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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 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.
The basis of any insurance policy works on the simple concept of paying a premium and availing 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. Here is what we can learn about them.
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 for a period of 5-40 years or a specific term, some term insurance plans also offer whole life coverage. Under a term plan, you can pay highly affordable premiums at per a premium payment term and a premium payment mode of your choice during the chosen policy term.
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 the event of your demise 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 – for one, 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 another type of savings plan that combine 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 lumpsum is paid out as a maturity benefit. These benefits are also guaranteed* 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.
When offered by a life insurance company, retirement plans or pension plans also offer the dual benefit of a 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 risks of the investment. Depending on your post-retirement needs and your family’s future goals, you can choose to save any amount of funds, subject to policy terms and conditions and start saving for them for a policy term chosen by 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 comprise of two components – a 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.
ULIPs are quite flexible since you can not only choose the amount of life insurance coverage you need for your family, but you can also select the funds that you want to invest in, as per your investment goals, risk appetite and investment horizon. And if you do want to realign your investment funds with your expectations, Tata AIA Life Insurance also enables you to switch between investment funds to help you meet your goals.
General insurance, unlike life insurance, does not offer a life cover. 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 the like, and the benefits are only paid out in case of damage to any of the assets.
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. Most policies also cover outpatient expenses where you can be reimbursed for consultation fees. However, if you are sick for a day and 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 a number of 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 hassle of renewing 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 ensures that in case of medical contingencies, you and your loved ones need not dip into your savings to pay hospital bills and other costs such as post-treatment care and medication.
When you are travelling to another city, state or country, there may be a chance of suffering financial losses due to the cancellation of your flight, the trip cancellation due to an illness or also loss of your baggage, passport, valuables, etc. Other losses also include falling sick on the trip or meeting with an accident, both of which can lead to hospitalisation. 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.
Like health insurance, you can choose the coverage of your travel insurance policy as per your needs, the duration of your tour or any potential risks involved. However, it is important that these losses should come under the purview of your insurance policy. For instance, if your travel insurance has a COVID-19 cover, it is important that you are able to produce proof of hospitalisation due to the infection in order to file the claim.
Home insurance or property insurance is a type of insurance cover that protects your home or private residence from damages 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.
In the case of damages due to human causes, any visible harm caused to your property during a robbery or the loss of some assets during such an event can be covered under home insurance.
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 will need commercial insurance to protect your business from losses. Commercial insurance is quite a vast type of insurance in itself and comprises employer’s 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.
A very important point of difference between life insurance and general insurance is the policy term. Whole life insurance plans are long-term plans with a minimum tenure of 5 years to a maximum of 100 years, a general insurance policy has a tenure of one year. However, insurance providers now offer long-term motor insurance policies to ensure that customers do not have to worry about yearly renewals.
Life insurance policy premiums are paid on a monthly, quarterly, semi-annual or annual basis; whole general insurance policy premiums may not offer much flexibility in terms of premium payments. Premiums of general insurance plans are paid during the purchase or renewal of the policy and hence, only on an annual basis. But it is important to note that travel insurance plans only have a single premium payment at the time one has to take a trip.
When a life insurance claim is made, the sum assured is offered to the nominee of the policyholder in case of the latter’s demise or given to the policyholder as a maturity benefit. In case of critical illness or health riders~ attached to the life cover, one can file a claim in case the conditions covered under the rider come are diagnosed.
But in the case of general insurance plans, the benefits are not paid out unless the terms of the compensation are met. For instance, you cannot claim bike insurance unless your bike has been damaged as per the conditions specified in the policy document.
The policy value of a life insurance plan is based on the sum assured, which is determined by the needs of the policyholder and their capacity to pay timely premiums. The sum assured is either paid out as a death benefit or a maturity benefit, as per the situation.
However, in general insurance, the sum assured is determined by the asset that needs insurance and not the needs of the policyholder. For instance, when buying a bike insurance plan, the make and model, as well as the cubic capacity of your bike, will affect the coverage and hence, also the premiums.
Factors |
Life Insurance |
General Insurance |
Coverage |
Offers a financial cover on the life/health of the insured person or policyholder. |
Offers a financial cover for assets like your home, health, vehicle, etc. |
Premium payment |
The premiums can be paid monthly, quarterly, semi-annually and yearly. |
The premium can be paid only while purchasing and renewing the policy. |
Compensation |
The sum assured is paid out in full as a death benefit or maturity benefit. |
The compensation is paid out based on the extent of the damages. |
Policy Value |
The policy value is determined as per the needs of the insured. |
The policy value is determined by the price or value of the asset. |
Type of Contract |
Life insurance secures the future financial security of oneself and one’s family. |
There is no investment or savings component in the general insurance; this is an indemnity contract. |
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Are there tax benefits^ 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 make 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 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 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.
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