What is the Difference Between Life Insurance and General Insurance?

What is the Difference Between Life Insurance and General Insurance

Having an insurance policy is one of the most important aspects of financial planning. Having an insurance policy provides financial security to individuals against any type of emergencies. The concept of insurance is pretty simple- the policyholder pays a certain amount as premium to the insurer in return for the coverage offered by the policy. Both life insurance and general insurance have different applicability and benefits. Further in this article, we have discussed in detail the difference between life insurance and general insurance.

What is Life Insurance?

A life insurance policy is an agreement between the insurance company and the policy buyer, wherein the policyholder needs to pay a certain amount of premiums per month to the insurance company in return for the desired coverage for a fixed policy tenure. The life insurance policy provides risk coverage in the form of a death benefit or maturity benefit to the family of the life assured in case of any eventuality during the policy tenure.

Types of Life Insurance Policy

To cater to the various requirements of the insurance seekers, there are different types of life insurance products available in the market. Let’s take a look at these products in detail:

Term Insurance Plan

Term insurance policy is known as the simplest form of life insurance product available in the market. As a pure protection plan, there is no maturity benefit offered under a term insurance policy. The term insurance policy offers life insurance coverage in the form of a death benefit to the beneficiary of the policy in case of unfortunate demise of the life assured during the policy tenure.

Unit Linked Insurance Plan (ULIPs)

This is a type of life insurance product that offers the combined benefit of insurance cum investment under the same policy. In the ULIP plan, a part of the premium is used by the insurer to provide insurance coverage to the family of the insured whereas, the other half of the premium is invested in the market-linked securities like equity and debt to gain higher returns on investment over the long-term. In the ULIP plan, both death and maturity benefits are offered by the policy.

Whole Life Insurance Plan

The whole life insurance policy provides coverage to the policyholder for the entire lifetime i.e. up to 100 years of age. In case of demise of the life insured, the beneficiary of the policy receives the death benefit.

Endowment Plan

The endowment policy offers the combined benefit of insurance and savings under the same plan. In an endowment plan, the death benefit is paid to the beneficiary of the policy in case of the unfortunate demise of the policyholder during the policy tenure. In case the policyholder survives the entire tenure of the policy, then he/she receives a maturity benefit at the end of the policy term along with the guaranteed accumulated bonus.

Money-Back Plans

The money-back plan works similar to the endowment policy, but the only difference is that in the money-back policy, the insurance company pays a certain amount of money to the policy at specific intervals. For example, if an individual has purchased a policy for a tenure of 15 years, then as per the term of the policy he/she will receive a certain amount at the end of the 5th policy year and 10th policy year. The sum assured amount and the accumulated bonus is paid as a maturity benefit to the policyholder at the end of the policy tenure.

What is General Insurance?

General insurance covers non-life assets such as health, vehicle, home, travel, etc. In return for the insurance coverage offered by the policy, the policyholder needs to pay a certain amount of premium to the insurance company.

Types of General Insurance Policy

To fulfill the various requirements of the insurance buyers, there are different types of general insurance policies available in the market. Let’s take a look at these in detail:

Health Insurance

The health insurance policy provides financial security to the policyholder in case of any medical emergency. The policy buyer can either buy individual cover, family floater health insurance, or senior citizen health insurance as per their requirement and suitability.

Motor Insurance

Whether an individual owns two-wheeler or four-wheeler insurance, it is obligatory to have at least third-party insurance as per the Motor Vehicles Act. There are two types of motor insurance plans available in the market- third- party insurance and comprehensive insurance. The third-party insurance provides only liability cover and compensates the third-party loss whereas, the comprehensive motor insurance policy covers the vehicle, hospitalization costs and third-party coverage.

Home Insurance

This type of insurance protects the home against any type of damage or loss due to any man-made or natural calamities.

Travel Insurance

The travel insurance policy is a general insurance product that covers the unforeseen losses incurred while traveling either domestically or internationally. A travel insurance policy provides coverage for the loss of luggage, flight delays, death and injury while traveling in a foreign country.

Difference Between Life Insurance and General Insurance

ParametersLife InsuranceGeneral Insurance
MeaningCovers LifeCovers non-life assets
Contract TermA long-term contract that requires paying premiums for many yearsGenerally, an annual contract that needs to be renewed every year
Payment of ClaimThe claim amount is paid either as a death benefit to the beneficiary in case of demise of the life assured during the policy tenure or as maturity benefit if the policyholder survives the entire tenure of the policyReimbursed during an eventuality
Savings ComponentA lot of life insurance policy provides a savings component inclusive of the policy. The life insurance policy enables the policyholder to create corpus in the long term.General insurance policies don’t have any savings factors.

Wrapping it Up!

Both life insurance and general insurance have different benefits and applications. The life insurance policy helps to protect the financial future of the individual and their family whereas, general insurance protects the assets. It is important to compare the quotes of various plans online and make an informed choice.

FAQs
What are the tax benefits offered in life insurance and general insurance?
he policyholder can save on taxes on life insurance policy under Section 80C and 10(10D) of the Income Tax Act. The health insurance policy in general insurance provides the benefit of tax exemption on the premium paid towards the policy under Section 80D of the Income Tax Act.
How are claims paid in life insurance and general insurance?
In life insurance, the claim amount is paid either as a death benefit to the beneficiary in case of demise of the life assured during the policy tenure or as maturity benefit if the policyholder survives the entire tenure of the policy. On the other hand, in general insurance, the claim is reimbursed during an eventuality.
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