One in four breadwinners in the UK doesn’t have any form of life insurance! This equates to more than 60 per cent of UK adults, which is a worrying statistic. But what if you have general insurance, isn’t it the same thing?
On the contrary, there is a significant difference between life and general insurance. Understanding this difference can help you make a decision about which type of insurance you need the most, and whether you should take out both. This is a comprehensive guide that will help you understand every difference between life insurance and general insurance.
The Difference Between Life Insurance and General Insurance
General insurance is an insurance policy that covers valuable items or things like property, and cars, or anything other than your life. Life insurance, on the other hand, is a policy that covers your life and nothing else. Here are more differences between the two.
Term and Nature of Contract: General insurance is a short-term contract of indemnity, while life insurance is a long-term investment.
Insurable Interest: Life insurance requires your beneficiaries to have insurance interest in you as the insured person. Essentially, this means there must be insurable interest at the time of underwriting. General insurance, however, requires insurance interest at the time of underwriting and at the time of loss.
Claim Payments: Life insurance benefits are paid out at maturity of death while general insurance is paid out in the occurrence of an insured event.
Value of Compensation: The compensation for life insurance will depend on the payable premium under the specific policy. General insurance compensation will depend on losses incurred.
Premium Payment: Life insurance premiums are paid periodically over the years. General insurance premiums are paid out in a lump sum, and plans are renewed with expiry.
Savings: Most life insurance policies come with a saving element, which will allow you to build wealth. General insurance has no saving element and you incur premium costs for the protection.
What Is Life Insurance
Life insurance is a policy that basically covers your life. It offers protection against monetary loss that will come as a result of your untimely death as the policyholder.
In the event of your premature death, your beneficiaries will receive the amount of money assured. One of the most significant reasons to take out life insurance is that the policy will help your family or dependents financially during a difficult time.
It’ll square off liabilities from loans, maintain their lifestyle, and keep all financial goals on track. If you outlive the tenure of your policy, you will receive the benefits at maturity as of the policy term.
There are various types of life insurance, which include:
Term Life Insurance
This is the most basic type of life insurance policy, and it offers a pure protection plan that covers individuals for a certain period. It offers one of the most comprehensive covers, and you get it at an affordable premium. With this policy, your family or loved ones will receive a death benefit upon your premature death within the policy tenure.
If you outlive the policy tenure, there will be no benefit to you or your family. However, if you take out the term insurance with return of premium policy, you will get all the premiums paid if you outlive the tenure of the policy. Of course, the TROP policy is slightly more expensive than the term insurance.
The Endowment Plan
This is a life insurance policy that fulfils both investment and insurance needs. You can use this policy to create risk-free savings account to meet some of your life goals while offering financial protection to your loved ones in the event of your premature death at the same time.
A specified amount of your premium will go to the sum assured, and the rest of the money will go to low-risk investment avenues. If you pass away within the tenure, your loved ones will receive the sum assured. If you outlive the tenure, you will get the sum assured and accumulated bonuses.
Whole Life Insurance
Whole life insurance, which is also known as permanent life insurance, offers coverage until you pass away. It will remain active throughout your life as long as you pay the premiums.
For most insurance companies, the maturity age for whole life insurance stands at 100 years. If you die within that time, your beneficiaries will receive the amount assured. If you do outlive the tenure, the endowments coverage will be paid out to you as the policyholder.
This is a life insurance policy that will give you your money back at predetermined intervals. The money is a percentage of the sum assured, and it will be paid to you during the tenure of the policy. These payouts are survivor benefits.
Once the policy reaches its maturity, you will receive the remaining sum assured as well as any accumulated bonuses. However, if you pass away during the policy term, the entire amount will be paid out to your beneficiaries despite the survival benefits that were taken out before.
What Is General Insurance
General insurance offers coverage against damages or loss to anything other than life. This could be your home, vehicles, or health. The insurance company pays out the sum assured to cover damages as a result of liabilities resulting from things like theft, fire, accidents, and other man-made disasters.
Most general liability covers are short term and only last about a year, which makes renewal vital. There are so many types of general insurance, some of the most important ones being life insurance, auto insurance, and home insurance. If you travel a lot, then travel insurance can be quite indispensable as well.
The Difference Between Life and General Insurance
These are the most vital differences you need to understand about life and general insurance. You may have some general insurance policies, but if you still don’t have a life insurance policy, you need to consider the benefits of having one.
Both types of insurance policies provide peace of mind as they are a way of managing risks and being able to get out of financial hurdles during trying times. If you think getting a life insurance policy is a great idea, which it is, please get in touch with us for life insurance quotes.