Term Insurance vs Health Insurance: What’s the Real Difference?

Understanding Term Insurance

Term insurance is a pure protection plan that offers a financial safety net to the dependents of the policyholder in case of his/her untimely demise during the policy term. The insurance company pays the fixed lump sum amount (pre-decided sum assured) to the beneficiary if something happens, and the policyholder has to pay a fixed premium regularly throughout the policy term in return. Term insurance is a pure risk cover plan that offers only death compensation and no maturity/survival benefit.

For example, let us say Mr X buys a term insurance with INR 1.5 Cr. coverage for 25 years for an annual premium of INR 13,000. Unfortunately, if Mr X dies during this 25-year period, the amount of sum assured, i.e. INR 1.5 Cr, will be paid to the beneficiary (named by him in the insurance application). If he survives the 25-year term, there will not be any payout.

Key Benefits of Term Insurance

Here are the key benefits of term insurance:

• Higher coverage: As it is a pure risk cover plan, you can avail of higher sum assured/coverage at an affordable cost, especially when you buy early.
• Low cost: Term insurance is the cheapest insurance, as the premium only goes towards availing life cover. When you avail the coverage at an early age, when you are young and healthy, the premium is the lowest.
• Death benefits: Beneficiary receives the lump sum amount (sum assured) as death compensation. A lump sum can be utilised for debt repayment, replacement of income and for children’s education, etc.
• Additional benefits: Many term insurance policies come with add-ons such as critical illness cover, accidental death cover, etc., which can enhance your protection at minimal extra cost. However, these are optional and can be availed based on your needs.
• Tax benefits: Term insurance premiums qualify for tax deduction under Section 80C of the Income Tax Act, 1961. The death compensation paid to the beneficiary is also exempt from income tax under Section 10 (10D) of the IT Act.

Understanding Health Insurance

Health insurance gives financial protection against the medical emergencies arising from illnesses, accidents and diseases that require hospitalisation. The insurance company bears the hospitalisation cost (up to the coverage availed) instead of you paying it out of your pocket. Having health insurance coverage ensures you get the right treatment at the right time without any financial huddles. Generally, health insurance plans are annually renewable. There are various types of policies available to suit the diverse healthcare needs of individuals.

For example, let us say you have availed health insurance coverage of INR 10 lakhs, which is annually renewable. Suppose you underwent a surgery that cost you INR 3 lakhs at a hospital in Bengaluru, which is a part of your insurance company’s network list, then your hospital bill will be settled directly by the insurance company to the hospital. However, you might have to incur minor non-medical expenses, if any.

While buying health insurance, it is important to be various clauses such as sub-limit, co-pay and waiting period, etc, that can have a significant impact on your claims.

Key Benefits of Health Insurance

The following are the important benefits of health insurance:

• Comprehensive coverage for hospitalisation: Health insurance policy provides coverage for inpatient hospitalisation, including doctor fees, surgery, room rent, diagnostic tests, and domiciliary expenses, day care procedures, and pre- and post-hospitalisation costs.
• Cashless facility: One of the main benefits of availing the health insurance is the cashless claims offered by almost all insurers. You can avail treatment at any network hospital across the country and get the bills directly settled by the insurer with the hospitals. However, there is also a reimbursement facility available for treatment availed at non-network hospitals.
• Need-based cover: Health insurance comes in many types, such as individual, family floater, critical illness plan, etc, to suit the various healthcare needs.
• Tax benefits: Health insurance premium qualifies for a tax deduction under Section 80D of the IT Act.

Term Insurance Vs Health Insurance

Term Insurance

• Financial safety net against death
• Compensation is paid only if the policyholder dies during the term
• Death benefit (fixed lump sum)
• Higher coverage at a lower premium
• Policy duration is long-term, ranging from 10 to 40 years and more
• Tax benefit under Section 80C
• Ensures your family is protected and income is replaced even when you are not around

Health Insurance

• Financial protection against medical emergencies
• Benefits are paid when the policyholder is alive
• Hospitalisation expenses (based on the actual cost incurred up to coverage limit)
• Premiums can depend on type, coverage, age, and health. Relatively higher than a term plan.
• Policy duration is generally one year and is renewable every year.
• Tax benefit under Section 80D
• Ensures you and your family’s health is protected without depleting your savings.

Both term insurance and health insurance are indispensable and extremely essential for every family. At Jio Insurance Broking, you can avail term and health insurance plans of your choice at an affordable premium. You can compare plans from various insurance companies and buy the right plan after a cost-benefit analysis.

Conclusion

To sum up, term insurance is a risk management tool that gives a financial safety net against the untimely demise and health insurance offers financial security against medical emergencies. Knowing the difference between the two can help you understand that both are crucial for your successful financial planning – term insurance to secure the family’s future and health insurance to secure the present.