We all know that insurance is something that you need to purchase for the well-being of yourself and your loved ones. However, what most of us don’t know is what are the different kinds of insurance available in the market and which ones are the ones to invest.
To begin with, you need to know that there can be two types of insurance that you can invest in – Life Insurance and General insurance. In this article, we will help you understand these two types of insurances and the difference between the two. If you are a novice with regards to insurance, this article will be useful to you.
What is Life Insurance?
Well, as the name suggests, Life Insurance is what covers your life from unforeseen circumstances like untimely death, accident, etc. There can be two kinds of benefits in case of a life insurance. If the policyholder expires, a life insurance policy pays a lump sum benefit to the nominee known as death benefit. If the policy holder survives the policy term, the insurance policy pays a survival benefit known as Maturity Benefit. The insurance purchaser pays a certain amount every year, which is known as a Premium. So, in simple terms, a life insurance policy protects a person from two risks – dying too young and living too long.
What is a General Insurance?
Any insurance, which does not protect a life is known as a General Insurance. Thus, a General Insurance can cover anything – health, property, vehicle, travel, marine, liability etc. In the case of health insurance, the policy provides protection against unforeseen medical expenses. For all other types, the insurance provides protection against against the insured event and compensate the policyholder in case of the occurrence of insured event during the policy coverage.
Key Differences between Life and General Insurance
There are various points of difference between the two types of insurance. We have broken them down into four broad types:
1. Premium Payment
Life Insurance contract is a long term contract. The policy for a life insurance premium is usually paid over many years under regular pay or limited pay or can be paid in one go also under single pay. General insurance policies are usually annual policies and premium is paid before the inception of the policy and to renew the policy again, the policyholder has to pay the renewal premium.
2. Type of coverage
A life insurance policy is a long-term investment plan where the coverage is provided for the life of a person. A general insurance plan, on the other hand, is a policy that covers inanimate objects except for the health insurance policy.
3. The Purpose of Insurance
Life insurance policies cover two basic risks – death and retirement. One can get a payout at maturity or the nominees can get a payment upon the death of the insurance holder. General insurance, on the other hand, covers a particular object or event from unforeseen circumstances.
Life insurance plans combine an element of savings along with life insurance. Upon maturity of the policy, the survivor gets a maturity benefit. Thus, you can get your premium back along with the returns. General insurance, on the other hand, does not include this savings component. So, there is no chance of getting any part of your premium back.
Life and General Insurance are two completely different kinds of insurance plans – both having a different purpose and different structure. As an individual, you would need a combination of both. We strongly suggest reading everything about an insurance plan before investing in the same.