Most of you probably already know that there are two main kinds of insurance: life insurance and general insurance. But you probably have a straightforward question: What is Life Insurance? And what is general insurance? What are the main differences between the two, and how can they help you and your family when you need them? Choosing the right insurance is very important if you want to get the most out of it. Here is a guide to insurance that is both simple and thorough so you know when to choose what.
Life Insurance
Life insurance, like the name suggests, is a cover for your life. Life insurance can help your family out financially when things are hard. This kind of insurance helps protect the nominee’s (spouse, children, etc.) finances in case something unfortunate happens with the life insured. It is also sometimes used as a way to invest. An example of life insurance that offers investment opportunities is a ULIP.
Unit Linked Insurance Plans are a popular type of life insurance in India: These plans offer both growth of money and life cover. Under one plan, policyholders can get the benefits of both insurance and investments.
A life insurance premium calculator provides a premium estimate based on several factors so that you can find an affordable life insurance plan that fits your needs.
General Insurance
Life insurance covers a person’s life, but general insurance covers other parts of their lives and assets, like their health, car, travel, home, etc. This type of insurance provides financial protection to assets against damage by fire, natural disasters, accidents, or man-made disasters like riots or terrorist attacks. Life insurance provides similar protection against the financial consequences of passing away, while general insurance protects against other risks that could affect a person’s health or some of their physical assets, like a home or a car.
Health insurance, car insurance, travel insurance, etc., are all types of general insurance.
*Please note: Some insurance premiums are tax-deductible. The amount varies under the old and new tax regimes and is subject to change.
Differences between general insurance and life insurance that are important to know:
Renewal frequency
The renewal requirement of the policy is a big difference between the two. Life insurance plans are long-term and require policyholders to pay a premium, either in a lump sum or regularly every month, quarter, or yearly for a long time. For example, anywhere from 15 to 20 years to a lifetime. Renewal is rare with life insurance.
On the other hand, general insurance plans require yearly renewal.
Premium payment
A life insurance policy’s premium can be paid regularly, like once a month, three times a year, or once a year. On the other hand, the premiums for general insurance policies are always paid all at once when the policy is bought or renewed. In the case of travel insurance, where a person only pays a premium when they purchase insurance for a specific trip, this may be different.
Insurance Claim
With a life insurance policy, if the policyholder passes away during the policy term, the sum assured is paid out to the dependent. If you invest in return of premium plan, the premiums paid are given back when the policy ends. If the policy is an endowment or a money-back plan, the insurance company also pays back the gains earned on savings and investments. Another vital thing to remember is that if the policyholder gets a critical illness, they can get life insurance benefits. This is only if the disease or health condition covered by the policy has been diagnosed. This is true if the appropriate rider was chosen when the policy was bought.
A general insurance claim can be based on several different things. For example, you may only be able to use your general health insurance if you have to visit a hospital because of a medical emergency or a doctor’s diagnosis. In the same way, you can only make a claim on your home, car, or travel insurance if you’ve lost or damaged an asset because of something bad, like a robbery, an accident, or something similar.
Policy Value
A life insurance plan’s policy value is based on the policyholder’s wants. One can choose the amount of coverage based on what their family needs and how much money they can pay for premiums. The sum assured is given back to the policyholder’s nominee in the event of the policyholder’s demise.
In general insurance, unlike life insurance, the policy’s value depends on the asset’s value. In this case, the policy’s value is based on the damage, not on the amount of money that was guaranteed.