Difference between Life Insurance and Health Insurance
Life and health insurance are distinct types of insurance products. They come with unique features offering different kinds of protection and serve different purposes in your life.
Understanding the difference between life insurance and health insurance can help you decide how to use both products effectively for your needs.
What is life insurance?
Life insurance offers financial protection (sum assured) to your family members in case of an unfortunate event to you. It provides life coverage for a chosen period or even a lifetime, depending on the plan.
The main objective of life insurance is to provide financial support to the policyholder's dependents in the event of their absence.
What are the different types of life insurance plans?
Although financial protection is the foundation of life insurance, there are various life insurance plans tailored to different financial needs and goals. Here are some of the most common types:
Term life insurance
Term life insurance is a pure protection plan that offers financial coverage for a specific period. The nominee will receive sum assured in case of an unfortunate demise of the policyholder. However, if the policyholder outlives the term, there is no maturity benefit.
Whole life insurance plan
Whole life insurance offers lifetime coverage. It functions similarly to term insurance but continues until the policyholder's demise. The sum assured is to the nominee is guaranteed as the plan covers the whole life.
Unit Linked Insurance Plan (ULIP)
A ULIP is a combination of insurance and investment bundled into a single product. In addition to life cover`, these plans allow you to invest in equity, debt or hybrid funds based on your goals and risk appetite. If the policy matures, you receive the market-linked returns accumulated during the term. In case of the policyholder's demise during the term, the nominee will receive the maximum of sum assured or fund value.
Endowment policy
Endowment policies offer life coverage along with a savings component. These plans are relatively low-risk and provide a guaranteed> payout either on maturity or in the event of the policyholder's demise.
Retirement plan
Retirement plans are designed to support post individual’s retirement. They offer a steady income and help you manage your daily expenses during retirement.
What are the benefits of life insurance?
Life insurance goes beyond just offering death benefits. It provides several other financial advantages:
Family security
Life insurance provides peace of mind and ensures that your family is financially secure after you. It lowers your financial stress, knowing that your dependents will be taken care of in your absence.
Loan repayment
A life insurance payout can help your family pay off your outstanding loans or liabilities. It reduces the financial burden on your loved ones after your demise.
Income cover
Life insurance can replace the policyholder's income and help support the surviving family's daily needs. It can also help them cover their long-term financial goals.
Tax* benefits
Life insurance premiums are eligible for deduction under The Income Tax Act, 1961. The tax savings can be invested back or utilised for other purposes.
What is health insurance?
Health insurance provides financial coverage against medical expenses, including hospitalisation, treatment of critical illnesses, medications, surgeries, health check-ups and more. With healthcare costs rapidly rising, health insurance plays a vital role in protecting your financial well-being during medical emergencies.
What are the types of health insurance plans?
Health insurance plans vary based on the policyholder's age, health and financial requirements. Here are some common types in India:
Individual health insurance plan
Individual health insurance plans provide medical coverage for a single individual. These plans cover expenses like hospitalisation, surgeries, preventive check-ups and related healthcare costs of the policyholder.
Critical illness coverage
Critical illness coverage covers treatment costs for life-threatening illnesses such as cancer, heart attack, kidney or liver failure and more. It provides a lump sum payout upon diagnosis to help manage the costs of treatment as well as recovery.
Health insurance for senior citizens
As the name suggests, these insurance plans are specifically designed for older adults. They provide coverage for age-related medical expenses, including hospitalisation, lifestyle-related illnesses, pre- and post-hospitalisation costs and more.
What are the benefits of health insurance?
Health insurance can offer many advantages, including the following:
Cost protection
Health insurance ensures that you do not have to spend out of your own pocket during an illness, accident or surgery. It reduces out-of-pocket expenses and lowers financial stress during difficult times.
Better healthcare access
Health insurance allows you to avail of cashless treatment at network hospitals. This can be helpful during emergencies. Not only does it save time, but it also eliminates the need for immediate upfront payments.
Wide coverage
Health insurance plans cover a wide broad of healthcare costs. These include hospitalisation, pre- and post-hospitalisation care, ambulance charges, room rent, daycare procedures and even preventive health check-ups.
Understanding the difference between life insurance and health insurance
Let's find out some basic difference between life and health insurance using the following table:
| Points of difference | Life insurance | Health insurance |
|---|---|---|
| Policy tenure | Life insurance plans can offer both short- and long-term coverage. Tenures may range from as little as five years to coverage that lasts a lifetime | Health insurance typically offers shorter tenures, usually ranging from one to three years, which can be renewed periodically |
| No claim bonus | Most life insurance plans do not offer a no claim bonus. The premiums for the entire policy term are fixed at the time of policy purchase | Health insurance policies generally offer a no claim bonus. If no claims are made in a policy year, the insured may get a discount or benefit upon renewing the plan |
| Investment returns | Life insurance plans like ULIPs allow you to invest in market-linked investment funds. The returns from such plans can depend on fund performance, market conditions and duration of investment | Health insurance primarily offers financial protection against medical costs with no returns |
| Maturity benefits | Certain life insurance plans, such as ULIPs and endowment policies provide maturity benefits if the policyholder survives the term | Health insurance usually does not offer maturity benefits |
| Rider options | Life insurance offers add-ons called as riders to enhance the overall coverage. Accidental death, permanent disability and terminal illness are some of the common life insurance riders | Health insurance offers riders like maternity coverage, critical illness, room rent waiver, global cover and more |
| Tax benefits | Life insurance premiums qualify for deduction of up to ₹ 1.5 lakh under Section 80C*. Death benefits are also tax-free under Section 10(10D) of The Income Tax Act, 1961 | Health insurance premiums qualify for a deduction of up to ₹ 1 lakh under Section 80D* of The Income Tax Act, 1961 |
While these are general distinctions between life insurance and health insurance, it is advisable to read the policy documents carefully for a more detailed understanding of both types of insurance.
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