Term Insurance Plan Vs Health Insurance Plan

What is health insurance?

A health insurance plan is a dedicated insurance policy that is designed to help you meet the expenses associated with healthcare and medical procedures.

When you opt for a health insurance policy with an insurer, you will be required to pay premiums regularly and periodically for a particular period. Moreover, in exchange for doing so, the insurer is obligated to offer you a cover for the medical and healthcare costs that you incur for the treatment of diseases and ailments.

With a health insurance policy, you can also provide your family members with the same coverage that you get to enjoy by adding them onto your plan.

Here is something that you should note. Not all health insurance policies cover all of the diseases and ailments known to man. Therefore, it is essential to read the terms and conditions contained in the policy document to ensure that you get coverage for as many ailments, diseases and costs as possible.

Let us quickly look at an example to better understand the concept of health insurance.

Assume that you opt for a health insurance plan with a coverage of up to Rs. 10 lakhs for a tenure of 5 years. You are required to make monthly premium payments to the tune of Rs. 5,000. Now, suppose that you get afflicted with a disease a couple of years later. The medical procedure, medication, and other costs for treating this disease come up to around Rs. 5 lakhs. Since you own a health insurance plan, your insurer is obligated to cover the cost of Rs. 5 lakhs.

Difference between term insurance and health insurance

Now that you know what these two insurance products are. Let us look at the various differences between term insurance vs health insurance –

Benefits of term insurance

Now that you are aware of the differences between term insurance vs health insurance, here is a quick look at some of the term insurance benefits that you get to enjoy –

1. They are cost-effective

   
   

   The premium that you are required to pay for a good term insurance plan is far lower when compared to other insurance products. For instance, you can even get a term insurance plan for a premium that is as low as Rs. 500 per month subject to policy terms & conditions.

   
   

2. They are very flexible

   
   

   Depending on the plan you opt for, you can choose to receive the benefits of a term insurance policy either as a lump sum or on a monthly basis. If you choose to receive the benefits on a monthly basis, you may further have the option to choose to receive a fixed-sum each month or a monthly pay-out increasing yearly.

   
   

3. They come with the ability to add-on riders

   
   

   You can enhance the benefits offered by a term insurance policy by opting to add on certain riders at a nominal extra cost. For instance, the critical illness rider provides you with an additional lump sum benefit if you are diagnosed with any one of the diseases mentioned in the rider document. This benefit is paid over and above the base policy’s sum assured amount.

   
   

4. They come with several tax benefits

   
   

   One of the most important term insurance benefits is that it comes with several tax breaks. According to section 80C of the Income Tax Act, 1961 (the Act), the premiums that you pay towards a term insurance plan are eligible to be deducted from your total income to the tune of Rs. 1.5 lakh each financial year. That is not all, the death benefit that your nominees or your beneficiaries receive is also completely exempt from taxation under section 10(10D) of the Act. The above deductions and exemptions are subject to the provisions contained in the Act.

   
   

Benefits of Health Insurance

Both term insurance and health insurance have different benefits. Let’s look at the value each of them brings to you and your family.

Benefits of Health Insurance Plans

Health insurance protects your savings. It helps you pay hospital bills when you fall sick or have an accident. Below are some key benefits:

• Covers Hospital Expenses: Pays for treatment, medicines, doctor’s fees, and surgeries.
• Covers Pre and Post Hospitalization: Pays for tests and medicines before and after your hospital stay.
• Cashless Treatment: You can get treated without paying upfront at partner hospitals, subject to policy terms and conditions.
• Tax Benefit: The premium paid is eligible for deduction under Section 80D of the Income Tax Act, if opted for the old tax regime.

Types of Policies

Understanding the types of insurance policies can help you choose the right ones for your needs.

Types of Health Insurance Policies

Health insurance is not one-size-fits-all. There are different types of health insurance to suit different needs:

Individual Health Insurance

This policy covers just one person. It is a good choice if you are single or want to take care of your own medical needs. The coverage and premium depend on factors like your age , health etc.

Family Health Insurance

This policy covers your entire family under one plan. It typically includes you, your spouse, and your children. It can also include your parents.

