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Know the difference between your insurance policies with Tata AIA Life Insurance
Financial planning involves several components out of which life insurance and general insurance are definitely very important. This is because both types of insurance policies are necessary for protecting various interests such as our health, life, the financial future of our loved ones, our personal assets such as our home, private vehicles and so on.
Financial planning involves several components, out of which life insurance and general insurance are crucial. This is because both types of insurance policies are necessary for protecting various aspects, such as our health, life, the financial future of our loved ones, and our personal assets, such as our home, private vehicles and so on.
The basis of any insurance policy is the simple concept of paying a premium and availing oneself of the insurance protection. Many times, it is difficult for people to understand the difference between different insurance policies. However, there is a difference between life insurance and general insurance which sets them apart from one another. This article explains the difference between life insurance and general insurance.
Life insurance offers life cover protection to you and your family that secures the financial interests and future of your family in case of an unfortunate event. In a simple life insurance policy such as a term plan, the life cover offered protects your family in case of your untimely demise and pays out a death benefit to them so that they can sustain themselves in difficult times.
Other life insurance plans, such as savings plans, come with a savings component and a life cover. Depending on whether the policyholder outlives the policy term or does not, a maturity benefit or a death benefit will be paid out to the insured or their family.
A term life insurance plan offers a simple but extensive life cover and hence is known as a pure protection plan. Though the policy term or the coverage tenure ranges from 5 to 40 years or a specific term, some term insurance plans also offer whole life coverage. Under a term plan, you can pay affordable premiums based on the term and payment mode you choose during the policy period.
If you have a pure term plan, then a death benefit is paid out to your beneficiaries/nominees, as mentioned in the policy document, in case you die during the policy term. Here, no benefits are payable in case you pass away after the policy term. However, with term plans with a return of premium, your nominee will either be paid out a death benefit in case of your untimely death, or you can avail of a maturity benefit in the form of the return of the premiums if you survive the policy term.
A whole life insurance policy is exactly as the name implies. Such life insurance policies offer a whole life cover of up to 100 years of age. There are two main benefits of having a whole life insurance policy, such as you can protect your family for a longer policy term without having to worry about future emergencies. Secondly, you can also choose flexible premium payment terms and modes to ensure that you can pay timely and affordable premiums to keep the life cover effective.
Choosing a whole life insurance policy also allows you to plan your future goals and financial commitments properly since you need not worry about the policy coverage being terminated, as long as the premiums are paid in full and on time. These plans also allow you to increase the life cover at important stages of your life so that you can continue to protect your family, even with increasing responsibilities.
Endowment plans are a type of savings plan that also offers life cover protection. Hence, these life insurance plans offer a dual benefit of savings and life insurance cover. Under this plan, you can choose a sum assured required or the premium that you would like to invest and pay the policy premiums to save and accumulate the corpus over the policy period.
On maturity, an amount is paid out as a guaranteed* lump sum, subject to timely premiums and other policy terms on the survival of the insured. And in case of the insured’s death, the life cover sum assured will be paid out as a death benefit to the beneficiary of the late policyholder. Since the returns of an endowment plan are guaranteed*, many investors seeking a low-risk investment and wanting to grow their savings in a disciplined manner tend to opt for endowment insurance plans.
Money-back plans are also a type of savings plan that combines the benefits of savings and life insurance under a single policy. But unlike an endowment plan, where the maturity benefit is paid out collectively on maturity, money-back plans pay out a proportion of the sum assured at regular intervals during the policy period. This is called a survival benefit. On maturity, a lump sum is paid out as a maturity benefit. These benefits are also guaranteed7 and, hence, can be chosen by those seeking a low-risk and assured returns investment option.
The death benefit paid out to the policyholder’s nominee in the event of the policyholder’s death ensures that their family can be financially secure in their absence. Money-back plans are quite popular among individuals who plan their financial goals at regular intervals throughout their lifetime since the survival benefits help them achieve these milestones from time to time.
Pension plans or retirement plans also offer the dual benefit of life insurance cover as well as an opportunity to save or invest funds regularly for your retirement. Also known as annuity plans, these retirement plans enable you to accumulate the policy premiums paid over the years to purchase an annuity that will pay out the benefits to you during your retirement years.
