What is life insurance? Why is it different from non-life insurance ? Explain its nature also.
What is Life Insurance?
Life insurance is a contract between an individual person who took a policy is called (policyholder) and an insurance company, in which the insurer promises to pay a specified sum of money to a nominee or beneficiary in the event of the policyholder’s death or after a certain period called (maturity), in exchange for periodic premium payments is called ( instalments ) difference between life and non life insurance
Nature of Life Insurance:
- Contract of Assurance: It provides financial certainty—either death benefit or maturity benefit.
- Long-Term Contract: Usually spans several years, sometimes for the entire life of the insured.
- Savings and Protection Tool: Acts as a risk cover and a savings/investment plan. difference between life and non life insurance
- Personal Contract: Based on the life and health of the insured individual.
- Principle of Utmost Good Faith: Requires full disclosure of material facts by the insured. difference between life and non life insurance
- Insurable Interest Required at Inception: The policyholder must have a financial interest in the continued life of the insured. difference between life and non life insurance
- Claim is Certain: The payment is guaranteed either on death or on survival till maturity. difference between life and non life insurance
Difference Between Life Insurance and Non-Life Insurance
Aspect | Life Insurance | Non-Life Insurance (General Insurance) |
|---|---|---|
Purpose | Provides financial cover in case of death or survival | Covers losses due to risks like accidents, theft, fire, etc. |
Term | Long-term (up to whole life) | Short-term (usually 1 year, renewable) |
Coverage | Life of a person | Physical assets, health, liabilities |
Claim Event | Death or survival/maturity | Contingent on loss, damage, or accident |
Payout | Fixed sum assured or maturity value | Actual loss or expenses incurred (indemnity principle) |
Examples | Term insurance, Endowment, Whole Life, ULIP | Health insurance, Motor insurance, Fire insurance |
Insurable Interest | Must exist at policy inception | Must exist both at inception and at the time of loss |
Nature of Contract | Contract of assurance | Contract of indemnity |
Conclusion
Life insurance is primarily a financial security tool that provides peace of mind and future stability to individuals and their families. It differs fundamentally from non-life insurance, which focuses on compensating for specific losses or damages to property, health, or liabilities. Understanding both helps individuals and businesses manage various risks effectively. difference between life and non life insurance. You can find the syllabus of Banking and Insurance on the official website of Gndu.
Important questions of Banking and Insurance
A difference between life and non life insurance