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Difference between Term Insurance and Health Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 18/07/2022

Term insurance and health insurance serve distinct purposes in personal financial planning. Term insurance, a subset of life insurance, provides financial security to beneficiaries if the policyholder passes away during the term, focusing on safeguarding the family's future. Health insurance, conversely, covers medical expenses, mitigating the financial impact of healthcare needs.

Understanding the difference between health insurance vs term insurance is vital for effective financial planning, addressing both immediate health concerns and long-term family financial stability.

What is Health Insurance?

Health insurance or a medical insurance plan offers financial assistance in the event of an unforeseeable medical emergency. In the current scenario, medical expenses have been soaring, and the quick-paced life does not afford time for exercise or healthy meals.

This means that health issues can arise without notice and without a proper medical insurance plan, they can significantly dent your savings.

Health insurance compensates for the healthcare services that the policyholder avails right from hospitalisation bills to treatment costs and even post-hospitalisation care. For this service, the insurance provider levies a premium payable by the policyholder.

What is Term Insurance?

If you are choosing between term insurance vs health insurance, it is important to know what term insurance means. Term insurance is a financial product that offers compensation to the beneficiaries of the policyholder in the unfortunate event of the latter’s untimely demise. This financial benefit is offered as a sum assured by the insurance company to the family of the insured member in their absence. This policy is offered at a very reasonable premium by insurance providers.

To make an informed decision between health insurance vs term insurance, it is important to know the scope of offerings under each of these insurance policies.

Types of Term Insurance Plans

Here are the different types of term insurance plans:

Level Term Insurance: Under this term insurance offering, the premiums payable by the policyholder remain the same for the term

Term Insurance with Return on Premium (TROP): Under this insurance, the premiums are returned to the policyholder if they survive the term of the policy. The premiums are only payable at the end of the insurance term.

Premium Refund Plan: If the insurance holder survives the policy term, the premiums are refunded to them, and this money is tax-free

Convertible Term Insurance: This insurance plan enables flexibility to the policyholder to convert their plan into an endowment plan or a whole life insurance plan

Increasing Term Insurance: Under this kind of insurance, the sum assured keeps increasing every year with the same premium payable by the insurance holder

Decreasing Term Insurance: In this policy, the sum assured decreases each year and is useful if the policyholder has an ongoing mortgage or loan

Types of Health Insurance Plans

Here are the different types of health insurance plans for insurance seekers:

Individual health insurance: As the title suggests, individual health insurance only offers coverage to one person which is the insurance holder. Under this plan, the policyholder will be secured against medical expenses incurred against the premiums paid.

Family medical insurance plan: Under this policy, the policyholder can extend security to their family, which includes their spouse, children, and parents.

Senior citizen’s health insurance: These health insurance policies are designed to offer coverage to senior citizens aged above 60

Critical illness insurance: Acknowledging the exorbitant cost of treating critical illnesses such as heart ailments, cancer, etc., insurance providers offer coverage for these life-threatening illnesses

Top-up health insurance: This is an indemnity policy that can be purchased along with the policyholder’s current medical insurance plan. This insurance comes in handy when the threshold limit of the base policy is exhausted.

Term Insurance Benefits

Here are some important term insurance benefits that can help insurance seekers make an informed decision:

  • High sum assured at a reasonable premium payable

  • Provides several death benefit pay-out options

  • You can strengthen a basic plan with multiple add-on options

  • Offers tax benefits

  • The policyholder can choose the term insurance coverage for a certain duration, such as 30 years. If they pass away during this term insurance coverage, the beneficiaries are offered a death benefit.

Health Insurance Benefits

Here are the health insurance benefits for insurance seekers:

  • Provides financial coverage for pre and post-hospitalisation expenses

  • Certain health insurance policies come with maternity coverage to cover delivery and new-born baby’s expenses

  • Some health insurance policies also cover domiciliary hospitalisation

  • Health insurance also covers scans, x-rays, cost of medicines, ambulance, daycare procedures, ICU, OT, etc.

  • You can also invest in critical insurance as an add-on to your policy

Difference Between Term Insurance and Health Insurance

To help you make an informed investment decision regarding insurance, here is a table explaining the difference between term insurance and health insurance:

Health Insurance Term Insurance
It covers the cost of healthcare services on behalf of the policyholder It secures the financial future of the family in the event of untimely demise of the policyholder 
To help the policyholder pay for the cost of hospitalisation in the event of an accident, illness, or injury, the insurance provider pays the sum insured Medical expenses of the insured members are included in the coverage
The premiums are comparatively higher The premium is negligible 
The premiums have to be paid annually The premiums have to be paid annually
The premiums paid are not returned to the policyholder. However, with a no-claim bonus, the premiums could be reduced if no claims were made for one year of the policy. With a return on the premium plan, the premiums payable are returned to the policyholder upon the end of the policy term 
There are a range of add-on coverage options to strengthen the basic plan, such as critical illness coverage, maternity cover, etc.  The add-on benefits include waiver of premium, critical illness rider, accidental death, etc.

Wrapping Up

Although many debate between term insurance vs health insurance, the prudent thing is to not only invest in a suitable health insurance policy but also consider buying a term plan as it secures different scenarios.

You can buy health insurance online, as it can help you compare health insurance plans to find the most suitable healthcare coverage. With a medical insurance plan, you need not worry about the soaring cost of medical expenses.

Contrarily, with term insurance, the family of the policyholder is secured financially in the event of the untimely passing of the latter.

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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