Retirement plans are important mainly because of the regular income they offer in the absence of a monthly salary and due to the low risk of the investment. Based on your post-retirement needs and your family’s future goals, you can choose to save an amount that fits your plans, subject to the policy’s terms, and select a policy term that works for you.The mode of payout you choose can help you and your family take care of all essential, luxury and emergency expenses once you retire from professional service.
Unit-linked insurance plans consist of two components such as life insurance cover and an investment that helps you earn market-linked returns. When investing in a ULIP, the premiums you pay towards the policy are divided between the investment and the life cover. While the life cover protects your family from future uncertainties, the other portion of the premium is used to purchase units of investment funds chosen by you under the policy.
ULIP plans are flexible. You can decide how much life coverage you want for your family. You can also choose the type of funds to invest in based on your goals, how much risk you can take, and how long you want to stay invested. If you want to change your investment based on your needs, you can switch between different funds to help reach your goals.
General insurance, unlike life insurance, does not offer life coverage. It is an indemnity contract, and its working differs from that of a life insurance policy. Under general insurance, you can protect assets like your health, your home, your car or bike and other valuable assets. The benefits are given only if these things get damaged.
To understand this better, let’s look at an example. A health insurance policy, while safeguarding your health, will only offer compensation for losses under specific conditions, such as injuries and illnesses that lead to hospitalisation. Many policies also cover outpatient expenses, where you can be reimbursed for consultation fees. However, if you do not seek any medical help or do not get admitted to a hospital, you cannot claim the health insurance benefit since you need to provide the medical bills and receipts as proof.
Motor insurance, which can be car insurance, bike insurance or commercial vehicle insurance, offers protection to your vehicle against several damages, depending on the type of policy you choose. You can opt for a simple third-party cover that will only safeguard you against damages to other vehicles, persons or property by your insured vehicle.
Or, if you choose a comprehensive motor insurance plan, it will also cover damages to your own vehicle (known as own-damage cover), along with personal injuries to you as well as any third-party damages. Many insurance providers offer long-term motor insurance policies, which eliminate the need to renew your motor insurance policy every year.
Health insurance policies are of different types and can be further divided into critical illness insurance plans, family health insurance plans, senior citizens' health insurance and so on. Depending on the policy of your choice and the coverage it offers, health insurance plans are meant to take care of the expenses arising from medical emergencies arising from accidents, injuries and illnesses that lead to hospitalisation, treatments or surgeries.
When purchasing a health insurance policy, you can choose a sum insured or coverage amount as per your needs and also select the number of family members to be covered under the plan. This helps ensure you and your loved ones get financial support in case of a medical emergency without using all your savings. This helps you pay for hospital bills and costs such as post-treatment and medication.
When you travel to another city, state, or country, you might face losses if your flight gets cancelled or your trip is called off because you are sick. Additionally, losing your baggage, passport, or other valuable items may also lead to trip cancellation. Other losses also include meeting with an accident, which can lead to hospitalization. In such cases, a comprehensive travel insurance plan can help you recover these losses, in full or to some extent, depending on the terms and conditions of the policy.
Just like health insurance, you can choose travel insurance based on your needs, how long you’re travelling, and possible risks. But the losses must be covered by your policy. For example, if your travel insurance includes COVID-19 coverage, you must show proof of hospitalization due to the infection to file the claim.
Home insurance or property insurance is a type of insurance cover that protects your home or private residence from damage due to natural causes and human causes. The natural causes include but are not limited to floods, earthquakes, cyclones and many other natural calamities which can cause direct harm to your home’s structure and form.
If there is damage due to human causes, home insurance can cover it. For example, visible harm to your property during a robbery or the loss of items can be included in the coverage.
Another type of general insurance policy is marine insurance. As the name clearly indicates, this type of insurance policy offers protection against losses and damages to ships and the goods and cargo they carry.
Many a time, the transportation may be rough due to bad weather conditions, causing extensive damage to the goods being transported as well as the ship itself. Since such huge ships are quite expensive and indispensable for transportation across waterways, marine insurance is quite important.
If you have a business that offers certain products or services to clients, you may need commercial insurance to protect your business from losses. Commercial insurance is quite a vast type of insurance in itself and comprises employers’ liability insurance, public liability insurance, professional indemnity insurance, etc. Depending on your needs and potential business risks, you can purchase any of these insurance policies.
