Ask one question of any policy: does the payout depend on the size of the loss, or is it a fixed sum set by the policy? A fixed sum points to life insurance and a loss-based payout points to general insurance.
This lesson is part of insurance mathematics, inside SPM Mathematics.
What is the deciding question?
Life insurance pays an agreed sum when a life event in the policy happens, such as the death of the insured person. The sum is written in the policy in advance.
General insurance pays to cover a loss, such as damage to a house or a car. The payment depends on the actual loss, reduced by conditions like the deductible and capped by the limit.
| Feature | Life insurance | General insurance |
|---|---|---|
| Trigger | A life event stated in the policy | A loss or damage |
| Payout | Agreed sum | Loss, after conditions, up to a limit |
| Calculation | Read from the policy | Loss, deductible, limit, co-insurance |
Worked example: sorting six policies
An original exercise. Classify each policy and give a reason.
- Pays RM200 000 to the family if the policyholder dies. Life: a fixed sum tied to a life event.
- Pays for repair of a shop damaged by flood, up to RM80 000. General: tied to the loss, with a limit.
- Pays RM50 000 if the policyholder is diagnosed with a named condition. Life: a fixed sum tied to a stated event.
- Pays the replacement cost of a stolen motorcycle, less RM300. General: loss-based, with a deductible.
- Pays RM1 000 for each night in hospital. A fixed sum per event, so it follows the fixed-sum rule.
- Pays the repair bill for a car accident after a deductible of RM500. General: loss-based.
Item five is the tricky one. Whether your textbook classes it as life or general, the reasoning you write is what matters: the payout is a stated amount, not the actual bill.
The mistake to avoid
A student sees a large payout, RM200 000, and assumes large means general. Size does not decide. The deciding question is whether the amount depends on the loss.
Another slip is deciding from the word “insurance” in the name. Names in questions are invented, so read the payout description instead.
A self-check question
Classify and give a reason: (a) a policy that pays RM100 000 on the death of the insured; (b) a policy that pays the cost of repairing a flooded kitchen, less a RM400 deductible.
Answer
(a) Life insurance: the sum is fixed in the policy and tied to a life event. (b) General insurance: the payment depends on the repair cost, reduced by a deductible. If the repair cost is RM3 000, the insurer pays 3 000 − 400 = RM2 600.
The next lesson builds on loss-based policies, in checking under-insurance calculations with supplied formulas. For claim steps, go back to calculating a claim.
If you want to be tested on fresh descriptions, SPM Mathematics one-to-one tuition lets a teacher write new ones for you and check your reasons aloud.