Buying insurance is important as it ensures that you are financially secure to face any type of problem in life. While everyone advises you to get insurance for yourself, your loved ones, no one talks about the different types of insurance that are available. Let us understand the basic types of insurance. There are two types of insurance policy one is life insurance and another one is general insurance. Before diving into the topic let us understand the basic definition of life insurance and general.
What is Life Insurance?
Life insurance is a contract between the insured customer and the insurance company in which the life insurance company assures to cover the life of the insured customer or promises to take care of the investment and returns in addition to the life coverage, in return for a periodical amount known as “Premium”. Life insurance is considered one of the best financial planning tools available in the markets as it covers both the investment and insurance parts under a single policy. The life insurance policies are designed to protect the life of individuals and therefore provide financial security to the deceased family. The premium paid life insurance policy is depends on the plan selected by the customer.
Types of Life Insurance Policies:
Term Insurance:
Term life insurance is an agreement between the insurance company and the insured customer in which the term insurance policy company agrees to pay a certain amount known as sum assured in case of the death of the policyholder within the term mentioned in the policy copy. If the policyholder survives the term, no survival benefit in term insurance would be provided to the policyholder. The term insurance policy as the name suggests is given for a particular period of a term such as 5 years, 10 years, and so on depending on the requirement of the customer. The policyholder is covered against death and or disability within the term as mentioned in the policy copy.
Whole Life Insurance:
Whole life insurance is the extension of the term insurance policy. In whole life insurance, the life cover is provided till the death of the policyholder or till attaining 99 years of age. Since the coverage is for a complete lifetime, it is known as Whole life insurance. While the term insurance policy has a particular period for which the coverage is offered the whole life insurance policy is covered for the lifetime of the policyholder.
Endowment Insurance:
An Endowment policy is a life insurance plan that apart from covering the life of the insured against uncertain death, helps to save a certain amount of money regularly over some time. In short, an endowment policy consists of both the Insurance coverage and the Savings option. This insurance amount saved under the endowment life insurance policy is known as the maturity amount and is paid to the policyholder in case he/she survives the policy period or dies during the policy period.
Unit Linked Insurance:
A Unit Linked Insurance Policy is a term insurance policy with Insurance coverage and Investment. ULIP policy provides death benefit- in case the policyholder expires within the policy period and also Survival benefit- in case the policyholder survives the policy term. The death benefit provided is with the premium collected under the insurance portion of the policy and the survival benefit is paid with the premium collected and invested by the insurance company.
Money Back Plans:
Money Back plans as the name suggests returns the money invested by the policyholder. In a money back life insurance policy, the policyholder can get a certain percentage of amounts at regular intervals, instead of getting the lump sum amount at the end of the term. It can be termed as the Endowment plan with a liquidity option. The money back plan also provides a sum assured at the time of death of the policyholder or on the maturity of the policy apart from the money withdrawn at regular intervals. A certain percentage of money is paid back to the policyholder at certain intervals of time under the Money back policy. In case the policyholder expires during the policy period the entire sum assured under the policy is paid to the nominee irrespective of the benefits paid during the policy period.
Child Life Insurance Plans:
A child plan is a type of life insurance plan that is a combination of both the investment and the insurance to ensure a safe future for your child. The child plans are typically classified into two types- Market linked and Non-market-linked plans. The market-linked plans are similar to that of the Unit Linked Insurance Plans where the final maturity benefit depends on the performance of the funds selected by the policyholder/the parent. Non-market-linked plans are a form of Endowment plans which offer a fixed rate of return to the customer as a maturity benefit after the completion of the policy period.
Pension Plans:
Retirement plans are insurance plans which help people meet their expenses after their retirement with periodic payments by the insurance company. Retirement plans can generally be of two types: One is where the policyholder will invest the amount over a while to attain a corpus and after which the insurance company will pay periodic installments to the policyholder after his/her retirement. The other is where the policyholder can purchase an annuity plan by paying a lump sum amount and the insurance company will start paying the monthly amount immediately or after some time as selected by the policyholder.
What is General Insurance?
General Insurance or non-life insurance is the insurance that covers all the types of properties and health excluding the life of the customer. In general insurance, pay-outs are made in the event of an unexpected loss such as an accident or a theft, or a sudden liability. General insurance includes products such as Home insurance, motor insurance, Property insurance, health insurance, travel insurance, Liability insurance, Marine insurance, and other miscellaneous insurance. All the general insurance policies would be underwritten only by the general insurance companies in India.
