Investments & Tax Fundamentals

Understand the pros and cons of General (Property) vs Term Insurance

Understand the pros and cons of General (Property) vs Term Insurance

Insurance serves as a protection against mishappenings and unforeseen situations. It serves as a financial aid during times of illness, sudden death, accidents and destruction of a property. Insurance helps in mitigating the risks related to life, health and property and provides a lifetime financial support.

There are two broad classifications of insurance – General and Life. General insurance covers all the other risks that an individual might have to face except for the life-risk. This particular insurance is meant to safeguard our health and property. Life insurance, on the other hand, is the financial protection given to individuals against a sudden or premature death.

What is a General Insurance?

General Insurance covers financial losses occurring due to natural calamities, death, accidents, legal actions and theft. This insurance provides a financial aid against any mishaps that happen to your home, commercial properties, cars, two-wheeler, travel and health.

Under General Insurance comes Property insurance which provides insurance for both commercial and residential properties against losses and external damage. Getting property insurance covered for both your home and commercial property aids in giving a protection for both the contents and the structure of the property. (Insurance for contents can vary from agency to agency).

Below are the major destruction’s and calamities against which property insurance is provided:

Commercial property insurance protects your business/company from unexpected happenings and natural calamities. It provides insurance against fire, explosions, storms, theft and vandalism.

Residential property insurance protects your home from natural calamities or man-made disasters including fire, floods, storm, theft and vandalism. In general, insurance for a residential property will even include protection for the contents of the house which includes jewelry, watches, documents and cash among others.

The repayment time for insurance on a residential property is in term plans of 5, 10, 15 and 20 years. For commercial property insurance, the repayment time for insurance can extend up to 1 year. When policyholders claim of the property insurance, the insurance company pays for the principal outstanding to the bank and the already paid amount by the customer is given back.

What is Term Insurance?

Term Insurance is a part of Life Insurance given for a fixed period of time which provides coverage at a fixed rate of payments. When the person insured dies, during the term of the policy, the death penalty goes to the beneficiary. A term insurance plan can be used as a financial security during times of consumer debt, university education, funeral costs and mortgage expenses of the insured and his/her family.

Insurance-buyers can avail term insurance loans at a minimum age of 20 yrs and maximum age of 60 yrs. The minimum sum which can be insured for a death benefit can be Rs. 5,000 whereas the sum available for insurance for CI benefits is Rs. 5, 00,000.

Features of a Term Insurance:

  • Fixed coverage amount: Term insurance provides a fixed coverage amount which directly decides the size of the annual premium. This helps in estimating the exact amount of coverage one would get during the entire course of the policy.
  • Low premium: Term insurance is available with a high amount of sum insured along with low premiums which keeps on increasing each year.
  • Terminal Illness: It is a part of term insurance which makes sure that the individual being diagnosed with medical condition will be payable, provided the problem is diagnosed by two medical practitioners who specialize in the same illness treatment.

Accelerated Critical Illness Benefit (CI): It is part of term insurance which ensures that the person being diagnosed with any of the 33 stated critical illnesses will be payable. The coverage is provided for first seven coverage years or otherwise depends upon the members’ coverage term.