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How Is Life Insurance Different From A General Insurance?

dateKnowledge Centre Team dateJanuary 22, 2021 views172 Views
How Is Life Insurance Different From A General Insurance?

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.

Life Insurance

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:

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:

Coverage:

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.

Purpose:

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.

Contract

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.

Insurance claim

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.

Policy Value

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.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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