Have you decided to go for general insurance? This article will guide you ultimately to know everything about it.
General life insurance is a contract that does not come under the ambit of life insurance. It is a non-life insurance policy that includes automobile and homeowners policies. It provides payments depending on the loss from a particular financial life event. Follow this article to learn about general insurance and all the relevant information you need to know.
General insurance is a form of risk management primarily used to hedge against the risk of potential financial loss. It is the equitable transfer of the risk of a possible loss, from one entity to another, in exchange for a premium and duty of care. This policy allows you to reap various benefits of many types of insurance such as home, motor vehicles, health, travel, etc.
Table of Contents
- 1 What is general insurance?
- 2 How does general insurance work?
- 3 Types of general insurance
- 4 Advantages of general insurance
- 5 Features of general insurance
- 6 Importance of general insurance
- 7 General insurance examples
- 8 What is general insurance used for?
- 9 Difference between general insurance and life insurance
- 10 Conclusion
What is general insurance?
A general insurance policy is insurance that is not determined to be life insurance. It is typically called property and casualty insurance in the United States and non-life insurance in Continental Europe. It helps us protect ourselves and the things we value, such as our homes, cars, and other valuables. It also prevents us from the financial impact of big or small risks, fire, floods, earthquakes, storms, theft, car accidents, travel mishaps, and even the cost of legal actions against us.
General insurance provides assistance to the policyholder’s nominee in the unfortunate event of death. It comes in different types. The different types of general insurance are fire, marine, motor, accident, and other miscellaneous non-life insurance. You can choose the types of risks you want to cover by selecting the correct type of policy according to the features you need. To optimally manage the risks to your health, assets, or travel plans, it is essential to know the nuts and bolts of each type of general policy.
How does general insurance work?
General insurance works by spreading the cost of unexpected risks among many people in the same region with similar risks. It is a contract of agreement between the policyholder and the insurer, considered only after realizing the premium. In general insurance, a premium is paid by the insurer who has a financial interest in the covered asset. The insurer protects the insured from financial liability in the case of any loss or damage.
Life insurance policies cover the financial loss suffered due to loss of life, whereas general insurance policies cover the financial loss suffered due to the loss of an asset. Therefore, general insurance covers the loss of economic value of assets or the financial loss sustained due to specific contingencies.
Types of general insurance
General insurance refers to four main types that include;
- Motor insurance
- Health insurance
- Home insurance
- Travel insurance
Motor insurance is a unique insurance policy for vehicle owners to protect them from incurring any financial losses that may arise due to any damage or theft of the vehicle. You can purchase a motor insurance policy whether you have a private car, a commercial vehicle, or a two-wheeler. If you wish to buy a new car, you should start looking to purchase a motor insurance policy. Through research, find the best policy that suits your needs. The sooner you begin to search for it, the more options you will get.
Do not grab the very first policy you come across. Look for a better one so you might not regret it later. Take advice from your friends and ask for recommendations. You may have the option to buy the policy either directly from an insurance provider or an insurance provider’s website or browse through the website of insurance aggregators. Ensure that you compare various policies and premium amounts to go for the best ones.
Pay extra attention to the exclusions and check online reviews about the claim process. Keep in mind that you must provide complete details of your vehicle before completing the purchase process. Make sure to have all the motor insurance information handy so that you can sign the documents as you purchase the car. Give it a read and understand all the terms thoroughly.
Health insurance refers to insurance that covers all or a part of a person’s risk of incurring medical expenses. It is a contract that requires an insurer to pay a portion or all of a person’s health care expenses in exchange for a premium. Health insurance pays for the medical, surgical, dental, and prescription drug expenses incurred by the insured. Health insurance does not cover unnecessary surgeries such as fillers, botox, etc.
It reduces the stress of financial expenses burden by providing an amount. Suppose you meet a tragic accident; if the treatment expenses are not affordable, the health insurance policy can facilitate you. It aims to cover out-of-pocket costs. The insured receives reimbursement, or the insurer makes payments directly to the provider.
Home insurance is a form of property insurance that covers losses and damages to an individual’s residence and furnishings. The home insurance policy usually covers interior damage, exterior damage, damage of personal assets, and injury that arises while on the property. Every homeowner’s insurance policy has a liability limit that determines the insured’s amount of coverage should an unfortunate accident occur. You may receive financial protection due to theft, fire, wind damage, etc.
If anything unpleasant happens to your home, your standard policy can include coverage for the structure of your home, coverage for your personal belongings, and coverage for additional living expenses. Home insurance covers more than your home and comes to the rescue if someone injures themselves on property. If you damage someone else’s property or accidentally injure someone, it will provide services.
