Health Insurance vs Term Insurance

Term Insurance vs. Health Insurance

There are different types of insurance plans in India that serve different purposes. Health insurance and term insurance plans are among them. The major difference between term insurance and health insurance is that term insurance provides a sum assured, an amount paid to the nominee chosen by the policyholder upon the policyholder's death. It is an assured amount that the insurance company promises to pay at the commencement of the policy. Health insurance, on the other hand, works differently. The insurer provides a sum insured on a yearly basis, and your medical bills exhaust this sum insured as they arise when you fall sick or get hospitalized. Let’s dive a little deeper to understand the difference between health insurance and term insurance.

Difference Between Term Insurance and Health Insurance Plans at a Glance

What is Health Insurance?

Health Insurance is a contract between the insurance company and the insured person, where the insurance company agrees to cover the cost of the medical expenses of the insured person in exchange for a fixed premium. This policy can be purchased for an individual or a family, and it can be used to get proper medical care in case of an emergency or even a planned medical procedure without any fear of financial consequences.

Need for Health Insurance

The rising cost of healthcare expenditure every year is a matter of worry for everyone. No matter how much you take care of yourself, medical emergencies can strike at any time and put your finances under a lot of stress. In such cases, it is wise to buy a health insurance plan with an adequate sum insured amount. Having health insurance assures you that you will receive much-needed financial assistance in case of a medical emergency. Moreover, a health insurance plan covers not only hospital charges and costs, but also pre- and post-hospitalization expenses.

Types of Health Insurance Plans

Health insurance in India offers various types of policies that cater to different individual requirements:

• Individual Health Insurance: It provides coverage only for the insured person's medical expenses in return for insurance premiums. The individual cannot add anyone else to this policy.
• Family Floater Health Insurance: This covers the entire family under a single policy. The policyholder can add their spouse, children, parents, and sometimes up to 16-20 extended family members, depending on the insurer's options.
• Group Health Insurance: Under group health insurance, an employer or group typically provides health insurance to its employees or members. These policies often come with affordable premiums, usually paid by the employer.
• Senior Citizens Health Insurance: This health insurance is designed for individuals above 65, providing coverage for age-related illnesses. These plans typically have higher premiums compared to other types of health insurance.
• Maternity Health Insurance: This health insurance covers medical expenses related to pregnancy and childbirth. It also covers pre- and postnatal care, including consultations and hospitalization, and sometimes includes newborn coverage.
• Critical Illness Insurance: Provides coverage for life-threatening diseases by paying a lump sum amount upon diagnosis, which can be used for treatment or other financial obligations.
• Top-Up Health Insurance: This acts as a supplement to an existing health insurance plan, providing an extra sum insured when your existing sum insured is exhausted.

What is Term Insurance?

Term Insurance is a type of insurance that provides financial compensation to the nominee of the policyholder in case of the unexpected death of the policyholder. Term insurance covers your family’s financial needs even when you are not around. It is a type of life insurance that provides financial protection to the policyholder's beneficiary or nominee.

Need for Term Insurance

When compared to other insurance plans, term plans generally have the lowest premiums. The benefits of a term insurance policy can be used to pay off any accumulated debts, cover funeral expenses, fund children’s education, and replace the future income your family would require to live comfortably.

Thus, if you purchase term insurance when you are young and healthy, you and your family will be protected from unexpected events. Term insurance is a necessity that should be included in everyone’s insurance portfolio.

Types of Term Insurance Policies

Term insurance comes in the following variants in India:

• Level Term Insurance Plan: In this type of term insurance, the sum assured remains constant throughout the policy term.
• Term Return of Premium Plans (TRoP): TRoPs refund the total premiums paid (after tax deductions) to the policyholder if they outlive the policy term. TRoPs are relatively costly.
• Increasing Term Insurance Plans: In this term insurance plan, the sum assured is dynamic and changes with the insured's financial needs or market inflation.
• Decreasing Term Insurance Plans: This is a term insurance where the sum assured decreases over time, often used to cover loans or mortgages.
• Convertible Term Insurance Plans: This term insurance plan allows the policyholder to convert the term insurance plan into a life insurance plan at a later stage.
• Term Insurance Plans with Riders: These plans come with a choice to opt for additional optional benefits to the base term insurance plan called riders. For example, critical illness rider, accidental death benefit rider, total and permanent disability rider, etc.
• Zero Cost Term Insurance: Zero-cost term insurance offers the option to withdraw the policy before its tenure ends. The insurance company deducts pre-announced taxes and refunds the premiums paid. This policy does not have costly premiums like TRoPs and provides the option to discontinue once the policyholder feels their liabilities are paid and the policy is no longer required.

Benefits of Health Insurance and Term Insurance Plans

Term and Health Insurance are fundamentally different from each other due to their distinct core properties. However, both offer numerous benefits. Let’s look at some benefits of each plan:

Conclusion

Term insurance and health insurance are two of the most important types of insurance plans, and both have their own set of benefits. This is why both term and health insurance should be a part of your financial portfolio. Term insurance provides financial assistance to your designated beneficiaries in case of your death, while health insurance is designed to cover medical expenses incurred as a result of hospitalization and/or serious illnesses. If you carefully read the benefits of both types, you will realize that you should buy both policies at some point in the future. It is better to make the right decision at the appropriate time before it’s too late.