Understanding the difference between life insurance and general insurance helps people choose the right plan based on their goals and protection needs. Both types of insurance serve different purposes and offer different kinds of coverage. The table below clearly explains the life insurance vs general insurance comparison to help individuals decide better.
Parameter |
Life Insurance |
General Insurance |
Coverage |
Protects against the risk of death or medical conditions such as critical illness or terminal diseases. It may also offer coverage for disability, depending on the policy. |
Covers non-life assets like vehicles, homes, health, theft, fire, natural disasters, or accidents. Does not offer any benefit if no damage occurs. Some plans may offer a No-Claim Bonus (NCB) on renewals. |
Purpose |
Offers financial protection to dependents in case of the insured's death. Some policies also act as a tool for long-term savings or retirement planning. |
Provides financial relief to cover expenses after loss or damage to physical assets or health. It ensures continuity after unexpected events. |
Contract Term |
547 months. |
Must be renewed annually or at set intervals to stay active. |
Claim Process |
For death, claims are made by nominees. For maturity benefits, the insured must be alive to receive the payout. Documentation, like death certificates or policy papers, is required. |
The policyholder files a claim after damage or loss. Supporting documents like bills, repair invoices, or FIR (if applicable) are needed to process the claim. |
Premium Payment |
Paid regularly (monthly, quarterly, half-yearly, or yearly) as per the policy agreement. Premiums may vary based on age and coverage chosen. |
Usually paid as a lump sum at the time of purchase or renewal. Premium depends on asset value and associated risks. |
Savings Component |
Includes a savings or investment element in endowment or ULIP policies, which provide returns on maturity. |
No savings or maturity value. It strictly covers only the risk of loss or damage. |
Beneficiaries |
Nominees or legal heirs receive the benefit after the insured's death. |
The policyholder receives compensation for damage or reimbursement of costs. |
Policy Value |
Decided based on the insured's financial goals, affordability, and needs. It can be revised with time. |
Determined by the insured asset's current value (e.g., car price, home value). Higher-value assets require higher premiums. |
Tax Benefits |
Premiums and death or maturity benefits are eligible for tax deductions under specific sections of the Income Tax Act. |
Limited to health-related policies only. Other types of general insurance may not offer tax savings. |
Renewal |
Does not need yearly renewal. The policy stays active for the entire term as long as premiums are paid. |
It must be renewed yearly or at fixed intervals to continue coverage. Delays in renewal may lead to policy lapse. |
Investment Benefit |
Available in selected policies like ULIPs or endowment plans, offering returns along with life cover. |
Not applicable, as the focus is only on risk protection and not returns. |
Compensation |
Pays a fixed amount called ‘Sum Assured’ after the death of the policyholder or maturity benefit. |
Paid to the policyholder for actual damages or covered losses, up to the policy limit. |
Calculation of Premium |
Depends on age, health, lifestyle habits (like smoking), coverage amount, and policy duration. |
Based on the type and value of the asset, risk level, usage pattern, and location of the asset. |
Influencing Factors |
Factors include age, gender, medical history, occupation, lifestyle, type of plan selected, and duration. |
Factors include asset type, usage, risk exposure, location, deductible limits, and past records. |
Understanding the difference between life insurance and general insurance helps you know how each type of insurance serves different purposes.
Life insurance gives safety to the family if something happens to the insured person. It provides a fixed amount to the family members in case of the policyholder's death, subject to the policy terms. It can also help when there are serious health problems. It supports the family to handle their needs during difficult times. Some life insurance policies also give a lump sum after the policy period ends. This can help in retirement planning or other long-term goals. Understanding life insurance vs general insurance helps you know the difference between the two and choose what fits your needs.
General insurance covers things such as your vehicle, home, or health against unexpected damage or loss. It provides funds to pay for hospital expenses, car repairs, or rebuilding damaged property. This makes it easy for you to handle unexpected costs. General insurance comes in numerous forms, including health, car, and home insurance.
