Trying to choose the best financial plan for yourself and your family can get tricky if you do not see the bigger picture. While there are several life insurance plans available for you to choose from, knowledge of each plan's fine details helps the decision-making easier. One of the most common ways to invest and ensure that your assets and dependents like family are safe from any financial losses in case of any mishap is through insurance.
In simple words, insurance involves paying a certain amount, known as the premium, to the insurer. In turn, the insurer covers damage and pays you a certain amount for the damages. This amount is pre-determined by the insurance plan you choose.
Types of Insurance Plans:
As we know, a thorough knowledge of the insurance options available for you helps you make an informed decision. It helps you find what is best for you and ensures that you don't fall prey to any fraudulent practices.
The name of the plan and the amount of compensation by insurance varies from different insurers. However, all the different insurance plans can be broadly classified under:
- Life Insurance
- General Insurance
Before diving into the differences between the two, let's look at what they are to get a clear picture.
As the name suggests, life insurance is related to compensation to the nominees stated by the policyholder. It is mostly in place for the protection of family members in case of premature demise of the family's earning member. Life insurance plans are designed to help your family stay financially secured and keep your kids' education or general goals, on track.
Life Insurance plans can be of various types, namely:
1. Term life Insurance:
These are the simplest plans available. It is a pure protection plan. The best part of term life insurance plans is that they offer broader coverage in affordable premium e.g. non-smoking earning members can get coverage up to 10-15 times their annual income.
The insurance pays the nominee the assured amount to help them carry on with their daily expenses. However, if you survive the term plan, the term life insurance policies do not have any maturity benefits. In simple words, it means that upon the end of the policy tenure, if you are fine, you do not get back the premiums you paid or any monetary or financial benefits.
Some insurers have come up with premium term life insurance plans. In these plans, the insurer returns all the premium deposits if you survive the policy term. However, they are a bit expensive as compared to the regular term plans.
2. Endowment plans
If you are looking for insurance plans and also interested in investments, endowment plans are the ones for you. As a blend of investment and life cover, endowment plans offer your family insurance coverage and help you build up financially for essential life goals. On every deposit, a certain part of the premium is invested in low-risk avenues.
In case of the policy holder's demise, the nominees get the assured sum. In case, you survive, you get monetary maturity benefits in the form of the sum assured. You also receive the accumulated bonuses of the investments.
3. Money-Back Policies
Money-back policies are more or like similar to endowment plans. You get the usual benefits of investments and monetary coverage. However, in money-back plans, instead of receiving all the benefits only on the policy term's maturity, the insurers pay you predefined sums in between the policy term at regular intervals. Once the policy matures, the policyholder also receives the monetary maturity benefits as well as the bonuses.
4. Unit linked insurance plans (ULIPs)
Unit linked insurance plans, or ULIPs are also plans that combine investments and insurance. Like endowment plans, a certain portion of the premium is kept for providing life cover for your family, while the rest of it is invested in the market.
The investments under Unit linked insurance plans (ULIPs) can be in different asset classes like equities, debt, and hybrid, where they are invested to generate returns.
5. Whole Life Insurance
Whole life insurance policies are ones that cover your entire life. They can extend up to even 100 years as long as the policyholders pay the premiums regularly.
Upon surviving the policy term, the policyholder gets the maturity benefits. For those who want to stay ensured all their life, whole life insurance plans work the best.
General insurance plans cover everything that is not related to the life of the policyholder. It can be for your real estate property assets, business, or even your house and expensive household products. General insurance plans cover a wide range of assets. However, they are broadly classified into four categories:
1. Health insurance
Irrespective of your age, a health insurance plan is something you must-have for your family. It reduces the load on yourself and your family in case of any medical emergency. You can choose between standalone general health insurance plans for individual family members or opt for family floater plans for your whole family.
Some plans also cover critical illness and provide a lump sum upon diagnosis of a critical illness.
2. Motor Insurance
As the name suggests, motor insurance plans provide coverage to your vehicles against accidents, damage, theft, vandalism, etc. They also offer the rider personal accident coverage via third parties.
3. Home Insurance
Home insurance plans come in handy when there is damage to property because of natural or human-made calamities. Some home insurance policy plans cover the expense of living while your house undergoes renovation.
4. Travel Insurance
Travel insurances cover loss due to cancelled or delayed flights, loss of baggage. They also cover cashless hospital bills in case of any mishap during travelling.
Difference between general insurance and life insurance:
As explained above, the most noticeable difference between general and life insurance is that life insurance provides financial support to the family in case of the policyholder's death. On the other hand, general insurance covers the monetary compensation for the non-living assets like your property and vehicles and health and travel expenses.
Some other significant factors to note are:
A life insurance offers coverage only in case of the demise of the policyholder or upon the maturity of the policy period. In case the policyholder outlives the term, they get back the premiums they paid throughout the plan.
In general insurance plans, the insurer provides compensation when the policyholder needs them. These include cases of damage to property or things human-made or natural disasters, theft, vandalism, etc. However, the catch here is that the policyholder has to make a claim. The insurer does not provide compensation without a claim.
The purpose of life insurance is to have a financial backup for your family in case of the earning member's premature demise. Its main purpose is to protect the family and help them lead a normal life and get back to their feet, even after a family member's death.
The general insurance plans are for your vehicles and property. They act as a financial backup to give you the time and resources to build things back. Similarly, general health insurance covers your medical bills and expensive procedures so that you don't have to spend a large amount of money from your pocket.
Life insurance plans are long term. They can cover decades e.g. Whole life insurance plans cover the policy holder's entire life and extend up to 100 years.
On the other hand, general insurance plans are short-term and need to be renewed yearly. Also, you need to pay the whole premium amount at the time of renewal.
For life insurance, a policyholder's presence is not required usually because mostly the claims are made after the demise of the holder.
However, for general insurance plans, the presence of a policyholder is necessary both at the time of taking the policy and making a claim.
Tax Benefits and Savings
Life insurance plans also offer you tax benefits and are a beneficial tool for financial planning. Some life insurance plans like endowment plans also provide you with the benefit of investments and help you save in the long run.
In life insurance, the value of the policy plan and the final sum can be adjusted as per the insurance holder's paying capacity at the time of taking the policy. Larger is the value of the premium; larger will be the claim's value depending on the plan.
In general insurance, the upper limit of the claim is decided based on the value of the asset that is being insured. The amount payable is also restricted to the value of the damaged assets and not the whole plan. General insurance, however, does not offer any such benefits.
In the comparison between life insurance plans and general insurance plans, there is no winner. Both serve different purposes and are equally vital to keep you financially covered in all aspects.