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Ref. No. KLI/22-23/E-BB/492

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Difference Between Life Insurance and General Insurance

Life financially supports your beneficiaries in case of your unfortunate demise; however, general insurance protects against financial losses from specific events.

  • 4,082 Views | Updated on: Oct 15, 2024
Choose Security for Your Family

When protecting you and your loved ones, insurance is vital in offering peace of mind. But with so many types of insurance out there, it’s easy to get confused. A common point of confusion is the difference between life insurance and general insurance. While both are designed to provide financial security, they serve different purposes. Let’s figure out what is the difference between life insurance and general insurance.

What is Life Insurance?

Life insurance is a contract between an individual and an insurance company, where the insurer promises to pay a designated beneficiary a sum of money upon the insured person’s death. Sometimes, this contract also includes terminal or critical illnesses to provide financial security to the policyholder’s dependents after their demise.

What is General Insurance?

General insurance, or non-life insurance, provides financial protection against losses and damages other than those covered by life insurance. It encompasses various insurance policies covering different aspects of life, such as health, property, travel, and more.

What are the Key Differences Between Life and General Insurance?

Understanding the key differences between life insurance and general insurance helps in choosing the right policy for your needs. Here are the primary differences:

Feature

Life Insurance

General Insurance

Coverage

Protects against the policyholder’s death or critical illness (depending on the plan). Provides financial security for beneficiaries.

Protects against financial losses due to damage, theft, or loss of assets, health issues, or liability. Examples include car, health, property, and travel insurance.

Duration

Long-term, typically lasting for 10-30 years or even a lifetime.

Short-term, usually renewed annually or after a few years.

Policy Value

Some life insurance plans, like whole life or endowment plans, have a cash value that accumulates over time and can be withdrawn or borrowed against.

No cash value component.

Premium

Premiums are based on factors like age, health, lifestyle, and sum assured (death benefit).

Premiums are based on factors like risk profile (e.g., driving record for car insurance), property value, and desired coverage amount.

Insurance Claim

Paid to the beneficiary upon the policyholder’s death or critical illness (depending on the plan).

Paid to the policyholder to cover the cost of repairs, replacements, medical expenses, or legal liabilities, depending on the type of general insurance.

Insurable Interest

The policyholder must have an insurable interest in the life being insured. This means they would suffer a financial loss if the insured person dies.

No requirement for insurable interest. You can insure your own assets or take out liability insurance.

How is Life Insurance Different from General Insurance?

When safeguarding your financial future, understanding the difference between life insurance and general insurance is important.

Aspect

Life Insurance

General Insurance

Purpose

Provides financial support to beneficiaries upon the policyholder’s death.

Protects against financial losses from non-life risks such as accidents, theft, or property damage.

Policy Duration

Usually long-term (10-30 years or whole life).

Generally short-term (1 year) and renewable annually.

Premium Payment

Premiums are paid throughout the policy term or as a single premium.

Premiums are usually paid annually or as per the policy term.

Tax Benefits

Premiums paid are eligible for tax deductions under Section 80C of the Income Tax Act.

Premiums paid for health insurance policies are eligible for tax deductions under Section 80D.

Risk Factor

Focuses on the risk of death.

Focuses on the risk of loss or damage to assets.

Why is General Insurance Important?

General insurance is essential as it offers financial protection against non-human life losses, such as damage or loss to your assets, including your car, home, business, and other valuables. By having general insurance, you shield your nominees from such losses and free yourself from the ongoing worry of potential mishaps in life.

How Claims Process Differ Between Life Insurance and General Insurance?

Life insurance offers coverage for a specific term or for the insured’s entire lifetime. In contrast, general insurance provides coverage for particular events or risks, such as property damage, liability, or medical expenses.

Documentation

The claim process for life insurance generally requires fewer documents compared to general insurance. The beneficiary usually only needs to submit a death certificate and proof of identity for life insurance. In contrast, general insurance claims may necessitate various documents, including police reports, medical bills, and repair estimates.

Investigation

General insurance claims often involve an investigation into the claim’s circumstances, such as determining if an accident resulted from negligence or if the loss occurred due to a covered event. Life insurance claims typically don’t require extensive investigation, provided the policy covers the cause of death.

Payment

Life insurance claims are usually paid out as a lump sum to the beneficiary, while general insurance claims may be disbursed in installments or as reimbursement for expenses incurred.

Timelines

Life insurance claims are generally processed and paid out more quickly than general insurance claims, as the cause of death is often clear and the beneficiary is pre-designated in the policy. General insurance claims may take longer, especially if an investigation is needed or the claim is disputed.

How Underwriting and Approval Process Differ Between Life Insurance and General Insurance?

Understanding the underwriting and approval process is crucial when comparing life insurance with general insurance. Both types of insurance require an assessment of risk before a policy can be issued, but the methods and timelines involved can vary significantly.

Complexity of underwriting

Life insurance policies generally involve a more intricate underwriting process compared to general insurance policies. This is because life insurance requires a comprehensive evaluation of the policyholder’s health, lifestyle, and other risk factors to determine the appropriate premium and coverage.

Length of underwriting process

The underwriting process for life insurance can be more time-consuming than for general insurance due to the need for more detailed information collection and analysis. While it may take several weeks or even months to complete the underwriting for a life insurance policy, general insurance policies are often approved within just a few days.

Medical exams

Life insurance policies frequently require a medical exam as part of the underwriting process, whereas general insurance policies typically do not. The medical exam provides the insurer with additional insights into the policyholder’s health, helping them determine the correct premium and coverage.

Risk assessment

In general insurance, the underwriting process focuses on evaluating the risk associated with a specific event or asset, like a car accident or property damage. In contrast, life insurance underwriting is centered on assessing the policyholder’s overall risk of death or disability and the probability of a claim being made.

Conclusion

Both life and general insurance play vital roles in protecting individuals from different types of risks. While life insurance focuses on providing financial security to beneficiaries after the policyholder’s death, general insurance covers various non-life risks, offering protection against losses and damages. Understanding the difference between life insurance and general insurance helps in making informed decisions and choosing the right policies to safeguard your financial future.

FAQs

1

Why should an individual buy life insurance?

If you are someone looking for financial protection for your family, life insurance is for you. It offers coverage for education, debt, or simply paying off the daily expenses in your absence.

2

What is No-claim Bonus?

As the name suggests, NCB or No-claim Bonus is a discount given to policyholders by the insurer if they haven’t made any claim in the previous policy term. This is a loyalty bonus offered to show the customers that insurers value their claim-free commitment to the company.

3

What are riders or add-ons?

Just like added bonuses, rides or add-ons are extra coverages that can be added to your existing policy. If your policy only offers term insurance, you can add an accidental rider to it and avail of the benefits of this rider in case of any accidental emergency.

4

What should I consider while buying an insurance policy?

As a policyholder, it is important to keep a few things in mind, such as:

  • What are you aiming for while buying a policy?
  • Can you afford it even in worst case scenario?
  • Is your insurance offering any extra benefits?

These pointers will help you analyze your situation and help you decide what is best for you.

Suggested Readings

1. Types of Insurance Policies in India

2.Difference Between Term Insurance and Life Insurance
Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Kotak e-Term

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Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**
Want to Know More?
Invest NOW

Ref. No. KLI/22-23/E-BB/2435

T&C

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

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