Life vs. General Insurance What's the Difference?

How Does Life Insurance Differ from General Insurance?

Financial planning is key to living a comfortable life, especially when you're the only breadwinner. But life can throw curveballs, like an unexpected accident, medical condition, or damage to your belongings. Imagine the medical bills piling up, and if the worst happens by losing your life to an accident, how will your family cope? Frightening enough! That's where insurance steps in.

At this point, there's a very common question people ask: life insurance or general insurance? Both sound helpful and significant, but they serve different purposes. Let's break down the confusion by helping you find the difference between life and general insurance so you can pick the right one for your needs.

What is Life Insurance?

In simple words, a life insurance policy is a life cover that offers financial assistance to the beneficiaries in case of an unfortunate event that occurred to the life assured during the policy term, such as the untimely demise or an accidental disability.

Depending on the policy selected, you may also get savings benefits. In return, you must pay a pre-determined premium per the selected premium payment frequency without fail. This way, you get ensured benefits at the time of exit of the policy for maturity or death.

Why is Buying Life Insurance Important?

Financial security is vital for you and your family to live a comfortable life. But you should also prepare for the most odd cases in life. Below are some of the reasons why buying life insurance is important for you:

Financial Protection for Your Loved Ones: The primary purpose of life insurance is to provide a financial safety net for your dependents in the event of your death. The death benefit paid out by the policy can help replace your income, cover living expenses, pay off debts, and fund future financial goals for your family.

Maintaining Financial Stability: Losing a primary income earner can significantly impact the financial stability of the family. Life insurance ensures that your loved ones can maintain their standard of living and meet ongoing financial obligations, such as mortgage or rent payments, utilities, and other day-to-day expenses.

Estate Planning: Life insurance can also play a critical role in estate planning by providing liquidity to cover estate taxes, administrative costs, and other expenses associated with transferring assets to heirs.

Peace of Mind: Knowing that you have a life insurance policy in place can provide peace of mind, knowing that your loved ones will be financially protected in the event of any unfortunate event that occurs to you. It allows you to focus on living your life to the fullest without worrying about the financial consequences for your family.

What is General Insurance?

General insurance is simply non-life insurance. It protects the insured against various risks and losses. With such policies, you cover different types of losses, including vehicle, travel, personal accident, health, and property.

General insurance has a shorter tenure than life insurance, which means you will have to renew the policy within certain years. It doesn’t offer life cover but provides financial assistance for covered instances.

Why Should You Buy General Insurance?

Non-life or general insurance becomes your valuable financial asset throughout different stages of life. While general insurance doesn’t cover the life risk, there are multiple benefits that you can get from buying one, including the following:

Protection Against Financial Loss: General insurance protects against risks resulting in significant financial losses. Whether damage to your property, liability claims or unexpected medical expenses, having the right insurance coverage can shield you from bearing the full financial burden of such events.

Compliance with Legal Requirements: In many cases, certain types of general insurance are mandatory by law to avoid potential penalties or legal consequences. For example, the law typically requires motor insurance to operate a vehicle on public roads. Similarly, mortgage lenders may require home insurance as a loan condition.

Peace of Mind: Protecting your home, vehicle, health, or liability exposures is a key aspect of planning a secure lifestyle. Insurance coverage can provide peace of mind, knowing that you're financially protected against unforeseen events like accidents, disasters, medical conditions, or lawsuits.

Risk Management: Instead of bearing the full brunt of a loss, policyholders pay a premium to the insurer, which assumes the risk in exchange for providing coverage. This allows individuals to protect their assets and manage risk by transferring the financial consequences of potential losses to an insurance company.

Key Differences Between Life and General Insurance

Both life and non-life insurance financially compensate the life assured and the dependents against the covered situations. There are significant differences between life and general insurance based on the below parameters:

