Everyone knows that an insurance policy is a must for safeguarding and protecting one’s finances during unfortunate incidents. But what many are not aware of is that there is a plethora of insurance products, each catering to different requirements.
Confused which insurance policy to choose? Let’s start from the beginning. All insurance policies can be classified into two major categories — General and Life Insurance.
What is a Life Insurance policy?
It’s an insurance policy that offers financial compensation to your loved ones in the case of your untimely demise.
How does Life Insurance work?
You pay annual premiums for a fixed period, say 10, 20 or 30 years. Once you have paid the premium in full, the policy guarantees that your nominees (spouse, children) receive a lump sum amount after your death. This is the standard term Life Insurance policy.
There are several other types of Life Insurance policies like — endowment plans, Unit Linked Insurance Plans (ULIPs), child plans, retirement plans, whole-life insurance and more. These offer added benefits and features to the policyholder like maturity benefits, annual payouts, bonus, investments, etc.
What is a General Insurance policy?
This is an umbrella term denoting all insurance policies which don’t offer life coverage. Car Insurance, Two-Wheeler Insurance, Property Insurance, Home Insurance, Travel Insurance and Health Insurance are some of the popular types of General Insurance policies.
How does General Insurance work?
General Insurance policies offer you protection for your assets. You pay premiums based on the amount of protection you need. The insurance company provides you with the sum assured, in case something happens to the asset protected.
General Insurance policies cover the financial losses that occur to your valuable possessions as a result of damage, theft, accidents, natural disaster and other unfortunate accidents.
Key differences between Life Insurance and General Insurance:
Premium payment structures:
Life Insurance: Generally, you pay regular annual premiums for over a period 10 or 20 years.
General Insurance: Majority of General Insurance plans like Health Insurance, Two-Wheeler Insurance and Car Insurance require you to pay the entire premium at one go, mostly during the purchase of the policy.
Duration:
Life Insurance: Most policies are long-term investments.
General Insurance: Mostly, short-term investments.
Maturity Benefits:
In the case of Life Insurance — apart from term plans — you usually receive a maturity benefit if you outlive the policy period.
Most general insurance policies don’t offer maturity benefits at the end of the policy term. You get a payout from the insurance company when your property faces a crisis like – a fire, vandalism, theft, accident and more.
Most General Insurance policies don’t offer maturity benefits at the end of the policy term. You get a payout from the insurance company when your asset faces a crisis like a fire, vandalism, theft, accident and more.
Financial Planning:
Though the main goal of Life Insurance is to provide your dependents with financial support in the case of your demise, Life Insurance policies also help you achieve other financial goals like saving for your child’s future, planning for retirement, investments and more.
On the other hand, General Insurance policies — though they play a crucial role in protecting your assets — don’t play a role in wealth management.
Which one to choose?
This is like comparing apples to oranges. Both Life Insurance and General Insurance policies are two different insurance products that cater to different requirements. The question here is rather ‘Which General and Life Insurance policies does one choose’.
Analyse your specific requirements and pick the right insurance plans that best suit your needs. Always familiarise yourself with the terms, conditions and benefits of the policy, so that you make a smart decision.