Travel insurance covers unforeseen losses incurred while traveling internationally or domestically. It is designed to protect against risks while traveling that range from minor inconvenience such as missed airline connections and lost or delayed luggage to more severe issues, including injuries or significant illness. Usually, travel insurance exclusions include glasses, hearing aids, dental bridges, tickets, passports, keys, cell phones, and cash.
Several companies that sell travel packages also offer travel insurance. Some travel policies cover damage to your personal property, rented equipment, such as rented cars, and even ransom requests. The main categories of travel insurance include trip cancellations or interruption coverage and accidental death or flight unintentional coverage. Travel insurance coverage often includes 24/7 emergency services, such as replacing lost passports, cash wire assistance, and rebooking canceled flights.
Advantages of general insurance
- General insurance covers financial losses and compensates you for the losses you face.
- It provides you financial security even in the case of contingencies.
- In some cases, general insurance is mandatory by law. For example, a motor insurance plan is compulsory as per the Motor Vehicle Act, 1988. In the same way, if you are traveling to Schengen countries, you mandatorily need a good overseas health insurance plan. You fulfill the legal obligation and save yourself from the violation offense when you buy such a mandated plan.
- General insurance helps in protecting your savings in emergencies. In this way, you can use your savings to fulfill your financial goals.
- Health insurance, a type of general plan, allows you tax benefits. The premiums paid for such programs are permitted to be deducted under section 80D. This deduction helps lower your taxable income, which reduces your tax liability and enables you to save tax.
Features of general insurance
- Sharing of risk
- Co-operative device
- Payment of fortuitous losses
- Value of risks
- A large number of insured persons
- Payment at contingency
- Amount of payment
Sharing of risk
Insurance is a device to share the financial losses that might occur to an individual or his family on a specified event. The event may be the death of the breadwinner to the family in the case of life insurance, marine-perils in the marine insurance, fire in fire insurance, and other particular events in general insurance—for example, theft in burglary insurance, accident in motor insurance, etc. The loss that arises from these events is shared by all the insured in the form of a premium if insured.
The most important feature of every insurance plan is the cooperation of many persons who, in effect, agree to share the financial loss arising due to a particular risk that is insured. Such a group of numbers may be brought together voluntarily or through publicity or solicitation of the agents. An insurer would be able to compensate for all the losses from his capital. So, by insuring or underwriting many people, he can pay the amount of loss. There’s no compulsion to purchase the insurance policy.
Payment of fortuitous losses
Fortuitous losses are another feature of general insurance. A fortuitous loss is unexpected and unforeseen and occurs due to chance. The loss must be accidental. The law of large numbers is based on the assumption that losses are spontaneous and happen randomly. For example, if a person slips on an icy sidewalk and fractures a leg. The loss would be fortuitous in this case. Insurance policies do not cover intentional issues.
Value of risk
The risk is evaluated before insuring to charge the share of an insured individual, herein called, consideration or premium. There are many methods of the evaluation of risks. If there is an expectation of more loss, the insurer may charge a higher premium. So, the possibility of loss is calculated at the time of insurance.
A large number of insured persons
Many persons should be insured to spread the loss smoothly, immediately, and affordably. The cooperation of a small number of people may also be insured, but it can be limited to a smaller area. The payment of each member may be higher. So it may be unmarketable. Therefore, to make the insurance cheaper, it is essential to insure many people or properties because the lessor would be insurance cost, so the lower the premium.
Payment at contingency
If the contingency occurs, the payment is made in this case. Life insurance is a contract of certainty because the contingency, the death, or the expiry of the term will undoubtedly occur; the payment is specific. The fire or marine perils contingency may or may not happen in any other insurance contracts. So if the contingency takes place, payment is made. Otherwise, no amount is provided to the policyholder. Like this, payment is not particular in certain policies due to uncertainty of a specific contingency within a particular period.
For instance, payment is made only when the assured death occurs within the specified term, maybe one or two years in term insurance. Likewise, in Pure Endowment, payment is made only at the survival of the insured at the expiry of the period.
Amount of payment
The payment amount depends on the loss value due to the particular insured risk provided. Life insurance aims not to make good the financial loss suffered. The insurer promises to pay a fixed sum when the event occurs. If the contingency or circumstance occurs, the payment does fail due if the policy is valid and in force at the event. Like property insurance, dependents are not required to prove the loss occurrence or the amount of loss.
In life insurance, it is immaterial to acknowledge the amount of loss at the time of contingency. But in property and general insurance, the amount of loss and happening of loss needs to be proved.
