Life insurance as well as health insurance provides financial cover for specific events in life and both these plans serve two very different purposes. Insurance companies offer various types of life insurance as well as health insurance plans and the applicability, terms, features, conditions, and cost depends on the choice of the product.
Therefore, it is important to understand the difference between the two products so that they can be utilised to provide maximum financial benefits.
Keep on reading to understand what life insurance and health insurance policies mean and what the major differences between the two are.
What is Life Insurance?
A life insurance policy is a contract between an insurance company and a policyholder, where the insurer promises to pay designated beneficiaries or nominees a predefined lump sum after the untimely demise of the policyholder. Life insurance is available in different types and the major ones are given below.
What is Health Insurance?
Health insurance is a financial agreement between a health insurance provider and a policyholder, wherein the insurance company provides financial coverage for medical and surgical expenses in case of any health-related issues.
Certain health insurance policies can also cover the costs of prescription drugs, preventive care, and sometimes dental and vision care.
Life Insurance Vs Health Insurance – Key Differences
Below are the key differences between life insurance and health insurance policies:
| Key Attributes | Life Insurance | Health Insurance |
| Why Invest in This? | Provides financial security in case of your untimely death, helping them maintain their lifestyle and achieve their goals even when you are not around. | Provides financial security by covering costs of hospitalization and related treatment. |
| Core Benefit | A sum assured or sum promised (death benefit) is paid to the nominee/beneficiary of the policyholder. | Provides coverage for health-related treatment and hospitalisation, subject to maximum coverage amount and other conditions. |
| Other Advantages | On top of the base cover, the policyholder can also add surrender benefits, maturity benefits, loyalty additions, etc. to the insurance policy. | No claim bonus can be added to certain policy types. Moreover, many policies also offer free health checkups. |
| Types of Plans | Term Insurance, ULIP, Retirement Plan, etc. | Critical Illness Cover, Senior Citizen Plan, Comprehensive Health Insurance |
| Types of Covers | Individual, Group Coverage | Individual, Family Floater, or group coverage |
| Tax Benefits | Under Section 80C, Section 10 (10D) of the Income Tax Act | Under Section 80D of the Income Tax Act |
Types of Life Insurance
1. Term Life Insurance Plan
One of the most popular types of life insurance, a term insurance policy provides a death benefit to beneficiaries if the policyholder passes away during the policy term. Term insurance usually offers high coverage amounts at very low premium rates which makes it an affordable option.
2. Whole Life Insurance Plan
This type of life insurance policy provides lifetime coverage. Whole life insurance coverages come with a fixed premium amount and offer a tax-free sum to nominees upon maturity or death of the policyholder.
3. Unit Linked Insurance Plan (ULIP)
This plan offers investment as well as life insurance benefits combined. ULIP is a versatile insurance plan that allocates a portion of premiums to insurance coverage while investing the remainder in various instruments such as debt funds, equity funds, and other securities.
4. Endowment Policy
An Endowment Policy is a popular type of Life Insurance Cover. It results in a pay-out in case the policyholder dies during the policy period and even if the person is alive on the policy’s maturity date. This plan offers a dual combination of financial security and savings.
5. Retirement Plan
As the name suggests this policy focuses on providing financial stability and security to policyholders after retirement. A retirement policy requires regular investments during the insured person’s working years which creates a stable income stream post-retirement. These plans also include death benefits in the form of an assured sum to beneficiaries if the policyholder passes away during the policy term.
Types of Health Insurance Plans
1. Individual Health Insurance
Designed to cover one person, an individual health insurance plan reimburses for medical and illness-related costs for the single covered person.
2. Group/Employee Health Insurance Plan
Usually, employers purchase this type of insurance plan for the employees as it is designed to cover a group of people. This health insurance policy covers employees till the time they work in the employer’s company and usually provides security for accidental injuries, maternity expenses, and a lot more.
3. Critical Illness Insurance
This health insurance plan provides a lump sum payment for life-threatening diseases. When the policyholder purchases the insurance policy, certain health conditions are selected and if the insured person is diagnosed with any of these conditions, they can claim financial coverage. Critical illnesses covered under this policy include:
- Cancer
- Renal failure
- Major organ transplant
- Stroke
- Multiple sclerosis
- Coronary artery bypass surgery
- Primary pulmonary arterial hypertension
4. Senior Citizen Health Insurance
As the name suggests senior citizen health insurance provides coverage for individuals aged 65 and above. The plan covers hospitalisation and medical costs from health issues or accidents, including post-treatment expenses. Senior citizen health insurance policy can also provide benefits that include domiciliary hospitalisation and psychiatric care.
5. Family Floater Plan
A family floater plan is a group plan for a family that can include a husband, wife, two children, and a set of grandparents.
Conclusion
When you choose a life or health insurance policy, carefully consider your requirements as well as your budget to ensure comprehensive protection and financial stability. It is crucial to understand the difference between health insurance and life insurance.
Life insurance provides your loved ones with a secure financial future when you are not around while health insurance empowers you to get the best medical treatment without worrying about medical expenses. When you understand the important features of both life and health insurance policies, you make informed choices that align with your priorities.
