The term insurance can be understood as an arrangement, in which the insurer commits to provide compensation for loss, damage, death, caused to the insured in return for the payment of the premium. There are two types of contract, life insurance, and general insurance. The insurance plan which covers the life-risk of the insured is called life insurance. On the other hand, the insurance plan which covers any risk other than the life-risk of an individual is called general insurance.
Life insurance is also known as assurance, whereby the sum assured is paid to the insured, while the general insurance policies are called as insurance. Check out this article excerpt, in which we have covered all the important differences between life insurance and general insurance.
Content: Life Insurance and General Insurance
|Basis for Comparison||Life Insurance||General Insurance|
|Meaning||Life insurance can be understood as the insurance contract, in which the life risk of an individual is covered.||General insurance refers to the insurance, which are not covered under life insurance and includes various types of insurance, i.e. fire, marine, motor, etc.|
|What is it?||It is a form of investment.||It is a contract of indemnity.|
|Term of contract||Long term||Short term|
|Claim payment||Insurable amount is paid, either on the occurrence of the event, or on maturity.||Loss is reimbursed, or liability incurred will be repaid on the occurrence of uncertain event.|
|Premium||Premium has to be paid over the years.||Premium should be paid in lump sum.|
|Insurable interest||Must be present at the time of contract.||Must be present, both at the time of contract and at the time of loss.|
|Policy value||It can be done for any value based on the premium the policy holder willing to pay.||The amount payable under non-life insurance is confined to the actual loss suffered or liability uncured, irrespective of the policy amount.|
|Savings||Life insurance place has a component in savings.||General insurance has no such savings component.|
Definition of Life Insurance
The term life insurance implies the type of insurance, that covers the risk of life and provides a guarantee to compensate by paying the specified sum, either on the death of the insured or after the specified period.
In life insurance, the amount is payable on the happening of the uncertain event. Moreover, there are certain plans, wherein the payment of the policy amount is made at the maturity. These are long term contracts which require the payment of premium throughout its life till it matures and the sum assured is paid on maturity. It can be surrendered, after some years, wherein the policyholder will get a proportion of premiums paid, called as surrender value.
There are three types of life insurance, discussed as under:
- Whole life assurance: In whole life assurance, the amount of the policy is paid only on the death of the insured, to the nominee or the legal heir of the insured.
- Term life assurance: In term life assurance, the policy amount is paid to the nominee, if the insured passes away before the expiry of the specified term, or to the insured himself, on the maturity of the term.
- Annuity: When the term of the policy expires, the payment of the policy amount is paid to the holder periodically, as long as the insured is alive.
Definition of General Insurance
General insurance or otherwise known as non-life insurance or property and casualty insurance, is a contract that covers any risk apart from the risk of life. The insurance is to safeguard us and our property, such as home, car, and other valuables from fire, theft, flood, storm, accident, earthquake and so on.
These are the contract of indemnity, wherein the insurer promises to make good, the loss occurred to the insured. So, irrespective of the amount of policy, the insurance company will reimburse the loss suffered by the insured. They are short term in nature, generally one year and so renewal is required every year. The types of general insurance are:
- Fire insurance: The insurance covers the risk of loss to the property due to fire.
- Marine insurance: The insurance covers the risk associated with loss due to a marine adventure, like sinking, stranding and collision of the ship, caused to the ship or cargo owner.
- Health insurance: It covers the risk of the health of the policyholder or his/her family members from accident or disease.
- Home insurance: The insurance of home and its contents from any uncertainty.
- Motor insurance: The insurance of vehicles is covered under motor insurance, which is divided into two heads, i.e. two-wheeler insurance and four-wheeler insurance.
Key Differences Between Life Insurance and General Insurance
The difference between life insurance and general insurance can be drawn clearly on the following grounds:
- The insurance contract, in which the life risk of an individual is covered, is known as life insurance. As opposed, the insurance, which is not covered under life insurance and includes various types of insurance, i.e. fire, marine, motor, etc. is general insurance.
- Life insurance is nothing but an investment avenue. On the contrary, general insurance is a contract of indemnity.
- Life insurance is a long-term contract, which runs over a number of years. Conversely, general insurance is a short term contract, which needs to be renewed every year.
- In life insurance, the sum assured is paid, either on the happening of the event or the on the maturity of the term. As against this, in general insurance, the amount of actual loss is reimbursed, or liability incurred will be repaid on the happening of an uncertain event.
- In life insurance, the premium is paid throughout the life of the term. In contrast, in general insurance, one shot payment of premium is made.
- In life insurance, the insurable interest must be present only at the time of the contract, but in general insurance, the insurable interest must be present, both at the time of contract and at the time of loss.
- Life insurance can be done for any value based on the premium the policyholder willing to pay. Unlike, general insurance the sum payable is confined to the amount of loss suffered, regardless of the policy amount.
- The component of saving is normally present in life insurance but not in general insurance.
In life insurance, the actuaries estimate the liability under the current policy at regular intervals. On the other hand, in general insurance, a part of the premium is taken forward to make provision of the unexpired liability and the remaining amount i.e. the net of claims and expenses is taken as the profit of loss.