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Difference Between Life Insurance and Health Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 01/02/2024

Life insurance and health insurance are two fundamental pillars of a sound financial plan, each serving distinct and essential purposes in safeguarding an individual's future. While both types of insurance offer protection, they cater to different aspects of a person's well-being and financial stability.

Life insurance is designed to provide financial security to the policyholder's beneficiaries after their demise, ensuring that their loved ones remain financially secure. On the other hand, health insurance focuses on covering medical expenses and offering financial support during illnesses or accidents.

Understanding the difference between life insurance vs health insurance helps individuals tailor their insurance portfolio to provide comprehensive coverage for themselves and their families, addressing both immediate medical needs and long-term financial security.

What is a Life Insurance Policy?

A life insurance policy is a financial agreement between an insurance provider and the policyholder. As part of this agreement, the insurer offers a lump sum death benefit to the family of the policyholder in the unfortunate event of the demise of the latter while the policy is active.

This policy is particularly beneficial for the primary breadwinner of the family as their absence could upend the life of their dependents. Conversely, the financial benefit from life insurance could help their family clear off debts, accomplish future financial goals, manage routine expenses, and more.

Insurance seekers also have the option of strengthening their basic cover with add-on options such as accidental disability, critical illness, etc. Certain comprehensive life insurance policies also offer investment and savings benefits in addition to life coverage. You can buy life insurance online after comparing different policies and analysing your financial requirements.

Types of Life Insurance Policies

There are essentially three types of life insurance policies. However, before learning about each, insurance seekers must note that the specifications of each policy would differ based on the plan they choose and the insurance provider. With that in mind, here are the types of life insurance policies:

Term Life Insurance: This policy offers death benefits to the beneficiaries of the policyholder if the latter passes away during the policy term. This insurance can also be considered as an income replacement cover. When compared to other life insurance policies, the premiums for term insurance are relatively lower.

Whole Life Insurance: As the title suggests, this policy offers lifetime coverage (100 years). Typically, this insurance comes with a fixed premium amount and offers a tax-free sum assured to the beneficiaries in the event of death or policy maturity.

Endowment Policy: This is a popular life insurance policy that offers a pay-out if the insurance holder passes away during the policy term and even if they survive the policy maturity date. Endowment policy comes with the dual benefit of savings and insurance.

Benefits of a Life Insurance Policy

While the exact benefits of the policy would depend on the kind of cover chosen, here are the general benefits of life insurance:

It offers a guaranteed death benefit

Some plans come with the benefits of financial security, savings, and investment benefits

  • Typically, the pay-outs of life insurance are not taxable

  • The basic coverage can be enhanced with riders, such as critical illness insurance, disability insurance, etc.

  • The plans are flexible, enabling the policyholder to choose the mode and frequency of their premium payments. When you buy life insurance online, you can conveniently choose the policy and the payment option.

  • Policyholders can choose to make long-term investments with life insurance

  • Now that we have explored the key aspects of life insurance, let’s unravel the important elements of health insurance.

What is a Health Insurance Policy?

Although trite, it is a fact well acknowledged that life is unpredictable. However, there are certain unforeseeable circumstances against which individuals can secure themselves.

Health insurance takes care of one critical aspect. In a time of soaring medical and hospitalisation bills, a health insurance policy compensates for healthcare services you need to avail of.

For this service, the insurance company expects the policyholder to pay a premium. However, the premiums are negligible compared to the cost of seeking medical treatment, particularly in the event of critical illnesses.

Without a health insurance policy, these costs could significantly drain your savings. This is why it is advised to invest in critical illness insurance for comprehensive protection.

In short, the important things to note about health insurance are:

  • The policy will cover healthcare for as long as the premiums are paid

  • All eligible medical expenses will be compensated based on the terms outlined by the policy

  • No additional benefits are paid out in case of death

Types of Health Insurance Policies

Since health insurance is a critical element of a well-rounded financial plan, it is important to choose your policy after carefully analysing your financial needs. Here are the types of health insurance plans to choose from:

Individual Health Insurance: An individual health insurance plan compensates for the medical expenses of a single individual in the event of hospitalisation for injury, illness, surgeries, day-care procedures, hospital room rent, etc.

