What is Insurance and Its Types-General insurance

Insurance is among the main pillars for financial planning. It protects your family members, you and your assets from financial losses that are incurred in the event of an unexpected event. The basic idea behind insurance is quite straightforward. The insured pays a set amount, referred to as the premium, to the insurance company for the protection of a certain amount of damages.

It is a matter of preference. Depending on what you are insuring it is classified as general or life insurance. This article we’ll describe both of these kinds of insurance along with their distinct aspects.

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What is General insurance?

General insurance protects your non-life-related assets, such as your car, home and health insurance, as well as travel from fire, floods accidents, thefts, and human-caused disasters.

General insurance types

Here are the different kinds that are general in insurance.

1. Health insurance

A crucial risk-reducing tool, Health insurance can reduce the cost of out-of-pocket expenses when dealing an emergency medical situation. An all-inclusive medical insurance plan is an indemnity policy which covers hospitalisation costs in excess of the amount insured. Although you can purchase an independent health insurance plan family floater plan, it provides protection to all members of your family.

On the other hand Critical illness policies are fixed benefit plans which provide a lump sum in the event of a diagnosis of a serious disease and covers medical costs like hospitalisation and pre-hospitalisation expenses.

2. Motor insurance

Motor insurance protects your vehicle against damage, accidents vandalism, theft and many more. The type of insurance is available in two forms : complete and third-party. Comprehensive automobile insurance plan gives you a 360-degree safety cushion for your vehicle from damages caused by fire, flood and riots. In addition it also gives you the option of adding a rider as well as personal accident protection as well as third party liability.

However an insurance policy that is third party will take care of any damages caused by a third party in the event of an accident that is caused through your car. It will not cover any damage caused to the vehicle. In accordance with the Motor Vehicles Act, 1988 It is mandatory for every vehicle on the roads to be insured by an insurance policy for third parties.

3. Home insurance

Like the name implies, an insurance policy for your home protects your home and belongings from damage resulting due to natural or man-made catastrophes. Certain home insurance policies cover temporary living expenses when you are on a lease due to a home being renovated.

4. Insurance for travel

If you’re traveling to another country A travel insurance policy covers you from the loss because of lost baggage delay in the flight, as well as trip cancellation. In certain cases in the event of hospitalisation in the course of your travel, a insurance policy could also cover hospitalisation that is cashless.

The difference between general and life insurance

  • Definition as well as coverageLife insurance protects your life and has the ability to provide an investment and savings avenue. Savings are the amount that you receive upon expiration. In the event that the owner of the policy dies during the duration, they is entitled to a refund of the premium that was paid over time. It is generally a type of contract of indemnity for assets that are not life-threatening. It promises to pay for your losses, however with no investment or savings avenue, i.e., no part of the insurance premium will be paid in the event that the claim isn’t filed.
  • The purpose
    Life insurance pays out in the event of the policyholder’s death. However, in the cases of common insurance plan, the payouts are paid when a loss occurs unexpectedly, like an accident, the theft of a sudden obligation.
  • The contract’s term and the payment
    Insurance for life is lengthy contract, and you must pay the premiums monthly installments. General insurance, on the other hand, is a short-term agreement that must be renewed annually and requires the full amount at renewal.
  • The payment of claims
    For life insurancepolicy, the insurance amount is paid at the time of the day of the event or the date that the policy matures. In general insurance it is possible to recover financial losses in the event of an unforeseeable event.
  • The value of a policy
    Life insurance is available at any amount depending on the policyholder’s premium. In general the amount paid is limited to the risk incurred or the actual loss suffered, regardless of the policy value.

How do you define life insurance?

Like the name implies, it protects your life. If the policy holder dies premature death during the term of the policy the insurance company will pay the amount assured to the person who is named as the nominee. One of the most important tools for financial planning, insurance on life will help your family remain financially secure, eliminate debts by way of loans, ensure the lifestyle you have created and ensure that your goals remain in check.

The types of life insurance available

Here are some types of insurance for life.

1. Life insurance term:

The term insurance plan is by far the most basic type of life insurance that is available on the market. Pure protection plans that provides comprehensive coverage with a reasonable price. A smoker aged 30 could choose an insurance plan that provides coverage of 1 crore rupees. 1 crore for a duration of 30 years paying a small fee. The term plan provides you with the option of choosing an amount that is guaranteed to be between 15 and 15% of your annual earnings.

The insurance company pays the nominee the sum guaranteed in the event that you die during the term of your policy. The money you receive from insurance helps your family members to pay everyday expenses and pay off any outstanding debts. Be aware that pure term plans do not have any maturities benefits. This means that if you do not live to the end of the policy you won’t be able to enjoy these benefits.

In recent times insurance companies have created the refund of the premium terms insurance which will refund all premiums you paid if you live to the end of the term of your policy. But , they are more expensive than pure term insurance plans.

2. Endowment plans

Incorporating investment and insurance into one product, endowment plans can provide life protection and create a corpus to fund important objectives in life. A part of the premium is used to pay the amount guaranteed, while the remainder is invested in safe avenues. If you die during the period of the policy your beneficiary will receive the amount assured.

If you are able to survive the term of your policy In the event that you survive the policy term, you receive the amount that you are guaranteed as a maturity amount with the accrued bonuses. So, endowment policies meet the two requirements of investment and insurance.

3. Money-back policies

Policies for money-back are similar to plans for endowment, with the exception that they pay a specific amount at specific intervals over the term of the policy. For example, a money-back policy that runs for 15 years could be able to pay a particular amount at the conclusion five and 10th year of the policy. At the time of maturity is when it pays the maturity benefit along with the bonuses that have been accrued.

4. Plans linked with unit (ULIPs)

Combining insurance and investing as a single policy, ULIPs offer life protection as well as the chance to earn capital appreciation through investing in diverse funds that have different levels of risk. As with endowment insurance, in ULIPs there is a portion of the premium is used to provide life insurance, while the other portion is invested in markets that earn yields.

Each ULIP includes underlying funds that belong to different asset classes , such as debt, equity, and hybrid , where it invests to produce profits. ULIPs allow partial withdrawal at the expiration of the lock-in time (5 five years) and also offer the option of switching, whereby you can change between funds. This feature is useful when you’re nearing your target, and you can change the fund you are using to be aggressive into a debt one.

5. Whole life insurance

The name implies that life insurance that is whole provides protection for the entire duration of your life. The term of the policy for whole life insurance policies extends until 100 years. so long as cost of the premium is paid in full, the benefits of the policy remain in force.

If the insured lives beyond the duration of the policy, they will receive maturity benefits. If you wish to be covered for the rest of your existence, life insurance policies are an excellent option.

The table below summarizes the key distinctions between life and general insurance:

ParametersLife insuranceGeneral insuranceMeaningProtects your lifeProtects non-life assetsContract termA long-term contract which requires the payment of premiums over a period of time.Typically, annual contracts require renewal every yearSettlement of claimIn the event in the event of the loss of the insured within the policy’s term or at the date of maturity on the policyIn the event of a claim, reimbursement will be madeSavings componentPresentAbsent

Life insurance and general insurance are essential to protect every aspect of your life in a comprehensive manner.

Although every effort is made to ensure that the information regarding products and services made accessible via the web site and other websites and platforms There may be accidental mistakes or typographical errors, or delays in the updating of information.

Last Updated : March 14, 2022 by Editorial Team

Published : March 14, 2022

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