Difference between Life Insurance and Fire Insurance

What is Life Insurance?

Life insurance is an agreement between an insurer and an insurance policyholder. According to this agreement, the policyholder has to pay money in instalments or as one lump sum to the insurer, and after the death of the insured person, the insurer assures to pay the nominated beneficiary a sum of money. Depending on the type of agreement, a serious illness or extreme illness can also activate payment. Sometimes, benefits also include other expenses too after the death of the person that is insured.

There can be two major categories of life-based agreements:

Protection policies: These policies are planned to bear benefit, normally a lump sum payment, when any specified event occurs.
Investment policies: The main aim of these policies is to clear the path for the growth of capital by the means of uniform or single surcharges (premiums).

History

The concept of life insurance took birth in Ancient Rome, “burial clubs” used to cover the expenses of the funeral of their members and help the survivors economically.

The first ever known life insurance policy was made in Royal Exchange, London on 18 June 1583. The first company to offer life insurance wasAmicable Society for a Perpetual Assurance Office. It was founded by Sir Thomas Allen and William Talbot in London in 1706. In starting days, this company had only 2000 members.

In 1693, Edmund Halley wrote the first life table, and in 1750, important statistical and mathematical tools were used for the advancement of modern life insurance. In 1762, James Dodson’s disciple, Edward Rowe Mores, established the Society for Equitable Assurance on Lives and Survivorship. It was the first mutual insurer.The name “Actuary” was given to the chief official by Mores. William Morgan was the first modern actuary and he served from 1775 to 1830. The first reversionary bonus and the first interim bonus were distributed in 1776, by the society, among its members.

Parties to Contract for Life Insurance

The policy owner is the person responsible to make payments for a policy, and that payment will be activated by the death of the insurer. The same person can be both, the insured and the owner. For example, if a person buys a policy on his own life, then he is both the insured and the policy owner. And if a person buys a policy for any other member of his family, then he is the policy owner and the insured is the person in whose name the policy has been bought. In the first case, the insured person has to pay for the policy; but in the second case, the insured person has not had to pay for the policy, it will be the policy owner who will pay for the policy. Therefore, the person who is insured is the participant in the contract, but may or may not be the one to pay for it.

Terms of Contract

The policyholder will not be paid if he commits suicide. In this case, the contract is nullified.
The contract is also nullified if the person provides wrong information.
The policy only gets mature when the insured dies or reaches the age specified in the contract.

Death Benefits of Life Insurance

When the policyholder dies, the insurer needs some proof of death before paying the claim. And in case, if the insurer feels the insured’s death is suspicious and the amount that has to be paid is large, the insurer has the full right to investigate the situation before paying the claim.

The claim can be paid in two ways: either it can be paid as a lump sum i.e., the whole amount at a time; or it can be paid in instalments.

Assurance v/s Insurance

Mostly the use of the terms “Assurance” and “Insurance” is mistaken. Basically, “Assurance” refers to the supply of coverage for any event that will happen, and “Insurance” refers to the supply of coverage for any event that may or may not happen such as theft, natural disaster, fire, etc.

Term Insurance

The term “Term Insurance” refers to the coverage of life insurance for a specific interval of time. In this insurance, the policy does not collect cash value. Term Insurance is cheaper than compared to Permanent Insurance but gives high value with increasing age.

Group Insurance

It is a kind of Term Insurance that covers a group of people. Normally these groups include employees of any company, members of any alliance or union, etc.

Permanent Insurance

The term “Permanent Insurance” refers to life insurance coverage till the policyholder dies. This policy collects cash value till it gets mature. The policy owner can easily access the cash according to his need; he can simply withdraw money, borrow the cash value, or surrender the policy to receive the surrender amount.

What is Fire Insurance?

Fire Insurance comes under the domain of Property Insurance. Protection against any kind of risk, such as fire, weather damage, or theft, to the property is given by Property Insurance.

Standard Fire and Special Perils Property (SFSP)

Standard Fire and Special Perils Property (SFSP) is a kind of insurance that is designed in a manner to protect our property and belongings from accidents that occur unfortunately due to fire and other allied perils like strikes, riots, cyclones, typhoons, etc.

This insurance covers the following risks:

Manufacturing or industrial risks.
Accessories and machinery.
Storage-related risks that are outside the compound of industrial risks, etc.

Things excluded from Insurance Coverage

Loss or damage caused due to nuclear activity.
Loss or damage caused due to civil war, kindred perils, and war.
Loss or damage caused to stocks due to temperature change.
Loss or damage caused due to running electric machines more than required.