What is the Difference Between Life Insurance and General Insurance?

While many things in life are left to chance, there are ways to ensure that you are prepared for them. Insurance is a crucial financial decision to help deal with life’s uncertainties. When you invest in an insurance policy for yourself and your loved ones, it promises to help you deal with times of crisis.

Many people only have a basic understanding of insurance policies. You pay a certain amount of premium to the insurance provider, and in return, they offer financial compensation in the event of the happening of the insured event. There are different kinds of insurance policies that cover various scenarios.

Many might not be aware that there is a difference between life insurance and general insurance. It is essential to understand them thoroughly to make a sound financial decision.

What is Life Insurance?

A life insurance policy is a life cover to put it simply. It is a contract that bounds the insurance provider to offer financial compensation to the beneficiary in case of the unfortunate events covered under the policy like the insured’s untimely demise. In exchange, the policyholder pays a predetermined amount as regular premiums or single premium.

The life insurance policy covers a certain period, and if the policyholder survives it, they are eligible for a maturity benefit, as per the terms of the contract. People opt for life insurance policies to provide financial protection in case of unprecedented circumstances.

Types of Life Insurance

1. Term Life Insurance

Term life plans are the most basic life insurance plans offering financial protection to the beneficiary, in case the life insured does not survive the covered period. It is often preferred as it provides comprehensive coverage at an affordable premium.

Term Insurance with Return of Premium (TROP) is another type of term plan that offers maturity benefits along with death benefit. It requires a slightly more expensive premium. It is helpful to understand your specific financial requirements to calculate a suitable premium amount.

2. Whole Life Insurance

Whole Life Insurance plans provide cover to the insured for their entire life, or as long as the premiums are paid. It is an ideal choice for people who require extensive life coverage and want their family to be financially protected at all times.

What is General Insurance?

General Insurance is any policy that covers assets and valuables such as a vehicle, home, travel, and health against damage, loss or theft, and many other liabilities. The critical difference between life insurance and general insurance is that the latter offers financial protection against damage or loss other than life.

What are the Types of General Insurance?

Some of the types of general insurance policies are:

1. Health Insurance

Health Insurance offers coverage for medical and surgical expenses for the insured. It acts as a safeguard against medical emergencies. Depending on the terms of a health plan, the insurance provider either settles the bill directly with the hospital or reimburses the insured for their expenses.

2. Motor Insurance

Motor Insurance provides financial protection for personal and commercial automobiles against loss due to damage, theft, accident, fire, natural calamities, etc. Two significant types of motor insurance policies are:

Comprehensive Insurance – This covers both the parties involved in an accident. Additionally, it offers protection against the scenarios mentioned earlier as well.

Third-Party Insurance – This provides coverage for the third party involved in an accident. According to the Motor Vehicles Act, all two-wheelers and four-wheelers must have third-party insurance.

3. Home Insurance

A house is a valuable asset in a person’s life. Home insurance provides financial security against damages due to natural or human-made disasters that can damage the house or its belongings.

Life Insurance Vs. General Insurance – Differences

As discussed above, life and general insurance provide different kinds of coverage. In life insurance, the actuaries estimate the liability under the current policy at regular intervals. On the other hand, in general insurance, a part of the premium is taken forward to make provision for the unexpired liability and the remaining amount i.e. the net of claims and expenses is taken as the profit of loss.