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General Insurance vs Life Insurance
TeamAckoNov 27, 2024
Are you confused between General Insurance and Life Insurance? It does make sense to know the difference as there is life, and then there is general, and each has protection tailored to different needs. While life and general insurance provide financial security, each serves a distinct purpose that helps make them suitable for various situations, whether for coverage or other benefits.
Life Insurance may be considered a lifeline to your dear ones, providing them with a safety net even when you’re no longer around. Benjamin Franklin once said, “An investment in knowledge pays the best interest.” Understanding the difference between general insurance and Life Insurance means you are investing in the future—protecting the loved ones who matter most to you and the assets you value.
Life Insurance vs. general insurance policies have distinct purposes. Life Insurance secures financial support for beneficiaries, while general insurance safeguards assets like health, property, and more.
Contents
- What is the Difference Between General and Life Insurance?
-
- What is General Insurance?
- 4 Different Types of General Insurance
- What is Life Insurance?
- 7 Different Types of Life Insurance
- Things to Consider While Buying an Insurance Policy
- Impact of Lifestyle on Insurance Premiums
- Frequently Asked Questions (FAQs)
What is the Difference Between General and Life Insurance?
Here are the differences between general and Life Insurance plans in India.
PARAMETERS | LIFE INSURANCE | GENERAL INSURANCE |
|---|---|---|
| Term of contract | One major difference between Life Insurance and General Insurance is the duration of the policy. In life insurance, the contract terms are extended. The insured must pay the premium for 15-20 years or more. | In general insurance, the term of the contract would be shorter. |
| Premium payment | The premium for Life Insurance is paid regularly at intervals, like monthly, quarterly, half-yearly, or yearly. | For general insurance, the premium is paid all at once, usually at the purchase or renewal of the insurance. In health insurance, premiums are often paid regularly. |
| Insurance claim | 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 will get the sum assured by the policy. | In general insurance, you can claim the sum insured only in certain events like accidents, hospitalisation, damage, etc. You cannot claim your insurance in other situations. |
| Policy Value | 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 considers 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 insurance company determines the actual value based on the human life value formula. | The policy value, or sum insured of 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 your property or vehicle damage. In Health Insurance, you will only get the money needed to cover the hospital expenses and no more. |
| Maturity Benefits | 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. |
What is General Insurance?
General or non-life insurance covers a loss of fortune resulting from unfortunate events. Unlike Life Insurance, which lasts for the whole life, a general insurance policy is short-term and renewable. It is ideal coverage for specific risks like health, motor, house, travel, and personal accidents.
General insurance policies in India are as varied as they are popular. Some of the most common ones include medical cost-covering health insurance, protection from accidents or theft of your vehicle through motor insurance, protection of your property from damage through home insurance, risks related to a trip through travel insurance, and finally, personal accident insurance for accidents that cannot be forsworn. These policies usually carry relatively lower premiums than Life Insurance since the period covered is shorter and runs annually.
4 Different Types of General Insurance
Here are some of the types of policies you can buy under General Insurance in India.
Health Insurance
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 coverage, accident coverage, etc. Also, one can buy health insurance for oneself (for one individual) or for the whole family.
Motor Insurance
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
Comprehensive Insurance: | Third-party Insurance: |
|---|---|
| -In case of a motor accident, both 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. -Generally, it has a higher premium due to the extensive coverage it provides. | -Only covers damages to the other party's vehicle if you're at fault in an accident. -Does not cover damages to your own vehicle. -Generally, it has a lower premium compared to comprehensive insurance because it offers limited coverage. |
Home 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.
Travel Insurance
A traveller can buy travel insurance just before travel. Travel insurance will cover unexpected situations during a trip, like losing your luggage, delaying or cancelling a flight, etc. They can also claim travel insurance in case of an accident or hospitalisation during the trip.
What is Life Insurance?
Life Insurance provides coverage against 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 include 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.
7 Different Types of Life Insurance
Here are some policies you can buy under Life Insurance in India.
Term Insurance
It is a popular and straightforward option, providing life cover without any savings or profits component. It provides life coverage for a predefined period (the 'term'). The beneficiaries receive the death benefit if the policyholder dies within this term. However, if the policyholder survives the term, there is no payout at the end. This simplicity and cost-effectiveness make it a preferred choice for individuals seeking straightforward life cover, especially those starting a family or buying a home.
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You can enhance your ACKO Life Flexi Term Plan with valuable riders: the ACKO Life Accidental Death Benefit Rider, the ACKO Life Accidental Total Permanent Disability Benefit Rider, or the ACKO Life Critical Illness Benefit Rider.
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Endowment Plans
Endowment Insurance Plans are perfect for individuals wanting life cover insurance plus guaranteed returns.
Regular premiums are paid throughout the tenure. Suppose the policyholder lives through the policy period, and the insurer pays a lump sum. If the policyholder dies before maturity, the designated beneficiaries will receive the death benefit. In simple terms, an endowment plan offers both maturity and death benefits to the policyholder.
Unit Linked Insurance Plans (ULIP)
They combine Life Insurance with investment options, providing flexibility in investment and asset allocation and allowing policyholders to choose from various investment funds. These include stocks, bonds, or mutual funds based on their risk appetite and financial goals. The returns on these plans are subject to market fluctuations, offering the potential for high returns but carrying a greater risk.
Retirement Plans
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 policies can be designed with various premium payment terms and policy tenures, making them highly customisable to match retirement goals. On retirement or at the policy's maturity, the insured receives a lump sum or an annuity, depending on the plan's structure. This is vital in managing post-retirement expenses and maintaining lifestyle standards.
