There are two broad categories of insurance contracts in India – life insurance and general insurance – which are designed to protect policyholders’ or beneficiaries’ interests in the face of life’s uncertainties. There is confusion regarding the differences between life insurance and general insurance in India.
The following sections will discuss the key differences between life insurance and general insurance, as well as the key features of these common types of insurance.
How does life insurance work?
The term “life insurance policy” refers to a policy that covers the life of the insured. If an unfortunate event under the policy occurs, such as the insured’s untimely death, the insurance provider is obligated to provide financial compensation to the beneficiary. The policyholder is required to pay a predetermined amount as regular or single premiums in exchange.
People buy life insurance policies to provide financial protection in case they face unexpected circumstances. Life insurance policies cover a certain period, and if the policyholder survives it, they receive a maturity benefit.
What is life insurance? Read more here.
Life Insurance Types
The first is term life insurance
Term life insurance offers financial protection to the beneficiary in the event of the death of the life insured. This policy is often preferred because it offers comprehensive coverage at an affordable price.
An additional type of term insurance plan that offers maturity benefits as well as death benefits is Term Insurance with Return of Premium (TROP). To calculate a suitable premium amount, it is helpful to understand your specific financial requirements.
Insurance for the whole life
A whole life insurance plan covers the insured for the rest of their lives, or as long as the premiums are paid. It is the best option for people who need extensive life insurance and wish to ensure their families are financially protected.
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Plan for endowment
Investing in endowment plans is a combination of investment and insurance. A portion of the premium is used to secure the insured sum, while the remaining portion is devoted to investing. In addition to providing financial protection to loved ones during the policy term, it allows the insured to accumulate savings at lower risks. The insurer is entitled to receive the sum assured upon maturity.
ULIPs (Unit Linked Insurance Plans)
In addition to investing in mutual funds, ULIPs also provide life insurance to the policyholder. Investing in equity (high risk), debt (low risk), or hybrid funds (medium risk) is an ideal option for long-term financial goals as they help in wealth creation. Based on a person’s risk appetite portfolio, one can invest in equity (high risk), debt (low risk), or hybrid funds (medium risk).
In addition to the death benefit, ULIPs allow partial withdrawal after the lock-in period is over, as well as switching between funds.
Read also: What is an ULIP?
5. Money-back guarantees
The insured receives a percentage of the sum assured at predetermined intervals under money-back policies. Upon maturity of the policy, the remaining sum assured, along with the accumulated bonus, if any, is offered to the insured along with the remaining sum assured. These payouts are known as survival benefits.
Plans for children
A child plan allows the policyholder to generate funds for their child. It helps build a corpus that can be used in the future for education or marriage. The beneficiary will get the sum assured in the event of the policyholder’s early death.
Plans for retirement