Having adequate insurance is critical to protect yourself and your family. For most people, car and life insurance are two must-have forms of coverage.
Obviously, car insurance is intended for drivers, while life insurance takes care of your loved ones if you were to pass away. However, what is some other key differences between these two types of coverage?
#1. Auto Insurance is Compulsory
All U.S. states require at least some minimum form of auto insurance before an individual can drive on the road. In many cases, this is not just to protect the driver but also other vehicles and public property in case of an accident.
By contrast, life insurance is not required by law. Though it’s widely accepted as something every adult should have, there are no requirements stating that someone must carry life insurance.
#2. Life Insurance Only Has One Payout
A life insurance contract can only be paid out once to the insured’s beneficiaries. This is because to trigger the death benefit; the insured must pass away.
Auto insurance, on the other hand, can pay out multiple times. The insured could be in several accidents and receive multiple payouts from the same provider.
In both circumstances, these benefits are not considered to be taxable income. They are treated as a specific benefit the insurance company provides in exchange for monthly premiums (paid with taxable income).
#3. Car Insurance Payouts are Variable
Because the severity of each auto accident can be different, the payouts from car insurance will fluctuate. They could range from a few hundred dollars to the total replacement cost of the vehicle itself, plus medical expenses and the replacement cost of damaged property.
Meanwhile, life insurance has only one specific benefit. This amount is pre-negotiated and agreed to in the contract so that both parties clearly understand what the beneficiaries will receive.
#4. Life Insurance Contracts Have Longer Terms
Individuals can find term life policies between 5 and 30 years when shopping around for good life insurance quotes. Permanent-style policies can last the insured’s lifetime.
By contrast, car insurance policies are much shorter, typically lasting either 6 or 12 months. At the end of this period, the provider and the insured can decide if they want to renew this contract.
The premiums for car insurance are subject to change from year to year. The provider will most likely raise the rates each time the policy renews. The insured will also have an opportunity to negotiate these rates if they have a more attractive offer from a competitor.
Life insurance contracts have fixed premiums. An individual can buy a 30-year term return policy and pay the same monthly price over the span of the contract. The cost of these premiums will not change until the term expires, at which point the insurance provider will most likely demand a higher rate.
#6. Life Insurance Can Build Cash Value
Auto insurance is a “pay as you go” arrangement. The insured pays for a specific level of coverage, and if there are no accidents, the insurance company gets to keep all the money they have received.
Term life insurance policies also work very similarly. However, permanent life insurance policies have a cash value component in addition to their death benefit. This means that the life insurance policy itself can build money and accumulate over time. In fact, depending on the type of insurance policy, this cash value may be invested and could experience substantial growth after decades of compounding.
The Bottom Line
There are several key differences between car and life insurance. In addition to being required by law, auto insurance can have multiple and variable payouts. Meanwhile, life insurance contracts have much longer terms, fixed premiums, and a cash value component if a permanent policy is purchased.
