Life Insurance and General Insurance are both aleatory contracts to protect financial losses. The primary difference between them is that life insurance protect human life values against death, disablement and critical illnesses whereas general insurance protect against loss or damage to assets.
Insurance is based on the concept of transference of risk where the insurance company collects a regular contribution or premium in order to assume the risk of financial loss. General insurance is also sometimes known as liability insurance. While general insurance indemnifies the insured against financial losses due to loss or damage to assets, life insurance on the other hand protects the assured based on an agreed contract value since life itself is priceless.
Thus, a property valued at RM1 million replacement cost can be insured up to a contract sum of RM1 million. In the event of a fire, the extent of damage will be the basis for indemnity, example, RM300,000 to re-instate the property to its original state will be the value of claims.
Life insurance contracts define the sum assured at the onset of the contract and will pay the contract value upon death or permanent disablement. The sum assured will not be varied. In fact, if a person purchase more than one life policy, the sum assured specified in all the life contracts will be paid out. The concept of indemnity does not apply here.
Insurable interest must be present upon signing up a life insurance contract whereas insurable interest must be present during claims in general insurance contracts. The reason for this is the ownership of the insured assets may change hands during the term of the general insurance contract.
Life insurance contracts include whole life, endowment, term and investment-linked policies. It also includes critical illness policies and children’s education policies. General insurance include motor, fire, burglary, construction and liability insurance. Personal accident and hospitalisation policies are also examples of general insurance policies.