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Simplifying Life Insurance in India
Difference between Life Insurance and General Insurance
The term 'Insurance' can be defined as an agreement or contract wherein an insurance provider agrees to cover any financial losses to a policyholder owing to damage, illness, or death, in return for a specific premium. The life coverage is generally referred to as Assurance.
There are two significant categories of Insurance: Life Insurance and General Insurance. Let's discuss these and the significant differences between Life Insurance and General Insurance.
What is Life Insurance?
What is General Insurance?
General Insurance is a type of insurance policy that covers the financial loss suffered due to the loss or destruction of the insured asset.
Essentially, a general insurance policy covers only non-life risks. It has the following features:
- It is a policy or agreement between the policyholder and the insurer, which is considered only after the realization of the premium.
- The policyholder with a financial interest in the covered asset pays the premium.
- The insurer will protect the insured from financial liability in case of loss.
What are the Differences between Life Insurance and General Insurance?
| Differentiating Factor | Life Insurance | General Insurance |
| Definition | Provides financial coverage against loss of life. | Provides financial coverage against loss of material assets or health. |
| Form | It is a type of Investment for the future either in the form of returns or in the form of financial coverage against loss of life. . | It is a contract of indemnity against loss. |
| Term of Contract | It is usually bought for Long Term. | Short Term, renewed at regular intervals. |
| Premium | It is usually paid at regular intervals like monthly, quarterly or yearly. | Premium is usually paid in a lump sum either while buying the policy or renewing it. |
| Claim | The insured amount is paid on the policyholder's demise or the policy's maturity in the case of endowment plans. | The insured amount is paid on the occurrence of a loss or reimbursed as indemnified. |
| Policy Value | The policy value is decided by the policyholder when buying the policy. The premium and the sum assured directly depend on it. | The Policy Value of a General Insurance policy depends on the asset's value and is paid as per the damage that occurred and not the sum assured. |
| Role in Investment bucket | It can act as an investment option for long-term secure planning like child education, retirement etc., along with the added benefit of death cover. | Act as a financial cover only for assets. |
Both Life Insurance and General Insurance have different applicability and interests. While Life Insurance provides financial coverage to the dependents in case of the policyholder's demise, General Insurance covers the assets. The former has a savings component, while the latter has only an indemnity component.
Both kinds of insurance are necessary for a financial bucket. A well-planned coverage, keeping in mind all the required factors for General and Life Insurance, can help prudently manage the finances.
FAQs About the Difference between Life Insurance and General Insurance
What are the 3 main types of insurance?
What is Insurance Risk?
Can you buy more than 1 life insurance policy?
Yes, as long as the total life cover of all your policies is within a specific limit. This limit is usually around 20-30 times your annual income.
It is set in place because insurance is supposed to replace your earning power and not to be a source of wealth creation for your beneficiaries, or rather make your death look quite appealing to the beneficiaries.
Important Guides Related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
04-03-2025
Life Insurance Agents Surge: 3 Million in 2025
Recent data shows that India's life insurance industry added over 2.41 lakh new agents in one year, reaching 30.34 lakh agents by January 2025. LIC India, the largest insurer, added 62,946 agents, increasing its total to 14.46 lakh. TATA AIA and HDFC Life followed with 49,908 and 38,662 new agents, respectively. The private sector added 1.78 lakh agents, while LIC added 63,000. Overall, the industry's agent count grew by 8.6% in the past year.
19-02-2025
Life Insurance: FDI Boosts Growth Potential | 2025 Update
The Indian life insurance sector is set to grow significantly with the government's decision to raise the Foreign Direct Investment (FDI) limit to 100%. This move will provide the necessary capital for industry expansion, allowing insurers to increase mortality coverage and market penetration. Private insurers have already seen a notable rise in retail sum assured, outpacing new business premiums. The shift to unit-linked investment plans (ULIPs) may pressure margins, but increased capital inflows will help meet the growing demand for coverage.
