Difference between Life Insurance and General Insurance

What is Life Insurance?

What is 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? up-arrow

The 3 main types of Insurance are Property, Liability, and Life.

What is Insurance Risk? up-arrow

In Insurance terms, the risk is the chance that something harmful or unexpected might happen, resulting in the loss of assets, property, health, or even life.

Can you buy more than 1 life insurance policy? up-arrow

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.