Unit Linked Health Plan

This plan gives you health insurance and a chance to grow your money. Part of your premium goes towards medical coverage; the rest is invested in market-linked funds.

Senior Citizen Health Insurance

This is for people who are above 60 years old. As they may require additional medical assistance, this plan covers their hospital expenses. Some plans may require medical tests before issuing the policy.

Types of Term Insurance Policies

Term insurance is a type of life insurance plan that gives a sum assured to your family in case of your untimely demise. There are different types of term insurance plans to match your needs.

Standard Term Insurance Plan

In this plan, the premium stays the same throughout. If the life assured passes away during the policy period, the nominee gets the sum assured.

Return of Premium of Term Insurance

If the life assured survives the term, all the premiums paid are returned. If they pass away during the term, the sum assured is paid to the nominee.

Increasing Term Insurance

An increasing term insurance policy gradually raises the sum assured each year, helping your coverage keep pace with your increasing financial needs. The premium may also increase a little every year.

Decreasing Term Insurance

In this plan, the sum assured is reduced every year. It is suitable if your financial needs go down over time.

Convertible Term Insurance Plan

You start with a simple term plan, but you can later change it to another type, such as an endowment plan or whole life insurance.

How term insurance with a critical illness rider work

As you have already read above, the critical illness benefit rider is an add-on rider that you can opt to include over and above your base term insurance policy at a nominal extra cost.

This rider can enhance the coverage of your term insurance policy by providing you with an additional sum assured amount in the event where you get diagnosed with any one of the critical illnesses or diseases specified in the rider document. The additional rider sum assured amount that you receive could be used to cover your treatment costs for the disease.

For instance, let us assume that you opt for a term insurance plan with a death benefit of Rs. 50 lakhs for a period of 20 years. The premium that you are required to pay is around Rs. 3,000 per year.

Now, at the time of purchasing the policy, let’s assume that you also opt for the critical illness rider for the same tenure of 20 years. The rider premium is set at Rs. 1,000 per year. The rider sum assured that you would receive upon diagnosis of any one of the diseases mentioned in the rider document is set at Rs. 15 lakhs.

In the event where you first are diagnosed with a disease mentioned in the policy document, the insurer would be obligated to pay your Rs. 15 lakhs as a lump sum amount. You can then use this amount towards your hospitalization and treatment expenses. In the event where you face an untimely demise due to this disease, the insurer would pay the death benefit of Rs. 50 lakhs as per the base policy to your nominees or beneficiaries.

Conclusion

Both term insurance and health insurance are two very essential insurance products that you, as an individual, should consider buying. . This way, you can get coverage and financial protection from the situations that life throws your way.

FAQs

1. What is better, health insurance or term insurance?

   
   

   Both are important and serve different purposes. Health insurance pays for your hospital bills when you are sick or injured. Whereas a term insurance policy helps your family financially in case of your death during the policy term.

   
   

2. What is a term insurance plan and how does it work?

   
   

   Term insurance plans are life insurance plans which offer financial support to your nominees in case of your untimely death during the policy term Some term insurance plans may have riders which are add on benefits to enhance the coverage of the policy and are available at an additional nominal premium, like critical illness benefit rider which provides a payout incase the life assured is diagnosed with a critical illness as mentioned in the rider and subject to rider terms and conditions.

   
   

3. What happens to term insurance after maturity?

   
   

   If the term insurance policy reaches the end of its term and you are alive, the policy ends. You don’t get any sum assured unless it is a return-of-premium plan. In regular plans, there is no maturity benefit . This is why term insurance is affordable. It offers pure protection.

   
   

4. Which term insurance is best?

   
   

   The best term insurance policy is the one that fits your needs. Look for plans that offer enough coverage, affordable premiums, and options like riders for extra protection. A good term insurance policy should also come from an insurer with a high claim settlement ratio.

   
   

5. Does health insurance pay for death?

   
   

   No, health insurance does not pay for death. It only pays for hospital bills, surgery, medical treatment etc. If the person dies, the policy stops, and no money is given to the family. Health insurance is only for covering medical costs while the person is alive.