Parameters	Life Insurance	General Insurance
Coverage	Covers the life assured against the risk of death and certain medical conditions, including critical illness, surgeries, etc.	Covers non-life assets, like houses, vehicles, health, natural or man-made disasters, theft, house, vehicle, etc.
Coverage	Upon maturity of the policy, the definite benefits are provided	Doesn’t offer any maturity benefit, but sometimes, no-claim-bonus (NCB) is available
Purpose	Work as a financial backup to the dependents in case of an unfortunate event with life assured	Provide financial compensation for any loss or damage to the covered entity
Purpose	A type of investment for the future (based on returns)
Compensation	The claim amount is referred to as ‘Sum Assured’ and is payable to you or the nominee at the time of exit on death or maturity	The claim amount is referred to as ‘Sum Insured’ and is payable at the time of any damage to the covered, as per the policy terms
Investment Benefit	Applicable (as per the policy selected)	Not applicable
Contract	Long-term plans	Short-term plans
Renewal	Doesn’t require renewal every year	Require renewal after certain years and intervals as required
Claim Process	For the death claim, the claim is made by the beneficiaries	The presence of the life assured is required while purchasing or making a claim for the policy
Claim Process	For maturity claim, the presence of the life assured is important
Premium Payment	Policyholders can opt for multiple premium payments from monthly, half-yearly, quarterly, or monthly (depending on the policy terms)	One-time premium payment at the time of policy purchase or renewal
Value of the Policy	Decided as per the buying capacity of the individual and can be adjusted further	The upper value depends upon the value of the asset at the time of purchase
Savings Component	Available	Not available
Beneficiaries	Anyone whom the policyholder nominates	In most of the cases, the policyholder is the beneficiary
Calculation of Premium	Based on the factors such as the insured's age, health, lifestyle, coverage amount, and policy type	Calculated based on the level of risk associated with the insured property or liability
Influencing Factors	Age Health Lifestyle factors Occupation Smoking status Coverage amount	Type of insurance Coverage limits Deductibles Location Past records
Tax Benefits	Premium and payouts qualify for the tax benefits	Not typically qualify for the tax benefits, except for the premium paid towards the health insurance

Important Read: To take a closer look, explore the features of life insurance and general insurance.

What Types of Plans are Covered Under Life and General Insurance?

As the name suggests, a life insurance plan can protect the nominated beneficiaries financially against any life risk of the assured. General insurance works as financial compensation for any risk associated with the coverage. However, life and general insurance are just umbrella terms covering multiple types of insurance plans. Look at the table below to understand what types of plans are covered under life and general insurance policies:

Types of Life Insurance Plans

Term Insurance: Term life insurance plans are pure protection plans. They offer comprehensive coverage at an affordable premium cost. If the life assured dies during the policy term, the nominated beneficiaries receive a lump sum payout.

Endowment Plan: Endowment plans provide the combined benefit of saving and life cover to the life assured. Upon the demise of the life assured during the policy term, the nominee receives the sum assured. Also, upon maturity of the policy, the life assured receives maturity benefits. Depending on the company's experience, the plan is also eligible for bonuses (if any).

Whole Life Insurance: With a whole life insurance plan, the life assured gets coverage for up to 99 years of age, i.e., the whole life. Under the plan, the death and maturity benefits are allotted to the nominee or the life assured.

Unit Linked Insurance Plan: ULIP plans provide the dual benefit of insurance and investment plans. This type of life insurance plan offers the opportunity to save and grow your wealth. A portion of your premium deposit goes towards insurance coverage, and the remaining goes towards the investment.

Money-Back Policy: Money back plans are more similar to endowment plans. The only difference is that these types of plans offer certain payouts at definite intervals. Upon the maturity of the policy, the policyholder receives monetary maturity benefits along with the bonuses.

Child Plan: Child plans provide you with the required corpus that can be used to fund the child’s future plans, including planning the child's education and marriage.

Retirement Plan: Retirement plans are also called the pension plans in India. These plans work as a source of income for the policyholders when they retire. When all the premiums are duly paid after the policy term, the plan provides regular income.

Types of General Insurance Plans

Health Insurance: Health insurance plans provide financial assistance to covered individuals during medical and surgical emergencies (planned or unplanned). Individual and family floater health plans are available as per the requirements. When a covered medical emergency occurs, you can reach any network hospital to get the cashless treatment benefit or apply for reimbursement.

Motor Insurance: Motor insurance provides the required financial compensation for any damage to your vehicle or the third party (other vehicle involved in the accident). In India, having third-party vehicle insurance is mandatory to drive legally.

Vehicle insurance also covers loss due to fire, damage, accidents, natural calamities, etc. Generally, two types of motor insurance are available: comprehensive motor insurance and third-party motor insurance.

Travel Insurance: If you are a frequent traveller, having travel insurance in place can save you from any potential loss due to baggage loss, delay or flight cancellation, accident, hospitalisation expenses, etc., during the trip.

Home Insurance: Home insurance protects the insured from any losses that occur to their home due to man-made or natural calamities.

