Difference between Life Insurance and General Insurance in UAE

Difference between Life Insurance and General Insurance in UAEPolicybazaarAverage Rating / 5 ( reviews)
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Risk is almost everywhere around us – when you visit a new country, when you drive your car/bike to your destination when you hit your mid 40s and some other common aspects of life.

Life is unpredictable and uncertainties can knock your door anytime without prior notice that can rip you off physically, emotionally, and financially also. To prepare yourself for all the uncertainties in advance, you need the proper security in the form of insurance. The concept of insurance is simple and straightforward. You just pay some specific amount that is known as a premium to the insurance company who in return provides coverage and pays a pre-determined amount for all the damages suffered.

However, there are two main types of insurance:

  1. General insurance
  2. Life Insurance

In this article, we will discuss both these type of insurances as well as their several aspects. So, continue reading to know more.

What is Life Insurance?

As its name suggests, life insurance basically covers your life. In simple words, it is a protection against monetary loss that could result from the untimely death of the policyholder. In an event of premature death of the insured, the beneficiary(s) receives the sum assured. You either pay a lump-sum amount whole opting for a life insurance plan or just simply periodic payments which are known as premiums to the insurer. In turn, the insurance company promises to pay a death benefit in the form of sum assured to your loved ones in event of your demise. This is how, family members protected from the financial impact of the demise of the policyholder. If the insured outlives the tenure of the policy, he/she receives the maturity benefit as per the policy term. In fact, some of the life insurance plans can even provide financial support after retirement or some specific period of time.

Types of Life Insurance Plans

Depending on what life insurance covers, life insurance is classified into several types:

1.      Term Life Insurance

The term insurance plan is the most basic type of life insurance policy. It is a pure protection plan that covers you for a certain period of time. This type of life insurance policy is mainly known to offer comprehensive coverage at an affordable premium.

Term plan ensures the financial protection of the family in the absence of the policyholder. In short, the beneficiary(s) receives the death benefit in the form of sum assured upon the premature death of the insured within the policy tenure. The term insurance proceeds help your loved ones to pay off debts and meet all of their financial requirements without any hassle. But, if the policyholder survives the policy tenure, then no maturity benefit will be provided to you and your family members.

However,

There is one another term insurance plan available in the market that is known as term insurance with return of premium (TROP). It returns all the premiums paid if in case you outlive the tenure of the policy. But please note that TROP plans are slightly costly when compared to pure term insurance plan.

2.      Endowment Plan

The endowment plan is a type of life insurance policy that fulfills the need for investment as well as insurance. An endowment plan can be utilized by an individual in order to create a risk-free savings corpus to meet essential life goals while offering financial protection to loved ones in an event of the untimely demise of the insured. Some specific amount of the premium goes towards the sum assured, while the rest of the portion invested in low-risk avenues. Upon the death of the policyholder during the tenure of the policy, the nominee(s) receives the sum assured. If, in case, the insured outlives the policy tenure, he/she gets the sum assured as survival benefit/maturity amount in addition to the accumulated bonus. Thus, this life insurance policy serves both purposes of investment and insurance under just one policy.

3.      Whole Life Insurance

A whole life insurance policy or also known as a permanent life insurance plan provides the coverage until the demise of the life assured. This insurance policy remains in force throughout the life provided the premiums are paid. The coverage or the sum assured is decided at the time of purchasing the policy and it is paid to the beneficiary upon the demise of the life assured. Usually, the maturity age is 100 years and if the insured dies before the age of 100 years, the beneficiary gets the sum assured. However, if the insured outlives the policy tenure, the insurer pays the matured endowment coverage to the policyholder.  

4.      Money-Back Policies

The money-back policy is a life insurance policy that provides money back at pre-defined intervals. This money back is a percentage of the sum assured and it is paid during the tenure of the policy. Money-back payouts are known as survival benefits. Upon the maturity of the policy, the remaining sum assured in addition to accumulated bonus is paid. However, if the life assured dies during the policy term, the entire sum assured is paid to the beneficiary despite the survival benefits that have already been paid.

5.      Unit-Linked Insurance Plans (ULIPs)

Unit-Linked Insurance Plan that is popularly known as ULIPs combines the benefit of life cover & saving under a single insurance policy. The aim of this plan is to offer wealth creation in addition to the life cover where some portion of the premium goes towards life insurance, and the rest amount is invested into a fund based on debt or equity or both that helps to meet your long-term financial goals. These financial goals could be children’s higher education, retirement planning, wedding, and some other important event for which you want to save money.

