Classification of Insurance –

Life and Non - Life

Soumendra Roy
Introduction
• The term insurance can be understood as an arrangement, in which the
insurer commits to provide compensation for loss, damage, death,
caused to the insured in return for the payment of the premium.
• There are two types of contract, life insurance, and general insurance.
• The insurance plan which covers the life-risk of the insured is
called life insurance.
• The insurance plan which covers any risk other than the life-risk of an
individual is called general insurance.
• Life insurance is also known as assurance, whereby the sum assured is
paid to the insured, while the general insurance policies are called as
insurance.
Basis of Comparison
BASIS FOR LIFE INSURANCE GENERAL INSURANCE
COMPARISON
Meaning Life insurance can be
General insurance refers to the
understood as the insurance insurance, which are not covered
contract, in which the life risk of
under life insurance and includes
an individual is covered. various types of insurance, i.e. fire,
marine, motor, etc.
What is it? It is a form of investment. It is a contract of indemnity.
Term of contract Long term Short term
Claim payment Insurable amount is paid, either Loss is reimbursed, or liability incurred
on the occurrence of the event, will be repaid on the occurrence of
or on maturity. uncertain event.
Premium Premium has to be paid over Premium should be paid in lump sum.
the years.
Basis of Comparison
BASIS FOR LIFE INSURANCE GENERAL INSURANCE
COMPARISON
Insurable interest Must be present at the time of
Must be present, both at the time of
contract. contract and at the time of loss.
Policy value It can be done for any value
The amount payable under non-life
based on the premium the insurance is confined to the actual loss
policy holder willing to pay.
suffered or liability uncured,
irrespective of the policy amount.
Savings Life insurance place has a General insurance has no such savings
component in savings. component.
Definition of Life Insurance
• The term life insurance implies the type of insurance, that covers the risk of life
and provides a guarantee to compensate by paying the specified sum, either on the
death of the insured or after the specified period.
• In life insurance, the amount is payable on the happening of the uncertain event.
• Moreover, there are certain plans, wherein the payment of the policy amount is
made at the maturity.
• These are long term contracts which require the payment of premium throughout
its life till it matures and the sum assured is paid on maturity.
• It can be surrendered, after some years, wherein the policyholder will get a
proportion of premiums paid, called as surrender value.
Types of Life Insurance
• Whole life assurance: In whole life assurance, the amount of
the policy is paid only on the death of the insured, to the
nominee or the legal heir of the insured.
• Term life assurance: In term life assurance, the policy amount
is paid to the nominee, if the insured passes away before the
expiry of the specified term, or to the insured himself, on the
maturity of the term.
• Annuity: When the term of the policy expires, the payment of
the policy amount is paid to the holder periodically, as long as
the insured is alive.
Definition of General Insurance
• General insurance or otherwise known as non-life insurance or property
and casualty insurance, is a contract that covers any risk apart from the
risk of life.
• The insurance is to safeguard us and our property, such as home, car,
and other valuables from fire, theft, flood, storm, accident, earthquake
and so on.
• These are the contract of indemnity, wherein the insurer promises to
make good, the loss occurred to the insured.
• Irrespective of the amount of policy, the insurance company will
reimburse the loss suffered by the insured.
• They are short term in nature, generally one year and so renewal is
required every year.
Types of General Insurance
• Fire insurance: The insurance covers the risk of loss to the property
due to fire.
• Marine insurance: The insurance covers the risk associated with loss
due to a marine adventure, like sinking, stranding and collision of the
ship, caused to the ship or cargo owner.
• Health insurance: It covers the risk of the health of the policyholder or
his/her family members from accident or disease.
• Home insurance: The insurance of home and its contents from any
uncertainty.
• Motor insurance: The insurance of vehicles is covered under motor
insurance, which is divided into two heads, i.e. two-wheeler insurance
and four-wheeler insurance.
Key Differences Between Life Insurance and
General Insurance
1. The insurance contract, in which the life risk of an individual is covered, is known
as life insurance. As opposed, the insurance, which is not covered under life
insurance and includes various types of insurance, i.e. fire, marine, motor, etc. is
general insurance.
2. Life insurance is nothing but an investment avenue. On the contrary, general
insurance is a contract of indemnity.
3. Life insurance is a long-term contract, which runs over a number of years.
Conversely, general insurance is a short term contract, which needs to be renewed
every year.
4. In life insurance, the sum assured is paid, either on the happening of the event or
the on the maturity of the term. As against this, in general insurance, the amount
of actual loss is reimbursed, or liability incurred will be repaid on the happening
of an uncertain event.
Key Differences Between Life Insurance and
General Insurance
5. In life insurance, the premium is paid throughout the life of the term. In
contrast, in general insurance, one shot payment of premium is made.
6. In life insurance, the insurable interest must be present only at the time of
the contract, but in general insurance, the insurable interest must be
present, both at the time of contract and at the time of loss.
7. Life insurance can be done for any value based on the premium the
policyholder willing to pay. Unlike, general insurance the sum payable is
confined to the amount of loss suffered, regardless of the policy amount.
8. The component of saving is normally present in life insurance but not in
general insurance.
Conclusion
• In life insurance, the actuaries estimate the liability under the current policy at
regular intervals.
• On the other hand, in general insurance, a part of the premium is taken forward to
make provision of the unexpired liability and the remaining amount i.e. the net of
claims and expenses is taken as the profit of loss.