General Insurance

Difference Between Life Insurance and General Insurance: Which One Should You Choose?

Difference Between Life Insurance and General Insurance: An Overview

Financial planning is incomplete without insurance coverage. Insurance provides financial protection to individuals during emergencies. However, many people have only a basic understanding of insurance policies. When a predetermined premium is paid to the insurance company, cash compensation is provided in case of a covered event. There are several types of insurance policies that offer coverage for different eventualities.

In India, there are mainly two types of insurance policies - life insurance and general insurance. General insurance provides coverage against any other danger, except for the insured person's life. On the other hand, life insurance solely covers the risk of the insured person's life. Both types of insurance policies have different applications and benefits.

This article will explore the differences between life insurance and general insurance, their meaning, benefits, and which type of insurance is suitable for you.

What is Life Insurance Policy?

A life insurance policy is a contract between the insurer and the policyholder. Each month, the policyholder pays a set amount in premiums, and in exchange, the insurance company provides coverage for a set period of time. In the event of unforeseen circumstances, life insurance policies provide risk protection to the insured person's family in the form of death or maturity benefits.

In India, life insurance policies are classified into four types: term life insurance, whole life insurance, endowment plans, and unit-linked insurance plans (ULIPs).

Types of Life Insurance Policies in India

Term Life Insurance: Term life insurance is the most fundamental type of life insurance, providing a safety net to the beneficiary if the life insured dies during the coverage period. It is a low-cost way to obtain comprehensive coverage.
Whole Life Insurance: Whole life insurance provides coverage for an individual's entire life or up to the age of 100, and offers death benefits to beneficiaries upon the death of the insured person. It is a suitable option for individuals who require substantial life insurance and want to ensure the financial security of their family.
Endowment Plan: Investment and insurance possibilities are provided by endowment programs. While the remaining portion of the premium is invested, a portion of it is used to guarantee the amount insured. If the policyholder passes away while the plan is still in effect, the beneficiary will get the death benefit.
Unit Linked Insurance Plan (ULIPs): An ULIP (unit-linked insurance plan) mixes investment and insurance. A ULIP aims to combine life insurance with wealth development by having the insurance firm invest some of your money in life insurance and the remaining amount in a fund that is based on equity, debt, or both and aligned with your long-term objectives.

What are the Benefits of Life Insurance?

Death Incentive: If something tragic happens to the insured, the insurance provider offers financial security by paying out a death benefit. The designated beneficiary will receive the full amount agreed upon as well as any additional incentives earned.
Critical Illness Benefit: When you buy a life insurance policy, you can choose to include a critical illness benefit that safeguards against severe medical conditions such as cancer, kidney diseases, and heart ailments. This coverage relieves you and your loved ones from the burden of financial consequences in case of a medical crisis.
Flexible Premium: As a policyholder, you can select a flexible premium payment plan to match your needs. This gives you the freedom to decide whether to pay your monthly life insurance premiums in one go or divide them into several recurring payments.

What is General Insurance in India?

General insurance refers to policies that safeguard assets and possessions from various liabilities, such as loss, damage, and theft. These assets can include homes, vehicles, health, and travel. General insurance provides protection against accidents, natural disasters, riots, and even terrorist attacks. While life insurance provides coverage in the event of death, general insurance provides coverage against other hazards that may damage your health or material possessions, such as a house or car.

Types of General Insurance in India

Health Insurance: Health insurance is an insurance policy that covers the medical expenses of the policyholder. This coverage is provided by insurance companies to protect individuals from significant financial hardship resulting from expensive medical treatments or procedures.
Motor insurance: Automobile insurance shields vehicles and provides protection against various perils such as collisions, theft, riots, and natural disasters like floods and cyclones.
Homeowners Insurance: Home insurance offers financial assistance for repairs in case of an insured calamity or any other serious incidents that may occur in your house. It provides coverage for a house's infrastructure and belongings in the event of a covered catastrophe.
Travel Insurance: Travel insurance is a type of general insurance that provides coverage for unexpected losses that may occur during domestic or international travel. It offers protection against baggage loss, airline delays, as well as injury and death while travelling abroad.

Advantages of General Insurance

If you have auto insurance, you will not have to worry about the cost of the damage. You can use the insurance payout to make up for your losses.
Your general insurance may cover your hospital expenses if you have health insurance. If your insurance claim is insufficient, you may be eligible for additional health insurance coverage.
General insurance offers a range of options to protect your family and valuables, providing financial coverage against potential harm to your property. With a variety of insurance options available, individuals can select policies that meet their specific needs
General insurance policies include coverage for your property and anything related to your business. This can save you from incurring massive financial losses on the occurrence of a natural disaster.

Difference Between Life Insurance and General Insurance

The table below summarises the key differences between life insurance and general insurance plans in India:

Basis	Life Insurance Policies	General Insurance Policies
Insurance Cover	It financially protects the insured’s life.	It provides financial protection for assets other than life, including house, health, vacation, and vehicles.
Time-Period	It is a long-term policy. Depending upon the contract conditions, it can provide coverage for a set period of time, like 10-20 years or for a lifespan.	It is a short-term policy that must be renewed on a frequent basis.
Premium Options	The policyholder must pay the predetermined premium amount on a regular basis, such as once a month, quarterly, or yearly.	A lump sum payment is frequently made by the policyholder at the time of purchase or renewal. Travel insurance may differ because it is only required when a specific trip must be protected.
Value	As a policyholder, you can choose the sum promised according to your family's financial position.	The value of the asset being covered influences the value of the coverage.
Insurance Claims	In the unfortunate event of the policyholder's demise, the insured sum will be disbursed to the designated beneficiary. Additionally, the policyholder may receive the insured amount upon maturity. Money-Back or Endowment plans also provide interest on investments to the policyholder.	The policyholder is entitled to receive the promised benefits in the event of an unfortunate circumstance that is covered by the contractual terms.

Factors to Consider Before Choosing an Insurance

The primary purpose of an insurance policy is to provide a safety net for life's uncertainties. When selecting a plan, several factors such as claim-settlement ratios, customer feedback, and premium amounts should be considered.
Evaluate your current financial situation and future needs to determine the appropriate level of coverage and premium.
The benefits offered by insurance companies vary and are subject to regulations and policies. Always compare insurance plans to select the most suitable strategy that maximizes your benefits.
While it is preferable to choose a policy that includes multiple additional riders, it must still be affordable within your current means.
To avoid any disputes during the settlement process, it is crucial to understand the inclusion conditions that govern how benefits are provided in the insurance policy.