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Know The Difference Between Term Insurance And Health Insurance

Term insurance vs health insurance

Know The Difference Between Term Insurance And Health Insurance


February 16, 2021

By : Bajaj Allianz Life

Many people remain unaware of the various insurance products and their benefits. When it comes to financially securing the future of your family, insurance products are one of the preferred investment cum insurance options available in the market right now. Most individuals have a hard time trying to understand the term insurance vs. health insurance concept. In fact, people may think they are the same. However, they are two distinct insurance products with different benefits and use cases. Here is an in-depth look into these two popular types of insurances.


What is a term insurance plan?


A term insurance plan offers pure protection. It is a life insurance product that provides you with a life cover for a specified period in return for regular and periodic payments known as premiums. In the event of your death during the term of the plan, the life insurance company would provide the nominees or beneficiaries of the policy with a death benefit.

The death benefit is a certain predetermined sum of money that is paid out by the insurer, which the beneficiaries can make use of as they see fit. This way, you can help safeguard your family’s future even when you are no longer alive.

The premium of term insurance plans is almost comparatively lower than other types of life insurance plans. This makes them one of the most cost-effective options for an individual to secure the financial future of their family.


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 –

Term insurance

Health insurance

Term insurance provides your family with financial protection in the event of your death.

Health insurance, on the other hand, protects you and your family from having to bear the medical expenses associated with the treatment of a disease or ailment.

It provides your family with a lump sum death benefit payment upon your demise. 

It reimburses or pays out the costs incurred towards a medical treatment as and when you need it. 

Since there are no maturity benefits associated with a term insurance, the premium that you get to pay is quite low.

The premium that you would have to pay for a health insurance policy tends to be a little higher. 

Term insurance plan does not come with a no-claim bonus benefit.

Health insurance policies may feature a no-claim bonus benefit that allows you to reduce the amount of premium that you pay if you have not filed for any claims in the previous year.


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.


How term insurance with a critical illness rider works


As you have already seen 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.




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

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.