Typically, to avail of this policy, the insurance seeker must be at least 18 years of age. The premiums for the insurance plan would depend on the terms and the type of policy chosen.

Employee/Group Health Insurance: This policy is curated for a group of people. For instance, employers can buy this policy for their employees.

The policy covers employees for the duration of their work in the employer’s company. The plan generally covers accidental injuries, maternity expenses, etc.

Senior Citizens’ Health Insurance: This policy is specially curated for senior citizens above the age of 60. It compensates for pre- and post-hospitalisation expenses owing to illness, accidental injuries, and other medical costs.

Senior citizens have greater susceptibility to diseases and disorders, so a dedicated insurance policy can mitigate medical expenses from denting their savings.

Family Health Insurance: This policy enables the policyholder to extend the insurance coverage to their family. Typically, this means a spouse, two children, and senior parents. The plan would compensate for the medical expenses of all of these insured members.

Critical Illness Insurance: Under a critical illness insurance policy, the policyholder is insured against life-threatening critical diseases such as heart attack, cancer, renal failure, etc.

With this cover, an individual can receive a lump sum benefit that can cover the exorbitant medical expenses for treating critical illnesses (as covered under the insurance policy).

Benefits of a Health Insurance Policy

Acknowledging the varying healthcare needs of individuals, health insurance plans cover a wide spectrum of offerings. Some key benefits of health insurance include:

Depending on the policy chosen, health insurance offers comprehensive protection to the policyholder in case of medical emergencies. The cost includes:

  • Routine health checkups and preventive care

  • Diagnostic testing, X-rays, and physical exams

  • Cost of medication

  • Medical care for emergencies

  • Inpatient and outpatient surgery

  • Ongoing treatment for health issues and chronic illnesses

  • Accidental injuries

  • Coverage for pre- and post-hospitalisation expenses incurred for medical emergencies

  • Pre-existing illnesses are covered following a certain waiting period

The premiums payable towards health insurance are subject to tax deduction under Section 80D of the Income Tax Act, 1961. This tax exemption ranges from ₹25,000 to ₹1,00,000.

We have explored the key components of life insurance and health insurance. However, for those who are still debating life insurance vs health insurance, analysing the differences between the two can help make an informed decision.

Difference Between Life Insurance and Health Insurance

Where health Insurance compensates for expenses incurred towards medical treatment, life insurance aids the family in reducing their financial burden in case of the policyholder’s untimely demise.

Yet, if you were to choose one from another, knowing the difference between life insurance and health insurance can be helpful.

Features Life Insurance Health Insurance
Why purchase this policy? Safeguards the financial health of the family in the unfortunate event of the policyholder’s demise. It can help them maintain their lifestyle and achieve their life goals even in the absence of the insured. Compensates for costs associated with medical treatment, including pre and post-hospitalisation expenses. Policyholders can also avail of cashless treatment at network hospitals.
Primary Benefit  A sum assured in the form of a death benefit is paid to the beneficiary Provides coverage for the treatment cost for illnesses/ medical conditions. This compensation depends on the maximum coverage amount and other terms.
Added Benefits  Your basic cover can be enhanced with add-ons such as maturity benefits, loyalty additions, etc. Policyholders can get a No Claim Bonus on their insurance plan. Some insurance providers also offer free health check-ups.
Types of Coverage Individual, family/group Individual, family/group
Types of Plans Term plans, savings plans, wealth creation, retirement planning, etc. Comprehensive health insurance policies, critical illness insurance, etc.
Tax Benefits  Exemptions under Section 80C as well as  Section 10(10D) of the Income Tax Act Exemptions under Section 80D of the Income Tax Act

The Bottom Line

Life insurance and health insurance policies are financial products that serve two different purposes. One offers coverage against soaring medical expenses, whereas the other secures the family of the policyholder in the event of their untimely demise.

Therefore, for well-rounded financial protection, it is advised to invest prudently in both health insurance and life insurance. Both policies help individuals plan for unforeseeable scenarios with a reliable financial safety net to fall back on in distressing times.

However, before investing in any policy, it is important to compare health insurance plans as well as life insurance plans to ensure you choose a policy that is most suited to your financial and healthcare needs.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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