Meaning of Insurance | Difference between Life and General Insurance

Welcome to Today, we have explained insurance, types of insurance, principles of insurance and the difference between life and general insurance.

Meaning of insurance-

An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

Types of Insurance –

  • Life Insurance
  • General Insurance (non Life insurance)

Principles of Insurance –

1 Principle of utmost good faith –

  • According to this principle, the insurance contract must be signed by both parties (i.e. the insurer and insured) in absolute good faith or belief or trust.

2. Principle of Insurable Interest –

  • The principle of insurable interest states that the person getting insured must have an insurable interest in the object of insurance.

3. Principle of Indemnity –

  • According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties.

4. Principle of Contribution –

  • It applies to all contracts of Indemnity if the insured has taken out more than one policy on the same subject matter.
  • According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer.
  • If one insurer pays full compensation then that insurer can claim proportionate claim from other insurer.

5. Principle of Subrogation –

  • According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.

6. Principle of Loss Minimization –

  • According to the principle of loss minimization insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast etc.

7. Principle of Causa Proxima (Nearest Cause)

  • Proximate cause is concerned with how the actual loss or damage happened to the insured party and whether it is a result of an insured peril.
  • It looks for what is the reason behind the loss, is that is an insured peril or not.

Difference between Life Insurance and General Insurance-

Life Insurance –

  1. Life insurance is an insurance contract, which covers the life risk of the person insured.
  2. It is a form of investment.
  3. It is a long term.
  4. Premium has to be paid over the year.
  5. Insurable amount (claim) is paid either on the occurrence of the event or on maturity.
  6. Insurable interest must be present at the time of contract.
  7. Policy value can be done for any value based on the premium policy.

General Insurance –

  1. Anything which is not covered under Life Insurance like motor, house, health etc.
  2. It is only a contract of indemnity.
  3. It is short term.
  4. Premium has to be paid lump sum.
  5. Loss is reimbursed, or liability will be repaid on the occurrence of uncertain event.
  6. Incredible interest must be present at the time of contract and lost both.
  7. The amount payable under Life Insurance is confined to the actual loss suffered.

Types of Life Insurance

A. Term Insurance – It is the pure insurance form. It pays your nominee the sum assured in case of your demise within the policy term. It does not have any sum assured or the maturity amount premium is very low.

B. Endowment plans – These are insurance and investment plan. A certain portion of the premium is paid for the protection of the life and the rest amount is invested in low-risk debt instruments. So, at the time of maturity, the insured person gets a predefined amount.

C. Unit Linked Insurance Plans (ULIP)- ULIPS offer life protection as well as the opportunity for capital appreciation by investing in various funds of varying degrees of risk. Just like endorsement policies, in ulips a certain portion of the premium goes into providing life cover. They generally invest in the equity market, therefore the return is not pre-defined, it depends on the market return. It has a certain lock-in period.

Types of General Insurance –

A. Health Insurance – a general health insurance plan is an indemnity plan that pays for hospitalisation expenses up to the sum insured. While you can avail stand-alone health policy. Family floater plans provide coverage to all the members of your family.

B. Motor Insurance – Motor insurance covers your vehicles against accidents, damage, thefts, vandalism and so on. This form of insurance comes in two forms – comprehensive and third party.

C. Home Insurance – A home insurance policy protects your home and its belongings from the damages suffered due to man-made natural disasters. Some home insurance policies also provide coverage for temporary living expenses in case you are living on rent, due to your home undergoing renovation.

D. Travel Insurance – A travel insurance policy protects you against losses suffered due to loss of baggage, delays in flight and trip cancellation when you are travelling abroad. In some cases, if you are hospitalised while travelling a travel insurance main also offer cashless hospitalisation.

I hope that this short insurance article would have helped you.

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