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Difference between Term Insurance and Health Insurance

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An insurance policy is a protective shield that saves policyholders and their families against financial setbacks during unforeseen circumstances. In case of an accident, medical emergency, natural disaster, or untimely demise of the breadwinner, having the right insurance coverage can keep away monetary worries. The insurance companies in India offer a range of policies to suit customer requirements, with term insurance and health insurance being two major products. Although both policies offer different coverage, they ensure financial protection against the uncertainties of life. Let’s take a look at the difference between term insurance and health insurance, including the pros and cons of both these categories of insurance plans.

What is term insurance?

Term insurance is a life insurance policy that offers financial protection to the policyholder’s family. In case of the untimely demise of the policyholder, the insurer will pay a pre-decided amount to his/her nominee or dependents. Therefore, taking this insurance product can keep you from worrying about your loved ones, especially if you are the sole breadwinner of the family.

Insurance companies in India offer different types of term insurance plans, including Level Term Insurance Plan, Convertible Term Plan, Increasing Plan, Decreasing Plan, Term Insurance with Riders, and Return of Premium Plan. If you opt for the Return of Premium Plan and you survive the policy term, the insurer will pay back the premium amount. However, other term insurance policies may not offer survival benefits to policyholders.

Key features of term insurance

The key features and benefits of a term insurance policy are —

1. Age of entry:

The minimum age of entry for term insurance is 18 years. If you buy this policy early in life, you can get higher coverage at nominal premiums.

2. Affordable policy premiums:

Term insurance is one of the most affordable insurance policies. Even if you opt for a high sum insured, the policy premiums won’t burn a hole in your pocket. For example, if you take a term insurance policy of INR 1 crore, the annual premiums will be around INR 10,000.

3. Policy tenure:

The tenure of a term insurance policy can range from 5 years to 50 years or more, depending on the insurance provider. Therefore, you can check the minimum and maximum tenure offered by different insurance companies and choose one that best matches your requirements.

4. Maturity benefit:

A term insurance policy offers maturity benefits to the family of the insured. Therefore, if you buy this insurance product and you pass away during the policy’s term, the insurer will give the maturity amount to your family or dependents to help them meet their financial needs.

On the other hand, if you survive the policy term, you will not get any payout from the insurance company. However, if you opt for the Return of Premium term insurance policy, you can claim maturity benefits when the policy matures. In this case, the insurer will return the premiums that you paid toward your term insurance plan.

5. Easy premium payment:

Most insurance companies allow flexible premium payment options to policyholders. You can choose to pay policy premiums annually, semi-annually, quarterly, or monthly.

6. Add-ons:

You can also enhance the scope of coverage of your term insurance policy with the available riders, such as critical illness riders and accidental disability riders.

7. Tax benefits:

Under Section 80C of the Income Tax Act (1961), you can claim tax deductions of up to INR 1.5 lakh every year for the premium paid towards your term insurance policy. Policyholders and their families can also claim tax rebates on the payout or maturity amount under Section 10(10D) of the Income Tax Act, provided the total premium is not more than 10% of the sum assured amount.

What is health insurance?

Health insurance is an insurance product that covers the healthcare expenses of the policyholder. From hospital bills and pre- and post-hospitalisation expenses to daycare treatments and home healthcare, a health insurance policy covers them all. When you have this insurance product handy, you can opt for timely treatment at a reputed hospital without worrying about paying the bills from your pocket.

Key features of health insurance

The following are the key features and benefits of a health insurance policy —

1. Policy coverage:

A comprehensive health insurance policy offers wide coverage to policyholders. It can cover your hospital bills, pre- and post-hospitalisation expenses, home healthcare, daycare procedures, AYUSH treatments, organ donor expenses, and more.

2. Policy premiums:

The premiums depend on the sum insured of your health plan. The higher the sum insured, the higher will be the premium amount. Health insurance premiums also increase with age.

3. Waiting period:

All healthcare policies have an initial waiting period of up to 30 days. However, pre-existing conditions and specified diseases can have a waiting period of up to 3 years.

4. Sub-limits:

Some health insurance policies may come with sub-limits or caps on certain expenses, such as hospital room rent, ambulance charges, and surgery and medicine bills. These caps help distribute the risk and prevent policyholders from misusing certain benefits. For example, the room rent cap prevents policyholders from choosing excessively expensive rooms.

5. Co-payment:

Under the co-pay or co-payment clause, policyholders must pay a pre-decided percentage of their medical expenses. The co-pay percentage usually varies between 10% and 30%. The higher the co-pay of your health plan, the lower will be the premium of your health plan.

6. Cashless treatment:

You can opt for cashless treatment at any network hospital of your insurance provider. Therefore, it is important to choose an insurance provider with a wide network of hospitals throughout the country.

7. No-claim bonus:

If you don’t make claims on your health plan for the entire policy year, you may earn a no-claim bonus in the form of an increased sum insured or lower policy premiums. This benefit is cumulative, and it increases for every consecutive claim-free year. Most insurance providers offer a maximum no-claim bonus of 50% if the policyholder does not make any claims for 5 consecutive years.

8. Tax benefits:

Under Section 80D of the Income Tax Act 1961, you can earn annual tax deductions of up to INR 25,000 on the premiums paid towards your health plan. Senior citizens can earn a deduction of up to INR 50,000 every financial year.

Types of health insurance plans

1. Individual Health Insurance:

As the name suggests, Individual health insurance plans are made for individual policyholders. The premiums are usually low under such plans, but there are various factors that determine the premium of a policy. Factors such as medical conditions, age, location, etc. influence the premium.

