Insurance is one of the cornerstones of financial planning. It covers you, your dependants, and your assets against financial losses incurred in case of an unfortunate event. Life insurance and general insurance are two types of insurance coverage that provide financial security and protection in unexpected events. This guide provides a comprehensive overview of both types of insurance, including their differences, and benefits. Also, helps you to choose the best coverage based on your needs.
Why do you need life insurance or general insurance?
Life insurance helps you achieve your financial goals. Suppose you are planning higher studies for your children abroad. In such a scenario, a good life insurance policy will ensure that your children have the financial strength to fulfil their dreams even in your absence. With life insurance, you can also plan for better retirement life, as you can build a corpus by the end of the policy term.
General insurance ensures you have financial preparedness to tackle any emergencies that require monetary support. It keeps you financially covered against any unexpected losses or damages to you, your property or any asset. Health insurance, motor insurance, and home insurance are popularly bought as general insurance in India.
Both life insurance and general insurance are crucial for individuals, families, and businesses to protect their financial well-being.
What is the difference in the claim process of life insurance and general insurance?
There is a significant difference between life insurance and general insurance claim processes. For life insurance, the policy's beneficiary must raise a claim request in case of the insured’s death. The beneficiary needs to produce minimal documents like policy documents, death certificate and any other document required by the insurer. In case the policyholder survives through the policy term (whole life cover), then you receive the sum insured upon maturity.
For general insurance, you may need to provide a few documents. For example, for health insurance claims, you must submit the hospital and medicine bills, discharge summary, prescriptions, and other documents as asked by the insurer.
What is general insurance?
General insurance covers non-life assets, such as your home, vehicle, health, and travel. You get compensation for damages or losses incurred due to flood, fire, theft, accidents, or any man-made disasters.
Types of general insurance
Here are different types of general insurance.
Health insurance covers the medical expenses against hospitalisation and treatment for the insured. You get coverage for pre-and post-hospitalisation, doctor’s fees, surgeries, medicines etc. You also get coverage for room rent and ICU charges. You can also include add-ons such as critical illness cover, hospital cash cover, maternity cover, and more.
Motor insurance covers losses or damage caused to vehicles, including cars, trucks, and motorcycles. There are different types of motor insurance policies. You get motor insurance in comprehensive, third-party, and own damage cover for different types of vehicles. You also get a separate motor insurance policy for commercial vehicles. The insurance policy covers damages caused by accidents, theft, fire, flood, riots etc. According to Motor Vehicles Act, every vehicle owner must have third-party insurance to drive the vehicle legally on roads. Discussed below are the two types of motor insurance policy in brief:
- Comprehensive insurance: It provides coverage for damage to your vehicle from accidents, theft, vandalism, and natural disasters, offering extensive protection.
- Third-party insurance: It covers damages caused to third parties in accidents involving your vehicle, including injury, death, or property damage.
Home insurance covers damages caused to the insured home and the contents in it. There are several types of home insurance policies, including building insurance and contents insurance. Building insurance covers damages to the structure of the home, while contents insurance covers damages to personal property inside the home. You get coverage for losses or damages caused due to theft, fire, flood, and other natural disasters.
Travel insurance policies cover unexpected losses or expenses that may occur while travelling. These policies are designed to cover events such as medical emergencies and lost, or stolen luggage. You also get coverage for trip cancellations, or flight cancellations/delays. Travel insurance policies come in different tiers of coverage and can cover a range of travel-related expenses.
What is life insurance?
Life insurance is a type of insurance policy that provides financial security to your loved ones in the event of your death. It guarantees a lump sum pay-out to the beneficiaries named in the policy. The premiums for the policy depend on various factors such as the policyholder's age, health, and lifestyle. The insured’s family members can use the policy amount to cover expenses such as children’s higher education fees, or pay off debts, etc.
Types of life insurance policies
Life insurance comes in various types, including term life insurance, whole life insurance, universal life insurance, variable life insurance, etc. Each type offers different coverage durations, premium structures, and investment options to meet diverse financial needs and goals.
There are several types of life insurance policies available, each designed to meet different needs. Here are some of the most common types of life insurance policies:
Term life insurance
Term life insurance covers the policyholder till a specified time, typically 10, 20, or 30 years. The beneficiary receives a lump sum pay-out assured in the policy in case of the policyholder’s demise during the term. Term life insurance usually comes at a less expensive premium than other types of life insurance policies because it provides coverage for a limited period.
Whole life insurance
Whole life insurance provides coverage for the lifetime. The policyholder can get a whole life cover for up to 99 years of age. The premiums for whole life insurance policies are usually higher than those for term life insurance policies. In this, the policyholder, if he/she survives the policy term, gets a lump sum amount at maturity. In case of the policyholder’s demise, the beneficiary will receive the sum assured on the policy.
Unit-linked insurance plans (ULIPs)
ULIP gives dual benefits of insurance and investment plans. You get a life cover and the opportunity to invest in various funds basis your risk appetite. This type of insurance policy helps you in savings and growing your wealth. A portion of the premium will go towards insurance coverage, while the remaining goes towards investment.
You can invest in different assets such as equities, debt, and hybrid to generate returns. ULIPs also offer a partial withdrawal facility after the lock-in period (5 years) ends. You also have the flexibility of switching from one fund to another. This facility comes in handy when you are nearing your goal, wherein you can switch from an aggressive fund to a debt fund.
Like the ULIPs, endowment plans also offer life cover and build a corpus for essential life goals. However, endowment plans give guaranteed returns. A certain portion of the premium goes towards the sum assured, while the other portion is invested in low-risk avenues.
In case of your demise during the policy term, the nominee will get the sum assured. In case you survive the policy term, you get the sum assured as a maturity amount along with the accumulated bonuses. Thus, endowment plans fulfil the dual needs of insurance and investment.
Money-back policies are like endowment plans, except they pay a certain amount at pre-defined intervals during the policy term. For instance, a money-back policy of 15 years term will pay a certain amount at the end of the policy’s 5th and 10th year. On policy maturity, it pays the maturity benefits along with the accumulated bonuses.
Critical illness plans
Critical illness plans offer financial protection by providing a lump-sum payout upon diagnosis of specified severe illnesses such as cancer, stroke, or heart attack. This coverage assists in covering medical expenses, loss of income, and other financial obligations during treatment and recovery, ensuring peace of mind for policyholders and their families in times of medical crisis.
Difference between life insurance and general insurance
Here’s a quick view at the major differences between life and general insurance:
Covers non-life assets
Life cover comes for a long term, up to 99 years of age. Term life comes for a short term like 10, 15, or 20 years.
You get insurance policies for short and long term. You can choose to buy a policy for one year or more.
The nominee receives the sum assured in case of insured’s demise, or the insured receives the sum assured at maturity upon survival.
You can avail cashless claim or reimbursement claim facility. In cashless claim, the claim will get settled directly between the network service provider and the insurer. In case of reimbursement, you will receive the amount in your registered bank account.
|The policyholder must pay the predetermined premium regularly, choosing from options like monthly, quarterly, or yearly intervals.
|The policyholder makes a one-time payment during purchase or renewal.