Life insurance vs general insurance: how are they different?
New Delhi: In the most basic terms, insurance is a means of protection against financial loss. Anyone can take out insurance to protect themselves against any uncertain loss. It is offered by an entity called an insurer or insurance company.
As its name suggests, this insurance agreement between the insurer and the insured covers the life of the latter. It offers financial assistance in the event of the death of the insured during the term of the contract, the beneficiary. Monetary compensation is given to the candidate nominated by the policyholder.
This insurance is generally taken out to support the family of the deceased in the event of premature death.
Unlike life insurance, general insurance is an insurance contract for a specific property. In such cases, the insurer covers the cost of loss/damage to that insured asset of the policyholder. Types of general insurance include car insurance, home insurance, travel insurance, health insurance, etc.
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How are the two different from each other?
Coverage: While life insurance covers the life of the policyholder, general insurance is responsible for any expense or damage related to non-life assets like home, vehicle, health, among others.
Nature: General insurance operates on the principle of indemnity, ie compensation in the event of loss or damage. Life insurance, on the other hand, is considered a type of investment intended to protect the family of the insured. In the latter case, the indemnity is paid either at maturity or in the event of death.
Premium: Life insurance premiums are fixed, depending on the policyholder’s coverage amount. The premium for general insurance policies varies depending on the condition/value/depreciation of the asset.
Duration: Life insurance policies are long-term, but general insurances can be short-term contracts and can be extended according to the wish of the insured.
Beneficiary: In the case of general insurance, the policyholder is the beneficiary while in the case of life insurance, the benefit of the claim goes to the family member named by the policyholder.
Sum Insured vs. Sum Insured: Sum Insured is the amount of compensation provided as reimbursement to the policyholder in the event of damage to property under general insurance. On the other hand, in life insurance, it is the sum that the company is potentially obliged to pay to cover the loss is called sum insured.
The sum insured is a fixed sum which is paid in total whereas the sum insured depends on the extent of the damage.