Difference Between Term Insurance and Health Insurance

When it comes to protecting your health and financial security, there are different insurance options to choose from, each with its own unique benefits.

To cover your financial risks, you can opt for life insurance. Out of the many life insurance policies available today, one that stands out from the crowd for its simplicity and affordability is term insurance. It provides a sum of money to your nominee as a financial backup - in case of your unfortunate demise when your life insurance policy is in force.

Health insurance, on the other hand, covers your health risks. It provides coverage for medical expenses, including hospitalisation, surgery, treatment costs, etc. Although they both offer protection, it is evident that each policy provides different types of coverage with varying costs and features.

Let's take a closer look at the difference between term insurance and health insurance and how they provide a shield from life's unexpected downpours.

Term insurance is one of the best ways to safeguard your family's financial future. Essentially, it is a pure risk insurance cover that pays out a fixed amount to your loved ones if you pass away while the policy is active. If you outlive the policy duration, you won't receive any benefits.

It is a cost-effective option that is best suited if you have dependents relying on your income.

For example,
Raksha is a software developer taking care of her aged parents and her younger sister. She has taken an educational loan for her sister’s higher studies and a home loan to build a house for them. Raksha wants to ensure the financial stability of her family if anything happens to her.

After considering various options, Raksha decides to buy term insurance with a sum assured of Rs. 1 crore for a policy duration of 25 years.

• In case she passes away within the policy term, Her family members will receive a death benefit of Rs. 1 crore that can pay off the loans and take care of their financial needs.
• If she survives the policy term, She will not receive any payout.

Here are some of the common types of term insurance policies

Regular Term Insurance

It is the most fundamental type of term insurance offered by all insurance companies. Under this policy, the premium payment term will be the same as the policy duration you select, which means you will have to pay regular premiums till the end.

Term Return of Premium (TROP) Plan

Unlike regular term plans, a TROP (Term with Return of Premium) plan provides both a death benefit and a maturity benefit. In case you pass away during the policy term, your family will receive the claim amount. Conversely, if you outlive the policy term, the insurer will return all the premiums paid - minus taxes.

Limited Pay Term Insurance

As the name of this type suggests, you can pay off your premiums early. By selecting this plan, you can reduce the burden of premium payments in just a few years compared to the entire policy term. This allows you to complete your premium payments in bigger and faster instalments - while still enjoying coverage for the rest of the policy duration.

Increasing Term Insurance

In an increasing term insurance plan, your sum assured gradually increases during the policy term until it reaches a maximum limit - as mentioned in the policy schedule. This plan is a good option if you anticipate your financial responsibilities to increase in the future or want to protect your cover against ever-rising inflation rates.
Note: There are more types of term insurance policies.
Let’s now take a look at what a health insurance plan is and the various types available in the market.

A health insurance plan is an all-encompassing insurance policy that covers hospitalisation expenses associated with illness, accidents, or injuries. This coverage includes expenses such as hospitalisation costs, surgeries, medical treatments, medications, doctor fees, etc.

By paying a premium, you can alleviate the burden of unexpected medical expenses. Health insurance safeguards both your savings and your healthcare needs, allowing you and your family members to enjoy a stress-free life.

For example
Jagadish is an IT professional, who realises the need for a good health insurance policy, especially with the rising medical costs. After thorough research, Jagadish buys a health insurance policy with a sum insured of Rs. 5 lakhs. A few months later, Jagadish has to undergo surgery amounting to Rs. 4 lakhs. His health insurance covers the costs as per the policy T&Cs.

Here are some of the popular health insurance policies available in the market

Individual Health Insurance

Individual health insurance is the most prevalent form of health insurance in India. This policy provides coverage for a single individual under a single policy. You can purchase separate individual health policies for each of your family members to ensure personalised health coverage for everyone.

Family Floater

It is a type of health insurance plan that allows you to provide coverage for your entire family under a single policy. Under this plan, the cover amount is shared among all the members included in the plan and is available to each member as and when required. This comprehensive coverage offers financial protection for your family's medical needs. Additionally, it provides the benefit of managing a single policy rather than keeping track of multiple health insurance policies for each family member.

Multi-Individual Health Insurance

A multi-individual health insurance policy combines the benefits of a family floater and individual health insurance. This policy provides you with the option to insure multiple family members under a single policy while maintaining individual coverage for each of them. With this versatile coverage option, you can customise the protection for each member of your family according to their individual medical needs.

Note: There are more types of health insurance policies.

Now that you are aware of what term insurance and health insurance are all about, let’s discuss how they differ from each other in various aspects

Here is a comparative table highlighting their key differences

While health insurance provides financial coverage for unexpected medical expenses, term insurance is a protective financial shield for your family in case of an unfortunate event. Having a thorough understanding of both these policies can help you make informed insurance decisions and ensure that you and your loved ones are well-protected in the face of any adversity.