General Insurance vs Life Insurance

TeamAckoJul 14, 2024

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

Contents

• What is the difference between General and Life Insurance?
• What is General Insurance?
• 4 Different Types of General Insurance
  • Health Insurance
  • Motor Insurance
  • Home Insurance
  • Travel Insurance
• What is Life Insurance?
• 7 Different Types of Life Insurance
  • Term Insurance
  • Endowment Plans
  • Unit Linked Insurance Plans (ULIP)
  • Retirement Plans
  • Whole Life Policies
  • Money-back Policies
  • Child Plans
• 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.

What is General Insurance?

General insurance, also known as non-life insurance, provides coverage against various risks and losses. Some common general insurance policies in India include health, motor, home, travel, and personal accident insurance. They are typically short-term, with lower premiums than life insurance policies.

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: 

1. Comprehensive insurance and 

2. Third-party insurance

• 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 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.

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. 

Explore ACKO Life Flexi Term Plan

ACKO Life Flexi Term Plan is a unique term plan with unmatched flexibility. It offers all-inclusive coverage for you and a financial safety net for your loved ones. This Pure, Non-Linked life insurance plan allows you to customise your sum assured and policy term based on your changing needs and responsibilities. Whether you've bought a new home or started a family, you can easily adjust your coverage up or down anytime to fit your needs.

You can enhance your ACKO Life Flexi Term Plan with valuable riders: ACKO Life Accidental Death Benefit Rider, ACKO Life Accidental Total Permanent Disability Benefit Rider, or ACKO Life Critical Illness Benefit Rider. 

Find the right plan--->

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. The designated beneficiaries will receive the death benefit if the policyholder dies before maturity. 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. It includes 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 and 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 you're exploring insurance options, you might be surprised to learn how much your lifestyle choices can influence the cost of your premiums. Insurance companies assess risk based on various factors, and lifestyle choices are significant indicators of how much risk you might pose as a policyholder.

• Smoking Habits: If you smoke, you'll likely face higher premiums. This is because smoking is linked to numerous health issues, including higher risks of heart disease, stroke, lung cancer, and other critical illnesses that could lead to higher claims. Insurers consider this increased risk and adjust premiums to mitigate potential costs.

• Alcohol Consumption: Similar to smoking, excessive alcohol consumption can lead to various health problems, such as liver disease and alcohol-related accidents. Insurers might ask about your drinking habits to assess if they're within a reasonable range. High levels of alcohol consumption can lead to increased premiums.

• Physical Activity: Regular exercise and a healthy lifestyle can positively impact your insurance premiums, especially for life and health insurance. Active individuals generally have fewer health issues, which means a lower risk for insurers. Some insurance companies offer discounts or incentives for maintaining a healthy lifestyle through fitness tracking devices.

• Adventure Sports and Risky Activities: High-risk activities like skydiving, rock climbing, or racing can drastically increase insurance premiums. These activities carry a higher likelihood of injury or death, and insurers might require additional premiums to cover this elevated risk.

• Occupation and Travel: Types of job and travel frequency can also influence insurance costs. For example, if your profession involves hazardous work or extensive travel to unstable regions, you might see higher premiums due to the increased risks associated with these activities.

• Driving History: When it comes to auto insurance, your driving history plays a crucial role. A clean driving record with no accidents or major traffic violations can lower your premiums, while a history of accidents or reckless driving can increase them significantly.

Understanding these factors helps you navigate your insurance options better and find ways to reduce your premiums.

Frequently Asked Questions (FAQs)

Here are some common questions about the difference between Life Insurance and General Insurance

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, 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.

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, 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.

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