12-02-2025
Budget 2025 Brings Changes to ULIP Taxation
The Union Budget 2025 has redefined the taxation landscape for Unit Linked Insurance Policies (ULIPs). Starting April 1, 2026, ULIPs with annual premiums exceeding ₹2.5 lakh will be classified as capital assets, subjecting their gains to capital gains tax rather than treating them as income from other sources. This amendment aims to align ULIP taxation with other equity-oriented investments, ensuring a uniform tax treatment across financial products. Policyholders are advised to reassess their investment strategies in light of these changes to optimize their tax liabilities.
02-02-2025
New Tax Rules for Life Insurance Premium
Starting April 1, new income tax rules will impact ULIPs and other life insurance policies with premims over 5 lakh will no longer enjoy tax-free maturity benefits under Section 10(10D). This move aims to align insurance with genuine risk coverage rather than high ticket investments. Smart investors might now explore alternate tax-saving strategies!
13-12-2024
Retail Inflation Drops to 5.5% in November
India's retail inflation eased to 5.5% in November from a 14-month high, due to moderating food prices. Industrial output increased modestly by 3.5% in October. Despite the slowdown in food inflation, vegetable and edible oil prices remain high. Experts anticipate a potential rate cut in February if the trend continues. Monitoring urban demand is essential, though rural demand shows improvement, aiding agricultural production.
12-12-2024
Policyholders Now Get Increased Surrender Value
The new business premium of life insurers was Rs 377,960 crore in the fiscal year ending March 2024. Starting October 1, policyholders will receive higher refunds if they discontinue their policies, as per new IRDAI regulations. This change may lead to increased premiums, impacting insurers' margins. Policies must comply with the new surrender value norms by September 30. Despite initial opposition, the changes aim to improve customer benefits and are expected to positively impact the insurance industry over time.
10-12-2024
Premium Costs for Life Insurance Decrease in November
In November 2024, new business premiums (NBP) of life insurance companies fell by 4.5% year on year (YoY) to Rs 25,306.56 crore, mainly due to a 27.17% drop in LIC's premiums. However, private insurers saw a 30.84% YoY growth in NBP to Rs 13,555.45 crore. Revised surrender value norms, effective October 1, led to enhanced special surrender values for policyholders. Despite the overall decline, private sector growth improved, cushioning the fall. The life insurance industry saw a 15.7% YoY growth in NBP during April–November 2024.
18-11-2024
Govt's FDI Plan: New Insurance Rules
The government plans to allow 100% foreign ownership of insurance businesses, attracting international companies. This proposed legislation also lets individual insurance agents offer policies from multiple companies. The changes are part of the Insurance Amendment Bill, set for introduction in the winter session of Parliament. These measures aim to increase insurance penetration, currently at 4%, by allowing more companies to underwrite policies and enabling agents to sell various covers.
08-11-2024
Record Growth: Life Insurers Boost Premiums 18.56%
The Life Insurance Council reported a 13.16% year-over-year growth in October 2024 New Business Premiums (NBPs), reaching ₹30347.6 Crs, up from ₹26819.01 Crs in October 2023. Year-to-date (YTD) collections also increased by 18.56%, from ₹185195.81 Crs to ₹219561.64 Crs. This growth is attributed to life insurers' focus on first-time buyers. Despite this, new policy issuances dropped by 41.6%. Individual single premiums grew by 8.60%, with overall YTD growth at 14.16%.
01-10-2024
Higher Refunds for Life Insurance Policyholders from October 1, 2024
Starting October 1, 2024, policyholders who surrender their traditional endowment life insurance policies will receive higher refunds due to new rules from India's Insurance Regulatory and Development Authority (Irdai). The exceptional surrender value (SSV) will be increased, providing more flexibility and liquidity. This change benefits those exiting policies early, offering refunds even after the first year. Insurers must now include detailed surrender values in policy illustrations, enhancing transparency for policyholders.
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