What is Life insurance and general insurance?

Answer 1

Life insurance, as the name suggests, is insurance on human lives. Life insurance policies are considered to be "valued policies" because they are purchased in finite amounts, rather than designed to pay damages or the then-current value such as property insurance does.

Life insurance comes in several varieties, the main categories being term life and whole life. Term life insurance remains in force as long as premiums are paid, but has a definite termination date (such as 20-years). If the insured does not die during that period, the insurance expires and there is no remaining value. Stated otherwise, it may be said to represent "pure protection".

In contrast, there is "whole life". A part of the periodic premium is applied to pay for the death benefit, and another part of it is applied to a savings element. The savings element accumulates slowly at first, and depending upon the nature of the policy, may be used to invest in an array of income-earning assets, such as mutual funds, that the insurer offers as "investment" options. The earnings of the policy is referred to as "cash value", and depending upon the terms of the policy, may be used by the insured or the owner of the policy for a variety of purposes, including borrowing it. If left untouched, the cash value may reach a point where it fully supports ongoing premiums such that the insured has to pay nothing more.

"General insurance" is the term often used to refer to non-life policies, such as homeowners, auto, and other forms of property and casualty coverage