What are the Types of General Insurance?

Insurance is a contract that is designed to protect the interest of policyholders or beneficiaries in the face of the various uncertainties of life. There are two broad categories of insurance contracts in India– life insurance and general insurance. Unfortunately, there is some confusion regarding the differences between life insurance vs. general insurance in India.

In the following sections, we will discuss the key differences between life insurance and general insurance along with the key features of these common types of insurance in India.

What is Life Insurance?

A life insurance policy is a life cover to put it simply. It is a contract that bounds the insurance provider to offer financial compensation to the beneficiary in case of unfortunate events covered under the policy like the insured’s untimely demise. In exchange, the policyholder pays a predetermined amount as regular premiums or a single premium.

The life insurance policy covers a certain period, and if the policyholder survives it, they are eligible for a maturity benefit, as per the terms of the contract. People opt for life insurance policies to provide financial protection in case of unprecedented circumstances.

Types of Life Insurance

1. Term Life Insurance

Term life plans are the most basic life insurance plans offering financial protection to the beneficiary, in case the life insured does not survive the covered period. It is often preferred as it provides comprehensive coverage at an affordable premium.

Term Insurance with Return of Premium (TROP) is another type of term plan that offers maturity benefits along with death benefits. It requires a slightly more expensive premium. It is helpful to understand your specific financial requirements to calculate a suitable premium amount.

2. Whole Life Insurance

Whole Life Insurance plans provide coverage to the insured for their entire life, or as long as the premiums are paid. It is an ideal choice for people who require extensive live coverage and want their family to be financially protected at all times.

3. Endowment Plan

Endowment plans are a combination of investment and insurance. A portion of the premium goes towards securing the sum assured, and the rest is utilized for investment purposes. It serves the purpose of amassing savings at lower risks and providing financial protection to loved ones during the policy term. Upon maturity, the insured will receive the sum assured.

4. Unit Linked Insurance Plans (ULIPs)

ULIPs allow the policyholder to invest in mutual funds and ensure life cover at the same time. It is ideal for long-term financial goals as they help in wealth creation. Depending on one’s risk appetite portfolio, one can invest in various fund options i.e. equity (high risk), debt (low risk), or hybrid funds (medium risk).

Along with the death benefit, ULIPs offer partial withdrawal after the lock-in period of five years is over and also allow switching between funds.

 

5. Money-Back Policies

Money-Back policies provide the insured with a percentage of the sum assured at predefined intervals. These payouts are known as survival benefits. When the policy matures, the remaining amount of the sum assured is offered to the insured along with the accumulated bonus, if any.

6. Child Plans

A policyholder can generate funds for their child with the help of a child plan. It helps build a corpus that can be utilized in the future for a child’s education or marriage. In the unfortunate case of the policyholder’s early demise, the beneficiary will get the sum assured.

7. Retirement Plans

A retirement plan helps you to plan to do financial planning for post-retirement years when you might not have any source of income. Under such plans, a specific amount is regularly paid to build up a corpus which is used to provide lifetime income to the insured at regular intervals after retirement

What is General Insurance?

General Insurance is any policy that covers assets and valuables such as a vehicle, home, travel, and health against damage, loss or theft, and many other liabilities. The critical difference between life insurance and general insurance is that the latter offers financial protection against damage or loss other than life.

What are the Types of General Insurance?

Some of the types of general insurance policies are:

1. Health Insurance

Health Insurance offers coverage for medical and surgical expenses for the insured. It acts as a safeguard against medical emergencies. Depending on the terms of a health plan, the insurance provider either settles the bill directly with the hospital or reimburses the insured for their expenses.

2. Motor Insurance

Motor Insurance provides financial protection for personal and commercial automobiles against loss due to damage, theft, accident, fire, natural calamities, etc. Two significant types of motor insurance policies are:

  • Comprehensive Insurance – This covers both parties involved in an accident. Additionally, it offers protection against the scenarios mentioned earlier as well.
  • Third-Party Insurance – This provides coverage for the third party involved in an accident. According to the Motor Vehicles Act, all two-wheelers and four-wheelers must have third-party insurance.

3. Travel Insurance

If you travel frequently, it is beneficial to invest in a travel insurance policy. It offers security against loss of baggage, delay or cancellation of flights, accidents, or hospitalization expenses, during a trip.

4. Home Insurance

A house is a valuable asset in a person’s life. Home insurance provides financial security against damages due to natural or human-made disasters that can damage the house or its belongings.

Life Insurance Vs. General Insurance –Key Differences 

To understand some of the key differences between life insurance and general insurance, let’s consider the below table:

Comparison Criteria Life Insurance General Insurance
Coverage It offers financial cover for the life of the insured. It offers financial cover for valuable assets such as home, health (excluding life), travel, automobiles, etc.
Duration It is a long-term plan. Depending on the contract terms, it can offer coverage up to a specified duration, such as 15 to 20 years or even a lifetime. General insurance policies are usually effective for a short-term e.g. a year and have to be renewed at regular intervals.
Premium The policyholder is required to pay the predefined premium amount at regular intervals, such as monthly, quarterly, or yearly. Generally, the policyholder pays a lump sum amount at the time of purchase or renewal. It may vary in travel insurance, as required only when a specific trip needs to be insured.
Policy Value The policyholder can decide on the sum assured according to the financial situation and expected future needs of the beneficiary. The policy value is influenced by and determined according to the value of the asset being insured.
Insurance Claim The beneficiary of the policy receives the sum assured in case of the policyholder’s demise. Upon maturity, the policyholder may receive the sum assured. In the case of Money-Back or Endowment plans, the policyholder also gets the interest earned on investments. The policyholder is eligible to receive the assured benefits upon an unfortunate event like damage or loss of an insured asset as per the coverage provided in the contract.
Insurable Interest The policyholder must be present during the purchase of the plan. The policyholder must be present during the purchase, as well as the payout of the policy.

To understand these differences between life insurance vs general insurance better, let’s take a closer look at the key features of life insurance and general insurance plans.

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