Most people know the importance of getting insured. However, a lot of them are unaware of the different types of insurance policies that are available out there. You might have come across two basic types of insurance plans: life insurance and general insurance. While both these policies play an important role in securing financial safety, you still need to understand the key differences between the two before buying them. To know more about these policies, let’s take a look at each one in detail before understanding their differences:
Life insurance
Let’s get started by answering the basic question – what is life insurance? A life insurance policy promises financial compensation to the beneficiary in case the policyholder passes away. There are different types of life insurance policies that you can buy based on your requirements. These include endowment plans, term life insurance plans, whole life insurance, ULIPs (Unit-linked insurance plans), and money-back plans.
General insurance
General insurance plans provide financial coverage for your health and other valuables against accidents, theft, natural disasters, etc. Different types of general insurance plans include motor insurance, health insurance, home insurance, commercial insurance, and travel insurance.
How does a life insurance policy differ from a general insurance policy?
Now that you have read about both these policies, go through the factors mentioned below to understand how they differ from one another:
- Contract terms
One of the biggest differences between a life insurance policy and a general insurance policy is their duration. A life insurance policy is a long-term plan that requires the policyholder to pay a lump sum premium or monthly, quarterly, or yearly premiums for a specific amount of time. This plan’s duration can range from about 15/20 years to even a lifetime. A general insurance policy is a short-term plan that is usually renewed on a yearly basis.
- Insurance claims
When it comes to a life insurance plan, the sum assured is paid to the nominee if the insured passes away during the policy term. If not, this sum is returned to the policyholder when the policy matures. If the life insurance plan is a money-back or endowment policy, the insurance company also gives the interest earned from investments. The policyholder can also claim life insurance benefits if they suffer from a critical illness that is covered under the policy, provided they have chosen the relevant rider at the time the policy was purchased. In the case of a general insurance policy, claims can be made based on specific events. For instance, claims can be made with motor, home, or travel insurance policies if there is any loss or damage caused to an asset that has been insured by any unforeseeable event such as an accident, robbery, etc.
- Policy values
A life insurance policy’s value depends on the policyholder’s preference. They can opt for a sum assured based on the requirements of their family and budget to pay the policy premium. This sum is then either given to the nominee in case of the policyholder’s unfortunate demise or paid back on the policy’s maturity. A general insurance policy’s value is based on the asset’s value. The policy’s value will depend on the damage that the asset has suffered and not the sum assured.
- Policy beneficiaries
The benefits of a life insurance policy are for the family member that is nominated by the policyholder. On the other hand, the benefits of a general insurance policy are enjoyed by the insured themself.
- Maturity benefits
A life insurance policy can offer maturity benefits after specific tenures. However, general insurance policies usually do not offer any maturity benefits. These policies only promise a payout amount if there is a claim made as per the policy’s terms and conditions.
A life insurance and general insurance policy are both responsible for offering different benefits to policyholders. Irrespective of whether your family depends on you or not, a life insurance policy is essential for ensuring that they are taken care of in case of your unfortunate demise. So, make sure to use a life insurance calculator to find a plan that suits your budget. On the other hand, general insurance policies such as home insurance, motor insurance, health insurance, and so on help in saving your hard-earned income by providing financial coverage. It is advisable to get insurance policies that provide adequate cover so as to ensure that there are no financial difficulties in the future.