Differences Between Life Insurance, Health Insurance And General Insurance - PNB MetLife

What is Insurance?

An insurance cover is a contractual agreement, sealed by a policy, where the policyholder is reimbursed or financially protected by an insurance company.

Here, the policyholder is the ‘insured’ while the insurance provider is the ‘insurer’.

In addition, these contracts, regardless of whether they are life, general or health insurance plans, have three primary elements, those being:

• Deductibles: The sum a policyholder must pay before the insurance provider covers their claims.
• Policy Limit: The maximum monetary coverage that a plan offers for verified claims.
• Premiums: The regular payments an individual or company has to make to avail of the insurance plan. Note that this is not the same as a deductible.

There are other core aspects to such policies, depending on their specific variations and conditions. All of them determine how you choose an insurance plan. More details will be discussed later in the article.

Why Do You Need Insurance?

The primary reason why you need life insurance or other similar policies is because they offer financial safeguards for you and your family in unexpected emergencies.

For instance, a critical illness cover provides the insured with a lump sum upon being diagnosed with a life-threatening medical condition. Some other policies protect assets, property or help you pay non-life (medical bills) expenses.

The base principle, and therefore the need for such plans, remains the same. They protect you and everything you care about when you need it the most.

What are the Common Types of Insurance?

There are three broad categories of insurance policies. They are as follows:

• Life Insurance Plans
• General Insurance Plans
• Health Insurance Plans

Each of the above mentioned types has additional variants and is distinct from the others in specific ways. For example, even though life and health insurance may sound similar, they work differently.

The former caters to your family’s financial liabilities posthumously or after a set period, while the latter covers your medical expenses, depending on the conditional claims.

Life Insurance in India

A life insurance plan is a policy that binds the insurer to provide financial compensation to the insured's family in case of their untimely demise.

Conversely, if the life insured survives the contract's tenure, they receive a maturity amount based on the stipulated terms and conditions. In exchange, the policyholder pays a designated sum as a regular or a single premium.

Types of Life Insurance

There are several variants of life insurance policies. Some prioritise financial protection during a specified tenure, while others cover the entirety of an individual’s lifespan. That said, here are the seven primary types:

1. Term Life Insurance

   Term life insurance policies are the most straightforward type of coverage. The insured pays regular premiums for a specific duration, usually 10 to 30 years. In case of their untimely demise, the nominated beneficiary receives the assured sum.
   While the premiums are relatively low, an additional variant, called Term Life Insurance with Return of Premium (TROP), has slightly higher payments. This is because TROPs reimburse the policyholder for the basic premiums if they survive the plan's tenure.

2. Whole Life Insurance

   Whole life insurance policies are permanent insurance plans and provide the life insurance cover for the entire lifespan of the insured. Additionally, whole life plans typically acquire cash value which is paid at maturity and/or in the form of survival benefit.
   While this may come off as a comprehensive advantage, it is, in fact, detrimental in some cases. For example, if you have a whole life insurance plan and live till you are 90, this would mean the assured sum is locked away from your children until they are 50 to 60 years old.
   Nonetheless, such variants are an excellent choice if you expect to have financial dependents in your old age.

3. Endowment Plan

   An endowment plan doubles as an investment and insurance policy. In short, the insurer leverages the paid premiums in two ways. A part of it goes directly to the assured sum, while the other half is invested into a specific market.
   Regardless, nominees can claim the benefits from an endowment plan if the insured passes away during the plan’s tenure. Conversely, the policyholder can avail of the maturity amount if they survive the policy period.

4. Unit Linked Insurance Plans

   Unit linked insurance plans, alternatively referred to as ULIPs, are also a dual-sided channel for insurance and investment.
   Like endowment policies, unit linked insurance plans leverage the premiums in two distinct ways. A portion goes to the insured sum, while the other goes to market-backed debt funds, equities and similar securities.
   As such, ULIPs are exceptionally flexible and versatile. More importantly, the investment proceeds under these variants enjoy tax benefits and exemptions under Long Term Capital Gains (LTCG).

5. Money Back Policies

   Money back policies enable the insured to receive a designated percentage of the total assured sum at regular intervals. These are commonly known as survival benefits.
   Upon maturity, i.e., the policyholder surviving the plan’s tenure, the insurer disburses the remainder of the assured amount. However, if the insured passes away during that period, their dependents receive the entire sum without any deduction.

6. Child Plans

   Child plans are precisely what the term suggests. These policies allow you to build a corpus to secure your ward's future. Note that such variants are similar to the ones mentioned above in how they leverage the premiums. In short, part of it is invested in market instruments.
   The primary reason to opt for child insurance plans is to establish financial safeguards for your dependents in case of your untimely demise. This would enable them to meet specific costs later on.

7. Retirement Plans

   In almost all cases, people lose their steady source of income once they retire. As such, retirement plans cater to this liability.
   These policies require you to pay regular premiums for a designated period. Once you stop working, that amount is made available in intervals, replicating your previous income stream. In case of the insured's demise, the beneficiaries receive the entire sum.

General insurance in India

General insurance policies cover damage to assets or property instead of an individual.

Even so, health insurance plans also fall under this category. However, since there are multiple variants here, it is best to discuss them separately to avoid confusion.

