy term, and the sum assured. The premiums paid towards the policy are invested, which helps in generating returns. In case of the policyholder's unfortunate demise, the beneficiary will receive the sum assured.
Here are some things that you must consider while investing money in an insurance policy.
Understand your needs: The first step in buying an insurance policy is understanding your needs. You need to assess your financial situation and determine the type and amount of coverage you require. Consider your age, health, income, and other factors affecting your insurance needs. For instance, if you have a family, you may need to purchase a life insurance policy that provides financial protection to your loved ones in case of your untimely demise.
Research different types of insurance policies: Different types of insurance policies are available in the market. Before choosing a policy, research and compare different policies to determine which suits your needs. Some of the common types of insurance policies include health insurance, life insurance, home insurance, and automobile insurance.
Compare premiums and coverage: The premium is the amount you pay for the insurance policy. While choosing an insurance policy, comparing the premiums and coverage offered by different insurance companies is essential. Consider the deductibles, co-payments, and other fees associated with the policy. Choose a policy that offers adequate coverage at an affordable premium.
Check the insurance company's reputation: Before buying an insurance policy, it is crucial to check its reputation. Review reviews and testimonials from existing policyholders to determine whether the company is reliable and trustworthy. Check if the company has a good financial standing and a history of paying claims on time.
Look for discounts: Insurance companies offer discounts to policyholders who meet certain criteria. For instance, if you have a good driving record, you may be eligible for a discount on your car insurance premium. Similarly, some companies offer discounts to policyholders who pay the premium annually instead of monthly.
Read the policy document carefully: Before signing on the dotted line, it is essential to read the policy document carefully. The policy document contains the terms and conditions of the policy, including the coverage, exclusions, and limitations. Make sure you understand the policy's terms and conditions before purchasing it.
Understand the claims process: The claims process is filing and settling a claim with the insurance company. Before buying an insurance policy, it is essential to understand Life Insurance claims process. Check if the company has a user-friendly claims process and offers round-the-clock customer support.
The coverage amount you need in a term insurance plan depends on various factors such as your income, liabilities, and financial goals. As per the thumb rule, you should opt for a coverage amount that is at least 10-15 times your annual income.
Before buying life insurance, ask questions such as how much coverage you need, what the policy term should be, what the premium payment frequency is, what the policy features and benefits are, and what the claim settlement process is.
A formal request made to an insurance provider for reimbursement of losses covered under an insurance policy is known as an insurance claim.
In insurance terms, risk is the chance of something harmful or unexpected happening. This might be the loss, damage, theft of valuable property and belongings, or someone being injured.
You can determine the amount of coverage you require by considering your age, health, income, and other factors that may affect your insurance needs.
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