Life Insurance vs General Insurance: What's the Difference?
Did you know that not all insurance is the same?
In fact, there are key differences between two broad categories of insurance: life insurance and general insurance. While they both offer financial protection, they serve distinct purposes and cover different aspects of our lives.
A recent survey conducted in six Indian metro cities by insurance company ACKO found that around 68% of the people have less than Rs 10 lakh in health insurance coverage! Furthermore, around 27% have less than Rs 5 lakh of insurance.
While there could be multiple reasons for negligence in insurance, the confusion between different types of insurance might be primarily fueling the behavior. So what exactly is the difference between life insurance and general insurance? And which might be the one for you?
Life Insurance vs General Insurance
|Feature||Life Insurance||General Insurance|
|Purpose||Provides financial protection to your loved ones in case of your death||Protects your assets and liabilities against damage, loss, or theft|
|Duration||Can be long-term (whole life insurance) or short-term (term life insurance)||Usually short-term|
|Premiums||Can be fixed or variable||Usually fixed|
|Benefits||The death benefit is paid out to the beneficiary in case of the policyholder's death||Can provide a variety of benefits, such as coverage for damage to property, liability, or medical expenses|
When is it the Right Time to Buy Life Insurance?
There is no one-size-fits-all answer to this question! To find out the best time to buy life insurance or any type of insurance, you should understand your individual circumstances. However, here is a list of a few general factors that you can consider while making the decision:
- Your age: When you are younger, life insurance premiums are typically lower. So get one while you are young!
- Your health: The healthier you are, the less you pay. If you have any health problems, you may have to pay higher premiums for life insurance. So go hit the gym!
- Your financial goals: If you have dependents or other financial obligations, you may need life insurance to protect them.
- Your budget: Get your expenses on track and make sure you can afford the monthly premiums for life insurance.
When is it the Right Time to Buy General Insurance?
The best time to buy general insurance has the simplest answer. Buy the policy when you have assets or liabilities. First buy and then protect! So if you own a home, you should get home insurance. Likewise, if you have a car, you should get car insurance. And if you travel frequently, you should get travel insurance.
For example, if you are sued for damages after a car accident. But you have the general insurance policy to rescue you. They will have your back and will cover your legal fees and any damages that you are found liable for.
Furthermore, the right time will also depend on your financial situation. Make sure that you can afford the premiums before you leap in to purchase the policy.
How to Calculate How Much Insurance You Need
The amount of life or general insurance you need depends on your individual circumstances. It can include metrics such as your income, expenses, dependents, and financial goals. A good rule of thumb that you can use to calculate how much life insurance you need is below:
Required Insurance = Annual Income x Number of years of financial dependency or in simple words number of years left until retirement.
For example, if you earn Rs 200,000 per year. Additionally. you have two dependents who will need financial support for 10 years. So summing up, you would need Rs 4,000,000 of life insurance!
The formula can be applicable for general insurance but would require modification based on the type and value of the asset being insured.
Different Kinds of Riders in Insurance
A rider is an add-on to an insurance policy that provides additional coverage or benefits. Some common types of riders include:
- Waiver of premium rider: This rider waives your insurance premiums if you become disabled or terminally ill.
- Accidental death and dismemberment rider: This rider pays a lump sum benefit if you die or are permanently disabled in an accident.
- Guaranteed insurability rider: This rider allows you to buy more life insurance in the future, even if your health deteriorates.
- Long-term care rider: This rider provides coverage for long-term care expenses, such as nursing home care, home health care, assisted living, and others.
- Get quotes from multiple insurers before making a decision.
- Before signing, always read the policy carefully!
- The terms and conditions list might be long, but understand every bit of the policy.
- Review your policy regularly to make sure it still meets your needs.