What are the main differences between life insurance and general insurance?
Insurance is a contract between an insurer and a person or entity that aims to provide security and financial support to the buyer in times of crisis. There are a multitude of types of insurance from which one can choose. Let’s look at two major categories of insurance – life insurance and general insurance and learn the difference between them.
A life insurance policy is a contract by which the insurance company covers the life of the insured. If the policyholder dies during the term of the policy, the beneficiary, designated by the policyholder, will be offered monetary compensation. This insurance is generally taken out to support the family of the deceased in the event of premature death.
General insurance is an insurance contract for a particular asset in which the insurer indemnifies any loss/damage expense relating to that asset. The insurer is obliged to cover the costs of the insured property in the event of an unfortunate event. Types of general insurance include car insurance, home insurance, travel insurance, health insurance, etc.
These policies differ on the following bases:
Cover: Life insurance covers a person’s life risk while general insurance covers non-life assets such as vehicles, houses, health, among others.
Nature: General insurance works on the principle of indemnity, ie compensation in the event of loss or damage. Life insurance policies, however, are considered a type of investment to protect the family of the policyholder. The life insurance indemnity is paid either at maturity or in the event of death.
Prime: The premium for life insurance contracts is fixed and based on the amount of cover chosen by the insured. On the other hand, the premium for general insurance policies varies depending on the condition/value/depreciation of the asset. For example: In health insurance, an individual’s premium depends on their age, lifestyle and various other factors.
Sum Insured vs. Sum Insured: The sum insured is the sum of money that is paid as reimbursement to the policyholder in the event of damage to the assets under the general insurance. In life insurance, the sum that the company is potentially liable to pay to cover the loss is called the 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.
Beneficiary: The benefit of the general insurance policy goes to the insured himself. In the case of life insurance, the benefit of the claim goes to the family member designated by the policyholder at the time of signing the contract.
Mandate: Life insurance policies are long term. On the contrary, general insurance contracts are short-term and can be extended according to the wish of the insured.
Different types of insurance policies are offered in the market for people with various requirements. It is advisable to understand the terms and inclusions of a policy and select one according to your personal needs before entering into an agreement.
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