Types of General Insurance Policies:
Motor Insurance:
Motor Insurance is a contract between the owner of the vehicle and the insurance provider, to protect you from financial damages caused by certain incidents like loss or damage due to personal accident, theft of the car, natural disaster, fire or man-made, roadside assistance, and third-party liabilities, etc. Motor insurance can be availed for a two-wheeler, four-wheeler, and commercial vehicles. There are two types of Motor insurance
- Comprehensive Insurance: Comprehensive car insurance policies provide coverage for theft, loss, or damage due to Man-made calamities, Natural disasters, Personal Accident cover, and Third-Party Liabilities in terms of death, bodily injury, and third party property damage.
- Third-party Insurance: The third-party car insurance covers the death or bodily injury of the third parties involved in an accident with the insured’s car and also the property damage of third parties due to an accident.
Health Insurance:
Health insurance is a type of insurance in which an insured person gets financial support in case of a medical emergency. Health insurance is a long-term contract between the customer and the insurance company. The people who have health insurance can get health insurance claims from the insurance company in case of hospitalization due to accident or critical illness and they will take care of medical expenses charged by the hospital.
Travel Insurance:
Travel insurance is a type of insurance that provides coverage against medical emergencies and all the costs and losses associated with traveling. It is useful to cover for those who travel domestically or abroad.
Home Insurance:
Home insurance is a type of insurance. A house is a valuable asset in a person’s life. Home insurance is property insurance that covers losses and damages due to natural or human-made disasters to homes and assets in the home.
Marine Insurance:
Marine insurance is a type of general insurance that protects against losses or damages caused to ships, cargo, and transport by which goods are transferred.
Difference between Life Insurance and General insurance
As we discussed above, general insurance and life insurance provide different types of coverage. So it is important to understand the difference between general insurance and life insurance to make financial decisions.
- Life Insurance is a type of coverage that pays out a sum of money to your beneficiaries in the event of your death. It can also cover living expenses for people who are terminally ill or have a long-term disability. General Insurance is a type of coverage that protects you against losses from things like theft, accidents, and natural disasters.
- Life insurance is considered an investment Option. General insurance is a contract of indemnity.
- Life insurance is a long-term contract and it can be paid in regular intervals. Conversely, general insurance is a short-term contract, which needs to be renewed every year.
- In life insurance, the premium is paid throughout the life of the term. In contrast, is paid in a single payment.
- In life insurance, the insurable interest must be present only at the time of the contract, but in general insurance, the insurable interest must be present, both at the time of contract and at the time of loss.
- In life insurance, the nominee of life insurance policy receives the sum assured in case of the policyholder’s demise. Upon maturity, the policyholder may receive the sum assured. In general insurance, the policyholder is eligible to receive the sum assured benefits upon an unfortunate event, covered in the contract.
- The component of saving is normally present in life insurance but not in general insurance.
Comparison Chart - Life Insurance vs General Insurance:
| Parameter |
Life Insurance |
General Insurance |
| Coverage |
It offers financial cover for the life of the insured person. |
It offers financial cover for assets such as home, health, travel, vehicle, etc. |
| Term of Contract |
It is a long-term contract. In this, the policyholder pays either lump-sum or regular intervals. |
It is a Short-term Contract. In this, the policyholder generally renewed yearly. |
| Nature of Contract |
It is not a contract of indemnity. It is considered an investment. |
It is a contract of indemnity. |
| Premium Payment |
The premium for a life insurance policy is paid at regular intervals such as monthly, quarterly, or yearly. |
The premium of the General insurance policy is paid at once. The policy needs to be renewed on expiry. |
| Insurable Interest |
The insured person must be present during the purchase of the plan. |
The insured person must be present during the purchase, as well as the pay-out. |
| Insurance Claim |
The nominee of life insurance policy receives the sum assured in case of the policyholder’s demise. Upon maturity, the policyholder may receive the sum assured. |
The policyholder is eligible to receive the sum assured benefits upon an unfortunate event, covered in the contract. |
| Compensation Value |
The compensation value is based on the sum assured according to the financial situation of their family. |
The compensation value is the actual loss incurred in the insured event. |
| Savings component |
Many life insurance policies come with savings components to create wealth. |
General insurance plans have no savings component. |
| Policy Value |
The policy value for a life insurance plan depends on the preference of the policyholder. |
The general insurance policy value is influenced by the value of the asset. |
Conclusion:
Both Life insurance and general insurance policies are required to secure our loved ones and both are needed to comprehensively cover all the aspects of life. Insurance is an effective way to manage risk factors and provides peace of mind. Different insurance providers offer different types of benefits along with tax benefits under specific terms and conditions. Remember to compare insurance policies to find the best plan.
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