When it comes to insurance policies, the options are countless due to which it can get confusing to know which ones to opt for. But for starters, all you need to know is that there are two categories of insurance, which are life insurance and general insurance.
What Is Life Insurance?
Life insurance is a form of insurance that financially protects your loved ones in an event of your untimely death. The insurance guarantees your beneficiaries a lump sum amount after your demise. In case you outlive the maturity period of your life insurance policy, you will receive a maturity benefit.
Whole life insurance, unit-linked insurance plans, endowment plans, etc. provide maturity benefit as well as death benefit. However, term insurance plans are the purest form of life insurance. Therefore, term plans provide only death benefit, not maturity benefit.
What Is General Insurance?
General insurance is a broad term and includes all types of insurances that do not provide life coverage, such as health insurance, motor insurance, home insurance and travel insurance. These general insurance products usually cover the financial losses incur due to theft or damage to your valuable possessions.
How Are Life Insurance and General Insurance Different from Each Other?
The key differences between the life and non-life insurance plans are:
How You Pay the Premiums
Both life and general insurances do not come free. You will have to pay a certain amount of money known as insurance premiums to acquire financial protection/insurance cover.
To get your life insured, you generally pay a large sum of money in the form of premiums over a period of time which can be several years. Some insurance companies give the option to pay the premium in one go but as it may prove to be a huge financial burden, it is advisable to pay the premium over a period of time.
On the other hand, general insurance policies are usually much cheaper, as you tend to pay the premiums in one shot. Many general insurance plans like health insurance and motor insurance require you to pay the entire premium at the time of policy purchase.
The Duration of the Insurance Plans
There is a major difference in the duration of life insurance policies and general insurance policies. A life insurance policy is usually a long-term investment while a general insurance policy is a short-term investment.
Life insurance companies also offer short-term life insurance policies, wherein the insurer will refund the premium with a little additional financial benefit if you outlive the insurance term.
The Sum You Receive at Maturity
In case of life insurance policies, if you do not meet your demise till the time your policy matures, you will receive a maturity amount, except in the case of term plans. On the other hand, in the case of general insurance policies, even though you pay the premium and can make a claim, you do not generally don’t receive maturity benefit at the end of the policy term.
Even though you pay life insurance premiums for an extended period of time, it does make sense to invest in a life insurance policy because it not only provides protection but also savings. You can secure the financial future of you and your family with a suitable life insurance policy. General insurance policies can financially protect your assets but they do not help with wealth management/enhancement.
The Purpose of Each of the Policies
When it comes to life insurance policies, your loved ones receive a certain amount of money in the unfortunate event of your death, or you receive a maturity benefit when the policy matures (with the exception of term plans). There are certain plans that offer you payouts after a specific time period, regardless of whether you have a life-threatening emergency or not in the form of bonuses.
But in the case of general insurance policies, the premium you pay to the insurance provider is an investment you do not get back. You will only get a payout/reimbursement if you face a crisis and the property you have insured gets damaged due to an accident or theft like in the case of a comprehensive car insurance policy.
What Should You Consider Before Purchasing an Insurance Policy?
Though the differences between a life insurance policy and a general insurance policy are simple and easy to understand, each insurance policy offered by different insurance providers is always different and has different terms and conditions. You should be diligent when choosing an insurance policy in order to ensure it best suits your needs. Always read the terms and conditions of an insurance policy carefully before investing in one.
(This article was originally published on BankBazaar.com)