The insurance plans which covers the life-risk of an individual is called life insurance. On the other hand, the insurance plan which covers any risk other than the life-risk of an individual is called general insurance.
What is Life Insurance?
Life insurance is a protection against financial loss that could result from the premature death of an insured individual. In case of death of the insured, the nominee receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. In case the life insured survives, he or she gets the survival benefit as per the policy term.
Life Insurance is a long term contract which requires the payment of premium by the life insured throughout the minimum premium payment term or till it matures. There are broadly 4 types of life insurance policies.
Term Life Insurance
– It is a pure protection plan which secures the financial future of your family at a very low premium. During the plan term if the life assured dies the sum assured is paid to the nominee.
Whole life assurance
– In whole life assurance, the amount of the policy is paid only on the death of the insured, to the nominee or the legal heir of the insured.
– On completion of the policy term, the payment of the policy amount is paid to the policy holder periodically, as long as he or she survives and is also known as pension plans.
– These are endowment and money back plans which pays the nominee sum assured and accrued benefits on death of the life assured. On survival, the sum assured along with benefits is paid to the life assured.
What is General Insurance?
General insurance is a contract that covers any risk other than the risk of life. The General Insurance safeguards our health and our property, such as home, car, and other valuables from fire, theft, flood, accident, earthquake etc. These are the contract of indemnity, wherein the general insurer promises to make good, the losses occurred to the insured. These contracts are of short term in nature - generally one year - and therefore, the policy renewal is required every year.
There are many a type of General Insurance policies and the common ones for an individual is – Mediclaim Insurance, Motor Insurance, Home Insurance, Travel Insurance and Fire Insurance etc.
Difference between Life Insurance and General Insurance
- Life Insurance is a contract which ensures your life risk and also works as in an investment avenue. Whereas, General Insurance is a contract of indemnity which promises to make good your losses.
- In Life Insurance, the sum assured along with benefits is paid either on the event of death of the policy holder or on maturity of the policy. On the contrary, in General Insurance, the amount of actual loss or claim is reimbursed on the happening of the certain event against which the policy has been issued.
- Life Insurance is a long term contract, some policies even run till such time you are alive. On the other hand General Insurance is a short term contract, generally for one year and needs to be renewed every year on expiry.
- Since Life Insurance is a long term contract, the premium needs to be paid throughout the term of the policy or upto the minimum premium paying term. The premium for General Insurance is payable only in case the policy is renewed after one year.
- Through certain Life Insurance policies you can also create wealth in the long term apart from securing your life. Contrary to this, in General Insurance, the amount payable is confined to the losses suffered or the maximum cover amount of the policy. If there is no claim during a year, the premiums are not returned to the policy holder; therefore, there is no savings component attached to the General Insurance policy.
- In case of Life Insurance, the insurable interest i.e. the individual who is taking the policy must be present at the time of contract. Whereas, in case of General Insurance, the insurable interest must be present both at the time of contract and at the time of loss.
Even though Life and General Insurance, both are insurance contracts, both serve different purposes in our lives. While we can protect the financial future of our families and save for our future through a life insurance policy, the General Insurance protects us from an event which has financial implications and reimburses us the benefits on occurrence of the event for which the policy has been taken.
Insurance is the subject matter of the solicitation.