2. Family Floater Health Insurance:

Instead of buying separate policies for every family member, a family floater plan covers the entire family under one policy. Usually, parents and children (up to 2 children) are covered under this medical plan. Even though family floater plans have a higher premium than individual plans, the price is still cheaper when compared to the expenses involved in buying a different health insurance policy for each member.

3. Senior Citizen Health Insurance:

Medical insurance plans are specifically designed to cater to senior citizens who are 60 years and above. Senior citizen plans usually come with discounts and tax benefits. Though only a few insurers provide such policies, they are very useful. Also, these Senior Citizen Health Insurance policies may cost a lot higher than the health covers for younger consumers as senior citizens are more prone to diseases and illnesses.

4. Group/Employee Health Insurance:

Such plans are usually offered by employers and are designed to include and exclude members as they join and leave the company. Group health policies are generally low in premiums due to the reduced risks involved. Such plans also allow leniency in terms of covering pre-existing illnesses, among other things.

5. Critical illness insurance policy:

This insurance policy covers policyholders against critical illnesses or life-threatening conditions, such as heart disease, cancer, and kidney failure. If the policyholder gets diagnosed with a critical illness covered under the policy, the insurer offers a lump sum payment to him/her and the cover lapses. The policyholder can use this amount to pay his/her medical bills and meet other day-to-day expenses.

Health insurance vs term insurance – Differences

The following are the main differences between term insurance and health insurance:

Pros and cons of term insurance

The pros of a term insurance policy are:

1. The premiums of a term insurance policy are quite affordable, especially if you take this insurance product early in life.

2. The policy ensures financial security for your loved ones in the event of your unfortunate death.

3. You can claim tax benefits on the premiums you pay every year.

4. If you opt for Return of Premium term insurance and you survive the policy period, you can claim survival benefit at the end of the policy term.

5. You can enhance the coverage of your term insurance policy with the right add-ons.

The following are the cons or disadvantages of a term insurance policy:

1. A basic term insurance policy will not offer any return on investment during your lifetime.

2. If you choose a basic term insurance policy and you survive the policy period, the insurer is not liable to pay anything to you or your loved ones.

3. Term insurance does not help you create wealth. It will only provide financial security to your family in case of your unfortunate death during the policy term.

Pros and cons of health insurance

The pros or advantages of a health insurance policy are:

1. A health insurance policy offers financial security against increasing medical costs.

2. A comprehensive health plan ensures wide coverage to policyholders.

3. Health insurance allows you to file cashless or reimbursement claims. If you choose a network hospital for your medical procedure, you can opt for cashless treatment without worrying about settling the bills from your pocket.

4. A health plan covers pre-existing conditions as well and eases your worries during expensive and long-term medical treatments.

5. You can enhance the coverage of your health plan with the right add-on covers, such as critical illness cover or maternity cover.

6. Some insurance providers offer complimentary preventive health check-ups to policyholders. This benefit helps in the early diagnosis of a condition and its timely treatment.

7. You can enjoy annual tax benefits of up to INR 25,000 on the premiums you have paid toward your health plan. Senior citizens can enjoy a maximum tax rebate of INR 50,000 annually.

The cons of a health plan are:

1. Health insurance policies cover pre-existing conditions and specific diseases after a maximum waiting period of 3 years.

2. The premiums of a health insurance policy increase with age.

3. Health insurance may have some exclusions, and it may not cover all medical procedures. Therefore, you will have to pay bills for the excluded medical treatments from your pocket.

Which one should you choose?

Both term insurance and health insurance are important insurance products serving specific purposes. While term insurance ensures financial protection for the loved ones of the insured, health insurance covers the medical expenses of the policyholders. Therefore, if you are the only breadwinner of your family, you can secure your family’s financial future with term insurance. On the other hand, keeping medical inflation in mind, it is wise to buy health insurance as well to secure your health and finances. You can either buy individual health insurance or cover yourself and your immediate family members under a family floater.

FAQs

1. What is the minimum and maximum age for buying term insurance?

You must be at least 18 years old before you can buy term insurance. The maximum age limit for buying this insurance product is 65 years.

2. If I survive the policy term of my term insurance policy, will I receive a payout?

Insurance companies do not offer survival benefits for basic term insurance policies. This benefit is available only on the Return of Premium insurance coverage. If you invest in this product, the insurer will reimburse the total premium paid during the policy term.

3. Can we buy riders or add-on covers with term insurance?

Yes, you can buy riders to enhance the coverage and benefits of your term insurance policy. However, you must pay an additional premium for each rider you buy.

4. How do I avail of cashless treatment?

You can avail yourself of cashless treatment in any network hospital of your insurance provider. Make a list of nearby network hospitals and keep it handy for medical emergencies. If you choose cashless treatment, the insurer will settle the medical bills on your behalf. This will save you from the hassles of filing a reimbursement claim later.

5. Can I buy a senior citizens’ health insurance policy after the age of 65?

IRDAI has removed the ceiling of 65 years for buying health insurance. Therefore, you can buy health insurance at any age and secure your health and finances.

Conclusion

We hope you have understood the difference between term insurance and health insurance. While term insurance ensures financial security for your loved ones in case of your unfortunate demise during the policy term, health insurance covers your hospital bills during medical emergencies. The insurance companies in India offer different types of term insurance and medical insurance plans, so you can check the options and make an informed purchase decision.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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