Simplifying Life Insurance in India
Difference between Life Insurance and General Insurance
The term 'Insurance' can be defined as an agreement or contract wherein an insurance provider agrees to cover any financial losses to a policyholder owing to damage, illness, or death, in return for a specific premium. The life coverage is generally referred to as Assurance.
There are two significant categories of Insurance: Life Insurance and General Insurance. Let's discuss these and the significant differences between Life Insurance and General Insurance.
What is Life Insurance?
What is General Insurance?
General Insurance is a type of insurance policy that covers the financial loss suffered due to the loss or destruction of the insured asset.
Essentially, a general insurance policy covers only non-life risks. It has the following features:
- It is a policy or agreement between the policyholder and the insurer, which is considered only after the realization of the premium.
- The policyholder with a financial interest in the covered asset pays the premium.
- The insurer will protect the insured from financial liability in case of loss.
| Differentiating Factor | Life Insurance | General Insurance |
| Definition | Provides financial coverage against loss of life. | Provides financial coverage against loss of material assets or health. |
| Form | It is a type of Investment for the future either in the form of returns or in the form of financial coverage against loss of life. . | It is a contract of indemnity against loss. |
| Term of Contract | It is usually bought for Long Term. | Short Term, renewed at regular intervals. |
| Premium | It is usually paid at regular intervals like monthly, quarterly or yearly. | Premium is usually paid in a lump sum either while buying the policy or renewing it. |
| Claim | The insured amount is paid on the policyholder's demise or the policy's maturity in the case of endowment plans. | The insured amount is paid on the occurrence of a loss or reimbursed as indemnified. |
| Policy Value | The policy value is decided by the policyholder when buying the policy. The premium and the sum assured directly depend on it. | The Policy Value of a General Insurance policy depends on the asset's value and is paid as per the damage that occurred and not the sum assured. |
| Role in Investment bucket | It can act as an investment option for long-term secure planning like child education, retirement etc., along with the added benefit of death cover. | Act as a financial cover only for assets. |
Both Life Insurance and General Insurance have different applicability and interests. While Life Insurance provides financial coverage to the dependents in case of the policyholder's demise, General Insurance covers the assets. The former has a savings component, while the latter has only an indemnity component.
Both kinds of insurance are necessary for a financial bucket. A well-planned coverage, keeping in mind all the required factors for General and Life Insurance, can help prudently manage the finances.
FAQs About the Difference between Life Insurance and General Insurance
What are the 3 main types of insurance?
What is Insurance Risk?
Can you buy more than 1 life insurance policy?
Yes, as long as the total life cover of all your policies is within a specific limit. This limit is usually around 20-30 times your annual income.
It is set in place because insurance is supposed to replace your earning power and not to be a source of wealth creation for your beneficiaries, or rather make your death look quite appealing to the beneficiaries.
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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