Play Safe, Get Insured

Life and general insurance play a different and significant role in life. While life insurance becomes the financial safeguard for your family in case any uncertain event occurs to you during the policy term, it can also work as a savings asset (as per the plan selected). General insurance works as the saviour to fund if any damage occurs to the asset covered.

We have explained the difference between life and general insurance in detail, which you can refer to before deciding. While comparing, we have seen no winner, but both are equally important in one’s life. To make a more informed decision and explore different options in life insurance plans and general insurance plans, connect with a professional Advisor at RenewBuy.

Frequently Asked Questions

Question: What must I consider while choosing between life insurance and general insurance?

Answer: Insurance is a safety net for life, serving different purposes as required. Here are the key points to consider while deciding between life and general insurance:

Consider your financial situation and requirements in the present and future. This will help you allocate what you need to cover and how much sum assured is required.
Don’t overlook the premium, as it can be a financial liability if not chosen wisely. Depending on your financial situation and suitability, select a feasible amount that you can afford without straining your pocket.
Compare different insurance providers and plans. Carefully study the features and benefits of each.
Understand the terms and conditions to avoid any inconveniences in future.
Select a policy that is affordable to you.

Question: When should you opt for general insurance over life insurance (and vice versa)?

Answer: Knowing when to choose general insurance over life insurance, and vice versa depends on your specific needs and circumstances. Here's a simplified breakdown:

Key Role of Life Insurance:

Ensure a safety net for your loved ones against any life risk
Offer liquidity that can help in estate planning and work as a financial buddy in an emergency
Build a cash value over time to help in wealth creation

Key Role of General Insurance:

Protect your assets against any damage due to man-made or natural calamities
Manage liability and legal expenses incurred due to your action
Cover health care expenses and ensure quality medical care

Question: What is no claim bonus?

Answer: Most life insurance policies offer a no claim bonus facility, where policyholders receive rewards for not making claims in a year or certain years. This NCB benefit is provided in the renewal premium rates.

Question: Can I add riders to my insurance policies?

Answer: Yes, depending on the policy terms and conditions, the policyholders can add riders to their life or general insurance policy to enhance the coverage of the base policy. These riders can be added during the policy purchase or on any policy anniversary.

Question: Can I cancel or return my life insurance policy?

Answer: Yes, if you are not satisfied with the policy terms and conditions, you can change the details or return the policy to the corporation within the lock-in period allowed.

Question: What happens if I stop paying a premium to a life insurance policy?

Answer: If you do not pay the premium to the life insurance policy on time (even after the completion of the grace period) or do not pay after certain years; the policy lapses. You cannot avail of the benefits until you do not revive it.

Question: Can I purchase life insurance and health insurance together?

Answer: Life insurance and health insurance are two unique products that are purchased separately.

Question: Will I receive the maturity benefit from my term insurance policy?

Answer: The term insurance policy usually does not provide any maturity benefit. However, the sum assured is only paid upon the demise of the life assured during the policy term. In case the policyholder chooses the term plan with the return of premium option, and on surviving the whole policy term, the policyholder receives the total premium paid.

Question: What is the risk in an insurance policy?

Answer: In insurance terminology, the risk is defined as something harmful and unexpected happening to the covered. This might be the loss, damage, or theft of the covered belongings.

Question: How do I know which insurance policy is right for me, life insurance, or general insurance?

Answer: While confused about selecting between general and life insurance, consider the following key measures: assess your financial needs, family situation, and risk exposure.

Life insurance is preferred if you have dependents and want to ensure their financial stability even when you are not around. General insurance is essential for protecting assets and managing liabilities. We suggest you consider consulting an insurance advisor for personalized guidance.

Question: Which type of insurance is more affordable, life or general?

Answer: Affordability depends on certain factors, such as coverage amount, age, health status, and type of insurance. Generally, term life insurance is considered more affordable than whole life insurance, while general insurance costs vary based on the type of coverage and risk factors involved.

Disclaimer: The content published in this article is intended solely for the reader's informational purposes and should not be relied upon for personal, medical, legal, or financial decisions. It is advisable to seek advice from a qualified professional regarding specific concerns. The details provided regarding the plan are for reference purposes only. Please visit the insurer's website for the latest updates on the plan. The Company does not guarantee suitability, reliability, timeliness, or accuracy of the information, services, or any other aspects mentioned in this regard for any purpose. We do not endorse any particular insurance company or insurance product provided by any insurer.