We all require protection from life’s risks because there are so many. Risks cannot be avoided entirely, but a life insurance policy provides solid protection by reducing the financial burden brought on by any unplanned event.
Life insurance and general insurance are the two main subcategories of insurance. Both have equal value but are distinct from one another.
Life insurance: It is a contract between the insured and the insurer in which the insurer agrees to pay a specific sum to the nominee in the event of anything unfortunate happening to the life insured, as covered by the policy. Some life insurance policies provide maturity benefits too. A popular life insurance tax benefits is that you can claim the premium amount as a deduction under 80C and reduce your tax amount. Making such a claim may be possible only if you have opted to continue with the old tax regime.
General insurance: General insurance can be identified as non-life insurance and protects against risks such as health, transportation, property, and other non-life risks. It is usually an indemnity agreement wherein the insurer reimburses the insured for any losses to health or property caused by fire, theft, accidents, earthquakes, etc. In a general insurance plan, maturity benefits are not offered.
The following are some criteria used to compare life insurance to general insurance:
Coverage: A life insurance policy covers the risk to the life of the person insured, and some other benefits may be offered by the insurer, depending on the type of policy chosen.
All insurance products that cover things such as health, vehicle, property, travel, etc., are referred to as general insurance.
Duration of coverage: Life insurance is often a long-term contract that provides coverage for a specific number of years, in contrast to the majority of general insurance policies, which are often short-term contracts renewed periodically for continuous coverage.
Nature of coverage: Life insurance functions as a safeguard for the future financial security of the policyholder’s family after his passing away.
An indemnification agreement in general insurance pays for any loss or harm.
Premium: Life insurance premiums estimates can be drawn using a life insurance premium calculator, according to the level of coverage chosen by the policyholder. It must be paid regularly throughout the lifetime of the policy, which may be annually, semi-annually, monthly. You may also choose to pay the amount as a lump sum when buying the policy. The policy is in effect for the term decided, as long as the regualr premiums are being paid.
The premium for general insurance is typically paid in one single amount because it is only in effect for a short time and fluctuates based on the state of the insured asset.
Compensation: In life insurance, the amount that would be paid out is referred to as the “sum assured” and is based on the coverage option and total premium paid. It is paid at policy maturity or the occurrence of the insured event, which is typically if something unfortunate were to happen to the insured.
The compensation amount is referred to as the “sum insured” in general insurance and is paid up to the actual loss, subject to the policy maximum.
Beneficiary: In a life insurance policy, the beneficiary is the person the policyholder chooses to be the recipient of the benefit when a claim is made. Typically, family members like spouses or kids are made beneficiaries.
In general insurance, the policyholder is the beneficiary because he/she is the one who receives the claim.
Savings: Some life insurance plans may include savings features to build a future corpus.
Plans for general insurance do not have such a saving component because there is no maturity benefit associated with them.
Tax advantages: Up to INR 1.5 lakhs per year, the annualised premium paid for a life insurance plan is exempt from taxes under section 80C. In accordance with Section 10(10D), the maturity benefit received by life insurance plans is also tax-free as long as the coverage amount is at least ten times the annualised premium. Life insurance tax benefits are a major additional benefit that comes with a life insurance policy. Note that tax benefits may only be claimed if the taxpayer has opted for the old tax regime.
Again, there is no maturity benefit in general insurance plans, so this benefit is not available. However, neither the death benefit received by the nominee nor the compensation for the loss under a general insurance plan is taxable in the hands of the recipient.
Both life insurance and general insurance are necessary to give a person some financial security, though they have different functions. Even if you have one, you still might need the other. One protects against life-threatening situations, and the other protects in the event of a crisis or loss.
To make an informed choice and ensure that you, your family, and your assets are sufficiently covered, and to understand how much coverage you can get on your budget, use the life insurance premium calculator available online.