Both life insurance and general insurance are useful. One gives protection to the family. The other helps you during unexpected losses. Knowing the general insurance and life insurance differences helps you decide how to stay financially safe in various situations. Using both types can help in building strong financial security. It is important to consider risks and stay prepared for all types of situations.
Our experts are happy to help you!
Are there tax benefits18 on life insurance and general insurance policies?
Under general insurance, you can claim tax deductions only on health insurance premiums under Section 80D of the Income Tax Act. Under the same section, you can also claim deductions for health rider premiums added to your life insurance policies. Other types of general insurance policies are not eligible for any tax benefits.
In contrast, all life insurance policy premiums are eligible for tax deductions under Section 80C of the Income Tax Act, while the death benefits or maturity proceeds of some life insurance policies are tax-exempt. For instance, term insurance death benefits are tax-exempt; however, there are no maturity benefits in pure term plans and hence, no tax benefits.
How to pay my premiums for life insurance policies?
If you purchase your life insurance policy online, you can pay the premiums online by logging in with your policy number and then making the payment through any of the digital payment options. If you have bought the policy offline, you can visit your insurance provider’s office branch and make your premium payment.
Do I pay my general insurance premiums online or offline?
Depending on how you have purchased your general insurance policy, you can choose to either pay your premiums online or offline.
Does ‘claim’ have the same meaning in life insurance and general insurance?
Yes, the process of filing a claim under life insurance and general insurance is the same. You can contact your insurance provider’s team on their official website, write to them or visit them when there is a need to file a claim. However, the situation under which the claim needs to be filed is not the same for life insurance and general insurance.
Is it possible to cancel or return a life insurance policy once you purchase it?
Yes, there is a feature called a free-look period when you purchase your life insurance policy that gives you a timeline of 30 days for online policies and a period of 15 days for offline policies. During this period, you can make certain changes to the details of your policy and in case you are not satisfied with the terms and conditions of the policy, you can return it to the insurance company and avail of a refund of the paid premium.
What happens if you stop paying your life insurance premiums?
If you do not pay your life insurance premiums on time or stop paying your life insurance premiums, you will be allowed a grace period of 15-30 days from the due date of the last unpaid premium. If you still do not pay the premium after the grace period is over, your life insurance policy will lapse and you will not be able to avail yourself of its benefits until you renew the policy.
What type of life insurance plan should I choose?
The type of life insurance plan you choose will depend on you and your family’s requirements. Suppose you are only looking for a life insurance plan that provides comprehensive life insurance protection to your family in the event of your death, then a pure term plan will be a good choice. However, in case you are making plans to fulfil your future financial goals, a savings policy such as an endowment plan or a money-back plan will work well.
Is it possible to create a retirement corpus with a life insurance policy?
Yes, there are retirement plans and pension plans under life insurance which enable you to pay premiums during the policy term before your retirement. At the end of the policy term, you can use the accumulated amount to purchase an annuity that will pay you a regular income during your retirement years.
Can only financial market experts opt for a Unit-Linked Insurance Plan?
No, Unit-Linked Insurance Plans can be purchased by any type of investor as per their risk appetite and their investment goals. However, a basic understanding of the market is needed to understand the working of a ULIP. It is also important to know that since ULIPs offer market-linked returns, there are no guaranteed returns, and hence, there are certain risks involved in purchasing a ULIP.
What is the difference between money-back plans and endowment plans?
Though money-back plans and endowment plans are both savings plans, there is one major difference between the two. Under an endowment plan, the entire maturity amount is paid out to the policyholder only on maturity and to their nominees in case of the insured’s demise. Money-back plans start paying out a percentage of the sum assured during the policy term itself at regular intervals and then pay out the remaining sum assured on maturity.
Will I get maturity benefits from my term insurance plan?
A pure term insurance plan does not offer maturity benefits, and the sum assured is only paid to the nominee of the policyholder in case of the latter’s death. However, if you choose a term plan with a return of the premiums, the total of all the premiums paid until maturity will be given to the policyholder as a maturity benefit and only if the policyholder outlives the policy term.
When should you consider general insurance instead of life insurance?
You may consider general insurance instead of life insurance when you need coverage for risks such as accidents, health problems, or loss of assets like your car or house. It provides short-term protection for specific events, unlike life insurance, which is all about long-term financial care for your loved ones.
Disclaimer
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