Home Banking What Is The Difference Between Banking & Insurance?

What Is The Difference Between Banking & Insurance?

by Arpita Wadhawan

Both banks and insurance companies are financial intermediaries. However, their functions are different. Let’s understand the difference between banking and Insurance first.

Banking is the financial institutions who do the business activity of accepting and safeguarding money owned by other individuals and entities and then lending out this money in order to earn a profit. Banks use the money that their customers deposit to make a larger base of loans and thereby create money. Whereas Insurance is a contract between an individual and an insurance provider, in which an individual receives financial protection or reimbursement against losses from an insurance provider or insurance company.

The other difference is, when we talk about banking or online banking, the first thing you do is to subscribe to the alert services offered by your bank. As banks provide the services to their customers of significant account changes with online alerts this feature can be taken as the advantage of your banks alerts to protect yourself from identity theft and misuse. Banking is the act of accepting deposits either by way of Cash, cheques or transfers from or on behalf of their valued customers. And when it comes to your insurance, think hard about how much of your available income you want to spend on insurance versus investments. Of course, each of us has a finite amount of money to spend on anything, if we do not think of how much money to invest we aren’t making a wise decision. So, we have to make smart decisions about it.

The nature of their systemic ties makes Banks and insurance dissimilar. Banks operate as part of a wider banking system and have access to a centralized payment and clearing organization that ties them together whereas Insurance companies are not part of a centralized clearing and payment system. This means that they are not as susceptible to systemic contagion as banks are.

Though there are risks pertaining to both interest rates and to regulatory control that impact both insurance companies and banks, although in different ways, its individual to make the decision to go for banking or insurance based on their income or budget.

To conclude banking appears at both the asset and liability side of the balance sheet, while life insurance appears only at the liability side of the balance sheet. In addition, banking sells via its proprietary distribution network and life insurance sells primarily through (tied) agents and brokers.

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