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Difference between Life Insurance and Health Insurance

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Difference between Life Insurance and Health Insurance
April 10, 2024

Table of Content

 

There are various types of insurance so it is easy to confuse one for the other. There is life insurance and non-life insurance and each category has its variants like term and endowment in the former and health insurance, among others, in the latter.

Life Insurance vs Health Insurance

Here is a table that shows difference between life insurance vs health insurance:

Life Insurance

Health Insurance

When the policyholder passes away, the beneficiary receives a payout from this comprehensive life insurance.

They provide medical coverage, covering exclusively health-related expenses, and do not cover any other expenses.

It is possible to select either fixed or flexible premiums, depending on the policy you select. In addition, investment plans are available..

The plan only offers a fixed premium with no investment component. This plan focuses primarily on medical and health coverage. This plan also offers no-claim bonuses.

This is a long-term plan.

This is a short-term plan.

Typically, life insurance contracts have a set duration and are terminated at the end of their term.

Unlike other insurance types, this one does not have a predetermined duration. Under normal circumstances, the insured renews the policy annually in order to maintain its ongoing protection coverage.

The policy expires at the end of its predetermined duration..

Health coverage is typically renewed annually by the policyholder, ensuring continuous benefits.

A life insurance policy provides financial coverage for a policyholder's family and dependents upon death.

Both you and your family are covered, covering all your medical expenses throughout your life.

At the end of the insurance term, both survival and death benefits are paid.

You won't receive death or survival benefits, but this plan will pay for your medical needs and hospitalisation costs.

What is Life Insurance?

An insurance company's contract with a policyholder includes a provision to make payments upon the death of the policyholder to the beneficiary's family. Beneficiaries receive tax-free compensation, ensuring the whole amount reaches the family without deductions. All family members benefit from life insurance by safeguarding their financial needs as well as their future plans and investments.

What is the purpose of life insurance?

Providing life cover to the policyholder is the main objective behind opting for life insurance. The policyholder wants to be sure that his family / dependents can maintain their lifestyle in his absence. In an eventuality, proceeds from the life insurance policy will replace his income allowing his family members to lead a near-normal life as far as the household finances go.

Types of Life Insurance Plans

Type 1:

In Whole Life Insurance, premiums are fixed, and the sum assured to the beneficiary is usually tax-free. Considering its low-risk approach, this insurance option is more affordable than Universal Life Insurance. In addition, policyholders can borrow against their policies.

Type 2:

A death benefit is provided by universal life insurance, which is often referred to as an investment policy. In addition to flexible premium payouts, some portions are reinvested to enhance the cash value of the sum assured. Due to higher returns and associated risks, ULI is more expensive than Whole Life Insurance. As a result, it offers flexible premiums and death benefits.

What is Health Insurance?

Having health insurance becomes necessary when you experience health issues, need medical treatment, or are hospitalised. A predetermined premium is paid by the policyholder for their health coverage. The insurance company either reimburses your medical expenses after you pay them or directly handles the expenses with the hospital or facility. Depending on the health insurance plan you have chosen, there may be specifics.

What is the purpose of health insurance?

Health insurance  aims at covering the actual cost towards treating illnesses/medical conditions subject to the sum assured. There is no life cover, meaning there is no payout on death.

Types of Health Insurance Plans

Type 1:

Personal Health Insurance covers the medical expenses a single individual may incur during his or her lifetime. Personal Health Insurance covers illnesses, accidents, hospitalisations, and medical emergencies. Furthermore, it offers benefits such as maternity coverage, outpatient department (OPD) expenses, and critical illness coverage.

Type 2:

Family Floater Health Insurance - This plan covers all members of a household under one premium. Family members' medical expenses may be covered against illnesses, accidents, hospitalisations, and other incidents that may arise during their lives.

Type 3:

The Senior Citizens Health Insurance program is tailored to meet the physical and psychological needs of individuals over 60 years of age. In addition to coverage for critical illnesses and home healthcare, it also covers organ donation expenses.

Benefits of Life Insurance

Each plan offers its own unique benefits, offering numerous advantages.

1. Protection and financial security are two of the most important benefits of life insurance.

2. Life insurance payouts are typically tax-free.

3. Guaranteed death benefits.

4. When considering term policies, it's important to prioritise protection over tax savings.

Benefits of Health Insurance

1. People who are concerned about their future, family, and well-being purchase health insurance.

2. Health insurance provides comprehensive coverage for medical expenses.

3. In order to protect yourself and your family from life's uncertainties, it is imperative to purchase both health insurance and life insurance in advance.

4. Health and life insurance play distinct roles in providing protection and peace of mind, according to personal preferences.

Need for both in an individual’s portfolio

Clearly, given the distinct benefits of the two forms of insurance, individuals must aim at including both in their portfolios. A life cover is a must for any individual with financial responsibilities towards his family. He must opt for a cover that adequately covers his liabilities and provides for household expenses –an amount that is effectively his ‘human life value’.

Health insurance is a no-brainer really, given that medical contingencies can strike any time and can put your finances under considerable stress.

Individuals must consult their financial planners to understand the various the insurance options and the extent of the cover under each option.

How to Choose right Life Insurance Policy?

To ensure that your life insurance policy aligns with your financial goals and needs, you must carefully consider a variety of factors. To help you choose the right life insurance policy, follow these steps:

1. Assess your needs:

You should begin by assessing your financial situation, responsibilities, and future goals. Consider factors such as your age, income, debts, and number of dependents. By completing this assessment, you will be able to determine Human Life Value (HLV) or ideal life cover you need.

2. Understand types of policies:

Get familiar with the different types of life insurance policies, such as term life, whole life, universal life, and variable life. There are advantages, disadvantages, and considerations associated with each type. Choose the one that best meets your needs.

