Difference Between Life Insurance & Health Insurance
Today’s uncertain times have taught most of us the significance of insurance. We know life is fragile. Therefore, we must have a financial safety net to help us overcome unexpected events.
However, for starters, it still gets confusing sometimes when it comes to understanding the difference between life insurance and health insurance, and which one should they opt for. Below is a detailed guide that would throw light on the life insurance and health insurance differences and would help you make a decision.
What is life insurance?
Life insurance is a type of insurance that pays a pre-decided amount of money to your family upon your death. This amount is called sum assured. To avail of this benefit, you have to pay a certain amount of premium every year to your insurer till you complete the duration of the policy.
The main purpose of life insurance is to compensate the family for the future income lost due to the death of the policyholder. It helps the family maintain a continuity of its finances even if it has lost its breadwinner.
There are two main types of life insurance policies – term insurance plan and endowment policy.
Term insurance is the most affordable and purest form of life insurance. This type of policy pays only and only if death occurs during the term of the policy, which is usually from 1 to 30 years. It would not offer any maturity benefit in case you survive the policy term.
Endowment policy, on the other hand, can be seen as an investment-cum-insurance product. It comes with extra provisions apart from the death benefit. It pays you a lump sum amount if you survive until the date of maturity. Hence, they are more expensive than term insurance policies.
What is health insurance?
While life insurance provides coverage against the risk of death, health or medical insurance offers coverage against various kinds of healthcare-related expenses (hospitalisation, surgeries, doctor's visits, etc.)
The aim of buying health insurance is to ensure that you and your family can receive quality treatment in times of need without facing any shortage of funds.
All you need to do is pay the insurance premium to the health insurance company at regular intervals of time, mostly every year. In return, the insurer bears the responsibility of paying the medical expenses incurred during the policy period (up to the extent of the sum insured).
There are two different types of health insurance plans in India -- indemnity plans and definite benefit plans.
Indemnity health insurance plans reimburse the hospitalisation-related expenses within the pre-decided sum insured limit. Any additional expense over above the sum insured must be paid by you from your pocket.
Indemnity plans can be either individual plans (where policy benefits extend to just one individual) or family floater plans (where benefits extend to the full family).
Definite benefit health insurance plans, meanwhile, give you a pre-decided lump sum amount as soon as you are diagnosed with an illness covered under the policy. They do not wait for hospitalisation and receipts.
Difference between health and life insurance
Now that you have a basic understanding of the concept, let us take a look at the specific differences between life insurance and medical insurance. Here are some of the key parameters on the basis of which they differ from each other:
Coverage: While a life insurance policy essentially covers the risk of death, a health insurance policy covers expenses incurred on medical treatment and hospitalisation
Beneficiary: The beneficiary of a life insurance policy is not you but your family (or your nominee) as death benefit would be paid to them in case of your unfortunate demise. Meanwhile, in health insurance, you are the primary beneficiary of the reimbursements of your healthcare expenses.
Duration: A life insurance policy is mostly a long-term policy with the tenures usually ranging from 10 to 45 years. On the other hand, health insurance policies can be extremely short-term policies as well with some types of plans having tenures as low as a few months.
Returns: The premium paid for life insurance policy can come back to you at the time of maturity in case you hold an endowment policy. But the premium paid for health insurance once can never come back to you. It can only be recovered as reimbursement for your healthcare expenses.
Cost: Cost is a major point of difference between term insurance and health insurance. Term life insurance is much more affordable and cheaper when compared to other forms of insurance as it pays back only in the event of death during the policy term. Meanwhile, other types of insurance provide you benefits during your lifetime. So, the premium amount is higher.
Tax benefits: For life insurance, Section 80C of the Income Tax Act offers deductions of up to Rs. 1.5 lakh on premiums paid in a particular year. Also, Section 10(10D) offers tax deductions on claims, i.e., death and maturity benefits.
Meanwhile, for health insurance, you can claim an income-tax deduction of Rs. 25,000 under section 80D for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs. 25,000 if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs. 50,000.
While we can continue discussing the difference between life insurance and health insurance, the fact of the matter is that both of them are important. You cannot choose one over the other as both serve different purposes and offer coverage against different types of risks.
But it can be understood that cost plays a role and sometimes getting both health and life cover adequately can be tough. In that case, if you are relatively young and have a family to raise or kids to look after, prefer life insurance as it would secure your family’s future in case of any unfortunate event. But if you are in an age bracket or condition where chances of illnesses are high, prioritise health insurance so that you are able to afford your medical treatment.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.