Importance of general insurance
Everyone wishes to live a risk-free life, so you too must be. You should be prepared in case something unfortunate happens. To secure yourself and your family is a practical approach by investing in the general insurance policy. A general insurance policy is essential to protect your well-being. It secures your properties, whether it is a home you live in and possessions inside it or your priced vehicles, or the most important thing of all, your health.
You can opt for an introductory general insurance policy that covers all assets according to your needs under one policy. In this way, you are required to pay a single premium while protecting most of your assets. The company typically assigns different amounts of sums assured towards all assets included in a general insurance policy.
Another factor that makes general insurance more important is protecting your financial interests. For example, your house is damaged due to a cyclone or burnt in a fire, your car is stolen, or you are hospitalized due to an accident, if you are not insured, you will have to bear financial losses arising from these situations. On the other hand, if you have purchased a good insurance policy timely, you can rest assured that you will receive the guaranteed sums as per the terms and conditions of the policy.
Since mishaps can be incredibly disturbing, general insurance gives you relief in such cases. If you are the only breadwinner in the family and were to lose your source of income or, worse, die in unforeseeable circumstances, it could render your dependents helpless. Depending on the type of insurance policy you choose, you can breathe a sigh of relief knowing that you are insured and have secured your family’s financial future if you are unable to offer them financial support in your absence.
General insurance examples
General insurance provides financial support if your house is damaged due to storms or an earthquake. It depends on you what type of insurance policy you choose. If the fire burns your home and you cannot live in it, your property insurance policy will find a way to maintain your standard of living and share the losses arising from the tragic incident. In the same way, if your vehicle, car, or two-wheeler gets stolen, car insurance provides the sums assured.
In the case of any car accident, if your car is damaged, the car insurance policy will recover it without paying any money. Another example states if you break your leg accidentally or you get to face any sudden treatment or medication, your health insurance policy covers the cost of medical expenses and treatments. In this way, you can focus on recovering without stressing about bearing out-of-pocket costs.
What is general insurance used for?
General insurance is used to protect against unforeseeable contingencies like damage and loss of the asset. It aims to reduce financial uncertainty and make accidental loss manageable. General insurance does this by substituting payment of a small known fee (an insurance premium) to a professional insurer in exchange for assuming the risk of a significant loss and a promise to pay if any loss occurs.
The general insurance policy cover reimburses the insured for a financial loss caused due to certain events as stated in the respective general insurance policy. It provides you peace of mind and relief during loss and covers a significant portion of the loss. This type of insurance covers any other risk except for the life risk of the person injured.
Difference between general insurance and life insurance
- General insurance covers the assets in a person’s life, such as health, car, travel, home, etc., whereas life insurance covers a person’s life.
- General insurance compensates you for the expenses incurred because of the liabilities related to your possessions such as car, home, travel, or health. In contrast, the insurance company pledges to pay a sum assured to your nominee if you meet an untimely demise in life insurance.
- General insurance comes in two types; comprehensive and third-party insurance, whereas life insurance contains term life insurance, whole life insurance, money back plan, endowment plan, and critical illness plan.
- General insurance aims to secure your vital assets such as health, home, vehicle, etc. In contrast, life insurance only concerns your lifespan and the financial security of your loved ones in your absence.
- The policy type is the most significant difference between general and life insurance.
- General insurance policies are short-term plans that get generally renewed annually depending upon the policy opted, whereas life insurance plans are long-term with a duration of 15 to 20 years.
- In general insurance, you pay a one-time premium when you buy the policy or at the time of renewal. In contrast, you pay a lump sum premium or in regular intervals in life insurance policies. The recurring intervals can be monthly, quarterly, half-yearly, or annually.
- While filling a general insurance policy claim, the insurance company considers a specific event. For example, the policyholder can only claim health insurance after diagnosis of a disease, hospitalization, surgery, or some other medical emergencies depending upon the policy. Similarly, you can claim for travel, home, or vehicle insurance only after some kind of damage or loss because of an accident or specific event. In contrast, the nominee receives the sum assured when the policyholder (insured) passes away in life insurance policies. The policyholder can rather receive the proceeds once the policy matures.
- An asset’s value influences the value of a general insurance policy. Thus the insurance company determines the value by different methods based on the type of policy benefit-based. Whereas in life insurance, the policyholders generally determine their insurance cover value. You can choose the sum assured depending on your needs and ability to pay the premiums. This sum is then paid back to your nominee in your absence or maybe to you after the policy matures.
We live in a world full of uncertainties and risks. General insurance helps you by providing financial support to tackle unforeseen situations. Choose the best insurance plan that meets your requirements and needs before it’s too late. Investing money in a safe place is way better than floating all your savings in any sudden accident or event. Buying an insurance policy will secure your and your family’s financial future, and you will never regret it.