Moreover, this insurance policy specifies a death benefit- a lump sum amount will be paid to beneficiary(s) if the insured dies prematurely during the policy tenure. If the insured outlives the policy term, he/she will receive the maturity amount. This will be the amount that is generated by the ULIPs investments in debt and/or equity.

Well, ULIPs offer the facility of partial withdrawal after the end of the lock-in period (Usually five years) and also provide the switching facility where you can switch from one fund to another one.

6.      Child Plan

Child insurance plans entitle the insured to protect their children’s future at the right age in addition to creating an investment in Dubai corpus to fulfill major milestones in a child’s life. In such a type of life insurance policy, the parent is the policyholder while the child is the nominee who receives the sum assured upon the demise of the insured during the policy term.   However, if the policyholder outlives the policy tenure, he/she gets the lump sum amount as a survival benefit.

7.      Pension Plans

Pensions plans also known as retirement plan are investment plans that enable you to save money until you get retired. From the day you purchase a retirement plan, you pay some specific amount to it regularly. When your monthly income stops after you get retired, you receive a steady income at regular intervals from the pension plan. In addition to this, some of the retirement plans also offer life cover. God forbid, if you die prematurely, the beneficiary will get the sum assured. Thus, it offers wealth accumulation along with life insurance cover.

What is General Insurance?

General insurance is a straightforward contract that provides financial protection against any damage or loss other than life. It covers non-life assets like a vehicle, home, travel, and health from fire, theft, accidents, and man-made disasters. The insurer promises to pay the insured a sum assured in order to cover damages to your automobile, medical treatment in order to cure health issues, damages/losses due to fire or theft, or even monetary problems during travel. In simple words, general insurance provides financial protection for all your non-life assets against damage, loss, theft, and any other liabilities. General insurance policies are of short term in nature usually for one year. That is why, the policy renewal is required annually.

Types of General Insurance

Though there are several types of general insurance are available in the market. Some of the common ones are as follows:

1.      Health Insurance

Health insurance or medical insurance covers the medical & surgical expenses of the policyholder. A health insurance policy covers the insured with a few benefits such as pre& post hospitalization, day care hospitalization, and cashless hospitalization at network hospitals up to the sum assured.  Subject to the terms of insurance coverage, either the insurance company reimburses the medical costs incurred due to injury or illness or pays the hospital of the insured directly.

2.      Motor Insurance

Motor insurance is a type of general insurance that provides financial protection to your automobiles from the loss due to theft, accident, damage, fire, etc. You can opt for motor insurance for personal vehicles as well as commercial vehicles.

Moreover, there are mainly two types of motor insurance are available in the UAE – comprehensive motor insurance policy and third-party liability motor insurance.

A comprehensive motor insurance policy covers not only third-party liabilities and loss but also covers for damages/losses caused to you and your vehicle. Whereas, third-party liability insurance is the most basic type of motor insurance that is compulsory for every car owner in the UAE as per the RTA law. It safeguards you from the losses and damages caused to the third-party only.

3.      Travel Insurance

In case you are travelling outside your home country, a travel insurance policy safeguards you against losses suffered due to flight delays, baggage loss, and trip cancellation. In fact, some of the travel insurance policies may also offer a cashless hospitalization if you’re hospitalized during your travel.

4.      Home Insurance

Home insurance is a type of general insurance that safeguards your home as well as its belongings from all the loss or damages suffered due to natural or man-made disasters. Few home insurance policies offer coverage for temporary living expenditures in case you’re living on rent because of your home undergoing renovation.

Life Insurance Vs General Insurance- Explained

As you can see, life insurance and general insurance are two different types of insurances. Below in the table, here we have covered all the major pointers between both these forms of insurances:

Key Pointers

Life Insurance

General Insurance

Coverage

It is a contract that provides life cover.

It is a contract that provides financial protection against any damage or loss other than life.

Contract Term

It is a long-term contract.

It is a short-term contract.

Premium

It requires the insured to pay premiums in monthly installments for several years.

The general insurance policies need to be renewed annually and require you to pay the full premium upon renewal.

Payout

It provides the payout to nominees upon the death of the policyholder during the policy tenure or upon the maturity of the policy.

It gives the payout when the unexpected event occurs.  

Insurable Interest

The policyholder must be present at the time of the contract.

The policyholder must be present at the time of contract as well as loss.

Saving Component

Saving component is present.

Saving component is absent.

 

Summing It Up

Both, general insurance and life insurance have different benefits and applicability. While life insurance helps you to safeguard your family members financially in your absence, general insurance safeguards your assets. In short, you need both these types of insurances to comprehensively cover all aspects of your life and lead a life with complete peace of mind.

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