Still, let’s look at the two examples to understand how general policies work:

Person X insures their car for an undisclosed amount. Then, they pay the premiums and meet all the stipulated conditions. Now, if their vehicle is stolen or damaged in any way, they will receive the assured sum.

Person Y opts for health insurance that provides them with a cover of 5,00,000 INR. Again, they adhere to the conditions, pay the premiums and otherwise follow all the necessary guidelines. If Person Y has a heart attack and needs a bypass surgery that costs up to 4,50,000 INR, their plan will cater to the medical expenses.

In short, general insurance covers anything that does not concern itself with the insured’s demise.

Types of General Insurance

There are four primary types of general insurance. Note that health covers are only mentioned below for the sake of conformity.

That aside, let’s examine all the variants:

1. Health Insurance

   One of the most common subtypes of general insurance, health covers cater to unexpected medical expenses. There are multiple iterations here, including add-ons, individual plans and family policies.

2. Travel Insurance

   Travel insurance is limited to a specific trip and can be purchased right before the insured begins their journey. As such, they offer coverage for potential damage to your baggage, cancellation or delays, hospitalisation or accident-related expenses.
   While helpful, travel insurance is significantly less popular compared to other plans due to how contextual they are.

3. Home Insurance

   Home insurance provides financial compensation if natural or man-made events cause damage to the insured property. This covers vandalization to the interior or exterior, any injuries sustained while on the property, and the loss or destruction of assets or contents. In short, from broken windows to damaged walls and floors, home insurance encompasses everything.

4. Motor Insurance

   Motor insurance offers financial security for your automotive. The base principle for coverage is the same as home policies. In other words, the plans financially safeguard the insured asset against man-made or natural occurrences.
   However, there is a caveat here. Coverage in motor insurance falls under two categories, which are as follows:
   • Comprehensive: Financial compensation is directed to the insured asset, even if it was damaged due to the policyholder's actions.
   • Third-Party: Covers the expenses incurred due to a third party, natural or otherwise.
   Now, the first kind has higher premiums on account of being more accommodating, while the second requires lower payments.

Health Insurance in India

Health insurance focuses exclusively on covering the surgical and medical costs of the policyholder.

Now, there are two ways such plans work. The first involves reimbursing the insured for their incurred expenses. This typically occurs when you receive treatment from a non-network hospital. The second is a direct payment to the healthcare provider on behalf of the individual.

Nonetheless, there are a few conditions under health insurance plans. While the specifics may vary across providers, they generally include the following:

• You cannot file non-emergency claims during the waiting period
• Premium quotes depend on your age, medical background and the sum assured

In addition, policyholders may be subject to a clinical assessment to determine their eligibility for health insurance coverage. Examining these factors can help you decide which type works best for you.

Types of Health Insurance

Health insurance plans broadly fall under two categories. The first are indemnity policies or traditional variants, i.e., they cover medical expenses. The second type is a defined-benefit plan, which provides a lump sum in case of critical illnesses, personal accidents, etc.

However, since defined-benefit policies are often in the form of add-ons or riders, it would be better to focus on indemnity coverage to help you determine which type works best for you. That said, this includes the following:

1. Individual Health Insurance

   As the name suggests, individual health insurance plans are for a single person. Through this coverage, the policyholder receives compensation for medical expenses, including surgical, medication and hospitalisation costs. This also includes both the pre-and the post-hospitalization phase.
   The payable premiums are entirely dependent on the insured's medical history, current conditions, age and other aspects. In addition, if someone opts for individual health insurance for an existing ailment, they have to wait 2 to 3 years before claiming the assured sum. This helps prevent the misuse of the policy’s coverage.

2. Family Health Insurance

   Also known as family floater plans, family health insurance works similarly to individual policies. The only difference is that they secure everyone under one cover. This includes an individual's spouse, children, elderly dependents, etc. As such, the payable premium amount is determined by factoring in the age of the oldest family member.
   Nonetheless, not all insured members have to pay the premiums. Only the policyholder does. And, if two people from the same family receive simultaneous treatment, the cover will continue until it reaches the policy limit.

3. Senior Citizens Health Insurance

   A senior citizens health insurance policy works precisely the same as an individual plan. The only distinction is that it caters to people over 65 years old. Naturally, the premiums can be slightly higher.
   Moreover, coverage periods can vary across different providers. For instance, some insurers can offer a tenure until the insured reaches 70 years, while others can extend it to 75 years.
   Regardless of the specifics, a senior citizens health insurance plan is the most effective financial protection you can purchase to secure your or a dependent's future.

Critical Differences Between Life, Health & General Insurance

With all the available variations and differences across multiple policy sub-types, it can be challenging to grasp the distinctions between each plan.

So, here are the three primary points you need to remember when examining each insurance type:

Now, while this article covers almost everything related to general, life and health insurance policies, it is still crucial to examine the particulars of a plan before purchasing it.

You must also consider your needs and requirements and any potential emergencies you want to safeguard yourself from. For example, if you have a family history of cancer, opting for a health insurance plan with a critical illness rider will be more beneficial than purchasing a life insurance policy.

To learn more in this regard, visit the PNB MetLife website.

Disclaimer: