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Life insurance vs general insurance: How are they different?
New Delhi: In the most basic words, insurance is a means of protection from financial loss. Any individual can get insured so as to protect themselves from any uncertain loss. It is offered by an entity called an insurer or an insurance company.
As the name signifies, this insurance agreement between the insurer and the insured covers the life of the latter. It offers financial aid in case of the death of the policyholder during the term of the policy, the beneficiary. The monetary compensation is given to the nominee as nominated by the policyholder.
This insurance is generally bought to support the family of the deceased in the event of their untimely demise.
Unlike life insurance, general insurance is an insurance agreement for a particular asset. In such cases, the insurer covers the expense of loss/damage pertaining to that insured asset of the policyholder. Types of general insurance include car insurance, home insurance, travel insurance, health insurance, etc.
How are the two different from each other?
Cover: While life insurance covers the life of the policyholder, general insurance is responsible for any expense or damage concerned with non-life assets like home, vehicle, health among others.
Nature: General insurances work on the principle of indemnity i.e. compensation in the event of loss or damage. Life insurance, on the hand, are considered a type of investment to safeguard the family of the insured. In the case of the latter, the compensation is paid out either on maturity or in the event of death.
Premium: Life insurance premiums are fixed, based on the cover amount of the policyholder. The premium for general insurance policies varies depending on the condition/value/depreciation of the asset.
Tenure: Life insurance policies are for a long term, but general insurances can be short-term agreements and can be extended as per the policyholder’s wish.
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 towards the family member nominated by the policyholder.
Sum insured vs sum assured: Sum insured is the amount of compensation provided as reimbursement to the policyholder in the case of damage to the asset under general insurance. On the other hand, in life insurance it is the sum that the company is potentially liable to pay to cover the claim is called sum assured.
Sum assured is a fixed sum that is paid in total whereas the sum insured depends on the extent of the damage.
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