Whole Life Policies
These plans provide life coverage for the policyholder's entire lifetime. In these policies, the death benefit is guaranteed to the nominees regardless of when the policyholder passes away, and premiums are typically fixed throughout the policy term. Some whole-life policies also accumulate cash values, which can be borrowed against or withdrawn during the policyholder's lifetime, adding a layer of financial flexibility.
Money-back Policies
Money back policies in Life Insurance offer periodic payouts during the policy term, providing a source of income for policyholders and their families. This is particularly useful for meeting various financial needs like funding children's education, marriage expenses, or other milestones. The balance sum assured and accrued bonuses is payable at maturity or to the beneficiary upon the insured's death, making it a blend of insurance and income.
Child Plans
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 the event of the policyholder's premature demise, an immediate payment is usually made to the family, and future premiums may be waived. At the same time, the policy continues to invest towards the child's future.
Things to Consider While Buying an Insurance Policy
You must consider these key things 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 insurance policies
Different insurance policies are available in the market. Before choosing a policy, research and compare various 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. When 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 provides 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 timely paying claims.
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 the Life Insurance claims process. Check if the company has a user-friendly claims process and offers round-the-clock customer support.
Impact of Lifestyle on Insurance Premiums
When looking at insurance options, you will wonder how many lifestyle factors can affect your rates. Insurance risk factors are evaluated using several criteria, and lifestyle significantly distinguishes the general and Life Insurance tariffs.
Smoking Habits
Tobacco consumption is considered a risk factor in life and health insurance because sufferers are considered to have more severe diseases – heart and lung diseases. This leads to rendering smokers higher premiums to help cater for their health risks in case of a claim.
Alcohol Consumption
As with smoking, heavy drinking can result in costly health care problems such as alcoholic liver diseases and alcohol-related injuries. Insurers may factor your drinking behaviours into your rates, especially with life insurance vs general insurance policies.
Physical Activity
An analysis of the moderating effect of lifestyle and exercise on the relationship between Life Insurance premium and mortality rate. The risk for active policyholders is lower; insurers offer lower premiums or rebates and may tie this to the extent of fitness with devices.
Adventure Sports and Risky Activities
Shocking activities like parachuting or abseiling may elevate the insurance premiums. Whether it is term insurance or what is commonly referred to as ordinary Life Insurance, insurers regard those activities as higher risk and provide for that by asking for a premium for probable accidents or death.
Occupation and Travel
Even your occupation and mobility, or lack thereof, play a vital role in determining the premiums you will be charged. Many jobs' annual rates are high because the insurer often has to consider the risks associated with the job, such as working with hazardous materials or in areas prone to disasters.
Driving History
In general, insurance, especially auto policy history, is highly considerate. If you don’t have an accident or receive a ticket, this will decrease the amount of insurance you have to pay, but if you have a history of risky driving, your premiums will be much higher.
When choosing between life insurance and general insurance, you must manage your premiums with the above factors under your control.
Frequently Asked Questions (FAQs)
Here are some common questions about the difference between Life Insurance and General Insurance
What is the difference between Life Insurance and general insurance?
Life Insurance provides long-term coverage and benefits for your beneficiaries upon death, while general insurance offers short-term coverage for assets like health, motor, and property.
How do Life Insurance and general insurance differ in terms of purpose?
Life Insurance protects loved ones financially after the policyholder’s passing, whereas general insurance safeguards against risks to assets and health during the policyholder’s lifetime.
What is a typical general insurance policy term?
A typical general insurance policy term is one year, after which it must be renewed, unlike Life Insurance, which often spans several decades or a lifetime.
Can you distinguish between Life Insurance and fire insurance?
Life Insurance provides financial support for beneficiaries, while fire insurance, a type of general insurance, covers damages caused by fire to property or assets.
Where can I find a detailed PDF on the difference between life and general insurance?
Many insurance providers offer PDFs explaining the difference between life and non-Life Insurance policies; these resources highlight specific coverages, terms, and benefits.
What is the difference between LIC and GIC?
LIC (Life Insurance Corporation) primarily offers Life Insurance policies that provide financial protection to beneficiaries, whereas GIC (General Insurance Corporation) specialises in general insurance policies, covering non-life assets such as health, property, and vehicles.
What is the difference between Life Insurance and general insurance?
Life Insurance provides long-term financial security for your loved ones in case of your death, while general Life Insurance policies cover short-term risks to assets like health, motor, and home, typically with renewable terms.
How does Life Insurance differ from fire insurance?
Life Insurance offers financial protection to beneficiaries after the policyholder's death, whereas fire insurance, a type of general insurance, covers damage to property caused by fire and is typically renewed annually.
How much coverage do I need in a term insurance plan?
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.
What are the questions to ask before buying life insurance?
Before buying life insurance, ask questions such as how much coverage you need, the policy term, the premium payment frequency, the policy features and benefits, and the claim settlement process.
What is an insurance claim?
A formal request made to an insurance provider for reimbursement of losses covered under an insurance policy is known as an insurance claim.
What is risk in insurance?
In insurance terms, the 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.
How do I determine the amount of coverage I require?
You can determine the amount of coverage you require by considering your age, health, income, and other factors that may affect your insurance needs.
What new options do I have for adjusting my premium?
As per the IRDAI, you have the option to decrease the premium amount or sum assured of your life plan after 3 years instead of the previous restriction of 5 years.
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