Life Insurance v/s General Insurance

As the recent pandemic of Covid-19 has shown, it is extremely important for us to have sufficient medical and financial back up. Unforeseen circumstances and emergencies can halt our activities at any moment and so it is necessary to have robust fiscal support for our loved ones and dependants. A life insurance as well a general insurance policy ensures that our family members can continue to fulfil their dreams and aspirations even in our absence and have the necessary financial buffer against the difficulties of life.   But these terms do not imply the same meaning and there is a difference between the two. In this article, we are going to look at what makes a life insurance policy different from a general insurance policy and what their types are. Let us begin by first understanding the meaning of these terms as follows -

Life Insurance Policy

A life insurance policy is a contract between an insurance company and a policyholder that offers financial coverage in the unfortunate occasion of the policyholder’s death during the tenure of the policy. The insurance coverage is provided to the policyholder in exchange for the payment of a fixed rate of premium till the date of death of the life assured. It is an accepted fact that you will not always be present for your dependents. If you were to meet with an untimely death, a life insurance policy guarantees the fiscal well being of your nominee by paying them the death benefit under your insurance policy. It is specifically designed to relieve your loved one of any monetary distress and ensure their overall welfare. 

General Insurance Policy

A general life insurance policy or a non-life insurance policy, including automobile and homeowners policies provide payments against the loss faced by a particular financial event. Unlike life insurances, general insurance policies do not have a term that lasts lifelong. It offers an insurance cover for a predefined period of time and are mostly annual agreements. The premium that is paid by a general insurance holder is referred to as a ‘pool’ and whenever they encounter a loss, their reimbursement amount is paid from the said pool. 

Let us now look at the differences between these 2 insurance policies in the table below - 

Point of Difference	Life Insurance Policy	General Insurance Policy
Claim	In life insurance policies, the sum assured on maturity or the death benefit also referred to as the claim amount can be availed by the nominee or the life assured either at the time of death or at maturity.	In a general life insurance policy, the sum insured can be claimed by the policyholder only after incurring a loss in the particular product that is insured by their plan.
Policy Tenure	A life insurance plan has a policy tenure that covers the entire lifetime of a policyholder and will only be terminated either on the death of the policyholder or at maturity, whichever is earlier.	A general insurance policy has a policy tenure of 12 months and will cease to exist after a period of 1 year has elapsed from the date of policy purchase.
Premium Refund	Life insurance policies come with a premium return benefit, where an amount equal to total premiums paid is refunded by the insurance company if, the life assured survives the entire tenure of the plan.	General insurance policies work within certain limitations. If any damage is caused to a product that might fiscally accrue to an amount less than the sum insured, the insurance policy will reimburse the same after subtracting the deductible amount.
Insurable Interest	In a life insurance policy, the ‘insurable interest’ or the life assured who is in requirement of the policy’s financial benefits has to be alive and present in person.	In general life insurance policies, it is not mandatory for the policyholder to be present in person for claiming the financial benefits. In case the insured product moves to a new owner within 12 months, then that person will be able to renew the terms of the general insurance and use the product at will.

Now that the basic differences in claim availability, policy tenure, premium refund and insurable interest between the two kinds of insurance policies have been laid out, let us look at the types of life insurance and general insurance plans that are available - 

Types of Life Insurance Plans

The following are the different kinds of life insurance policies -

1. Term Life Insurance

A term life insurance has a predefined policy tenure and in the unfortunate occasion of the death of the policyholder, the sum assured on death is payable to the nominee and the policy is terminated. 

2. Whole Life Insurance

As the name suggests, a whole life insurance offers an insurance coverage for the entire lifetime of the policyholder. The tenure is usually 100 years. If the policyholder outlives the tenure of the policy then they receive the sum assured as a maturity endowment fund and if they die earlier than the date of maturity, the sum assured on death is paid to their nominee and the policy is terminated. 

3. Unit Linked Insurance Plan

This plan offers the policyholder to invest and augment their personal wealth in addition with an insurance cover. The premiums paid under such a plan is divided into two parts, one for the life insurance cover and the other for investment purposes. It allows the policyholder to partially withdraw the sum assured. 

4. Money Back Policy

A money back policy is similar to a whole life insurance, except that it also offers additional survival benefits to the policyholder which are allotted over a period of time during the policy tenure. 

5. Annuity or Pension Plan

The amount of premiums paid for this policy is collected as assets and disbursed to the policyholder in the form of an income. It can be received either in a lump sum amount or as an annual payment, depending upon the conditions of the policy. 

Types of General Insurance Policies

The following are a list of general insurance policies -

1. Home Insurance

A home insurance is a general insurance policy that protects your home and household against damages caused by man-made or natural disasters. 

2. Motor Insurance

A motor insurance, true to its name, offers the policyholder an insurance cover against losses incurred on your vehicles and automobiles due to an accident. It comes in two options namely comprehensive and third-party options. 

3. Travel Insurance

A travel insurance financially cushions any losses arising from loss of baggage, trip cancellation or flight delay, for international travel. It also comes with the option of a cashless hospitalization benefit, should you fall ill and require overseas medical attention. 

4. Health Insurance

A health insurance policy provides you with a financial coverage that reimburses your healthcare expenses. It pays for your medical, surgical, consultation and other charges incurred by you. In some cases it also covers certain specific physical ailments and disabilities arising out of it.

These are the different types of life insurance and general insurance plans. It is now clear that both are an indispensable part of our lives, but cater to the different conditions and requirements of us all. Hopefully, the differences laid out above and the different types will aid you in selecting a policy most suited to your financial and medical requirement.

You may also like to read:

• What Are Different Life Insurance Plans in India?
• Here is Your Guide To Different Life Insurance Plans

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.