3. Determine coverage amount:

Consider your debts, future financial needs of your dependents, education expenses, and any other financial obligations when calculating your coverage amount. You ensure the financial security of your family in the event of your death.

4. Evaluate Policy Duration:

Your financial objectives will determine the duration or term of the policy. Term life insurance provides coverage for a specified period, while permanent life insurance provides coverage for the rest of one's life. Ensure that the term you choose aligns with your financial goals.

5. Compare premiums:

Compare the premiums offered by different insurance providers. While affordability is important, also consider the long-term costs and benefits. If a policy seems to be significantly cheaper, it may not have the coverage you require.

6. Check policy features:

Take a look at the features of the policy, such as riders and add-ons. A rider can enhance the coverage by adding critical illness benefits, accidental death benefits, or disability benefits. Ensure that the policy meets your specific needs.

7. Research the insurance company:

Ensure the insurance company has a good reputation and is financially stable. Take a look at customer reviews, company ratings, and the claim settlement history of the company. Make sure your insurer has a strong track record and is reliable.

8. Review Policy Exclusions:

Make sure you understand the policy's exclusions and limitations. There may be specific conditions or situations that are not covered by some policies. To avoid surprises later on, make sure you understand these exclusions.

9. Seek professional advice:

Consult a financial advisor or insurance agent. A financial advisor can help you understand the intricacies of different policies and make an informed decision based on your particular circumstances.

10. Regularly review and update:

Over time, circumstances in life change. Review your life insurance needs periodically and make adjustments as necessary. If your family, income, or financial goals have changed, you should update your policy.

Following these steps and carefully assessing your needs, you can choose a life insurance policy that provides you and your family with optimal coverage and financial security.

Why do You Need Life Insurance After You Retire?

There is no universal answer to this question. If you are financially stable after retirement and your children are financially independent, the need for insurance may not be necessary. However, if you still owe significant debts, such as a mortgage, or have dependents like children or a spouse, you may want to consider life insurance. Additionally, if a person has substantial assets that might trigger estate taxes, using life insurance within an irrevocable trust could be a viable strategy to reduce those taxes.

Why do Young People Need Heallth Insurance?

Yes, even for young and generally healthy individuals, it is advisable to obtain health insurance, primarily for significant and unforeseen events. Accidents or serious illnesses can happen to anyone, and even a short trip to the emergency room or outpatient surgery can incur substantial costs. Individuals would have to bear the entire burden of these expenses if they didn't have health insurance. Healthcare providers and emergency rooms may refuse to assist those without insurance, although it is less common.

Summary on Life Insurance Vs Health Insurance

The purpose of health insurance is to cover your medical expenses during your lifetime, while life insurance provides financial support to your family in the event of your untimely death. Life insurance and health insurance policies differ fundamentally in the following ways:

Feature

Life insurance

Health insurance

Why should you invest in this?

If you suddenly pass away, your family is financially secure.

There is no need to dig deep into your pocket for any medical emergencies when you have a health cover.

Core benefit

Upon demising, the promised amount is paid to the beneficiary.

You are covered for all treatment expenses up to the maximum amount allowed by your insurance policy.

Additional Benefits

The cover policy can be enhanced with a number of benefits. As an example, maturities, surrenders, loyalty additions, etc.

There are some policies that offer free health checks. Some policies allow you to add a no-claim bonus.

Types of covers

1. Individual Cover

2. Group Cover

1. Individual

2. Family

3. Group coverage

Types of Plans

Term plans, Savings, Retirement, child-related (wealth creation), etc.

Health insurance plans with comprehensive coverage, critical illness insurance, etc.

Tax Benefits

A deduction is available under Section 80C of the Income Tax Act and Section 10(10D) of that act*.

In accordance with Income Tax Act Section 80D*

Life Insurance and Health Insurance represent unique components of your financial portfolio. A well-informed decision based on your specific needs will enable you to understand their individual capabilities. A clear distinction between life insurance and health insurance is the focus of this article.

FAQ's on Difference between Life and Health Insurance

Q.Out of a Life insurance plan and a Health Insurance Plan, which one is better?

The difference between life and health insurance is that the Term insurance provides a fixed payout only in the event of the insured's death during the policy term, while life insurance offers payouts in both the event of death and at maturity. The death benefit in life insurance is higher than the maturity proceeds. Opting for term insurance is recommended for those who want larger coverage at a lower premium, while life insurance is suitable for those who can afford a slightly higher premium and want to receive some amount on maturity.

Q.Should I get both life and health insurance?

Yes, Having both life and health insurance is recommended, as they serve different purposes - life insurance protects your family in the event of your death, while health insurance covers your medical expenses throughout your lifetime.

Q.Is health insurance life or non-life insurance?

A health insurance policy is a type of non-life insurance.

Q.What is the top difference between a Term Insurance Policy and a Health Insurance Policy?

While a term insurance plan provides a sum assured to the policyholder's nominated family members in the event of their death, a Health Insurance Policy covers hospitalisation expenses in exchange for a premium.

Q.What kind of deaths are not included in the life insurance plan?

The cause of death is crucial in determining the coverage of term insurance. Deaths resulting from terrorist attacks or natural calamities, such as earthquakes or floods, are generally not covered. Accidental death, however, can be included through a rider in the term plan. Additionally, undisclosed pre-existing illnesses and certain types of terminal illnesses are also excluded from coverage.

Q.Is it possible to cancel a life insurance policy at any time?

Yes, you have the option to cancel your life insurance policy at any time, typically with a 30-day notice. Simply inform your insurer and follow their guidelines to discontinue your coverage.

Related Articles:

ARN -  ED/03/24/9876

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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* Tax benefits are subject to conditions under Sections 80C, & Section 10(10D) and other provisions of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.

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