Health Insurance vs Term Insurance: Key Differences

If the past few years have taught us anything, it’s that life can change overnight. A sudden illness, a medical emergency or the loss of a loved one can have a lasting financial impact. That’s when the right insurance becomes essential. Two of the most discussed options are health and term insurance. Though both offer protection, they serve different needs. This blog breaks down what each one does and how they are different.

What is term insurance?

Term insurance offers financial protection for a fixed period. It is one of the easiest and most affordable ways to ensure that your family or dependents remain financially secure in case of your untimely death.

With a term insurance policy, you pay regular premiums to the insurer for a pre-decided term, say, 10, 20 or 30 years. The insurance provider will pay a one-time payout to your nominee if you pass away during this term.

What are the types of term insurance policies?

Each term insurance plan is designed to match specific financial goals and life stages. The main ones are:

1. Level term insurance: The sum assured stays constant throughout the policy term. It suits individuals with steady financial responsibilities who prefer fixed coverage at a lower premium.
   
   
2. Increasing term insurance: The sum assured rises annually by a fixed percentage or as per the insurer’s terms. It is ideal for those who expect future increases in financial obligations due to inflation or life changes.
   
   
3. Decreasing term insurance: The sum assured under this policy reduces gradually over time. It is typically aligned with a decreasing liability, like a home or personal loan.
   
   
4. Return of premium: This plan returns the premium amount paid if the policyholder outlives the policy term. It also combines life cover with a savings element, making it appealing for those who want to receive a return if no claim is made.
   
   
5. Convertible term insurance: This insurance type allows the policyholder to convert the term plan into another life insurance product, such as a whole life or endowment policy, later on.

What is a health insurance plan?

Health insurance covers medical expenses that result from illnesses, accidents or hospitalisation. It ensures that medical bills don’t eat into your savings and helps you access quality healthcare without financial stress.

You can pay regular premiums in return for financial coverage against a range of medical needs, including hospitalisation, pre- and post-hospitalisation expenses, ambulance charges and surgeries. Some plans also cover some outpatient (OPD) treatments, maternity and newborn care and critical illness treatment.

What are the types of health insurance plans?

Health insurance comes in various forms to suit different age groups, family sizes and health conditions. The most common types are:

1. Individual health insurance: This plan covers a single person. Premiums depend on one’s age, medical history and chosen sum insured. It is ideal for self-employed individuals or those without employer-provided coverage.
   
   
2. Family floater plan: This policy covers multiple family members under one sum insured. It is more cost-effective than buying separate individual plans.

3. Senior citizen health insurance: This policy is for those aged 60 and above. They come with higher premiums but include cover for age-related conditions like cardiac issues and joint replacements.
   
   
4. Critical illness plan: This policy provides a lump sum payout for the treatment of a specified critical illness. It can be bought standalone or as an add-on and helps cover both treatment and non-medical costs.
   
   
5. Group/corporate health insurance: This type of insurance is typically provided by employers and offers basic health coverage, which may also extend to family members. However, it is less customisable and ends when you leave the organisation.

What is the difference between health insurance and term insurance?

Now, let us simplify term insurance vs health insurance for you:

Health vs term insurance: Which one should you choose?

Health insurance helps cover medical costs and is essential for managing rising treatment costs, especially if you have dependants or lack employer-provided coverage. On the other hand, term insurance ensures that the family is financially secure in the event of the policyholder’s passing. This is vital if you have loans or people who rely on your income. The ideal approach, rather than choosing health insurance vs term insurance, is to have both.

Conclusion

Health and term insurance serve different but equally important purposes in your financial planning. The main difference between health and term insurance lies in the type of protection they offer. While health insurance supports your well-being during your lifetime, term insurance safeguards your loved ones’ future. Together, they form a well-rounded protection plan for both your present and your family's long-term security.

FAQs

1. What is the difference between term life insurance and health insurance?
   
   Term insurance vs medical insurance differs mainly in purpose. Term insurance pays a lump sum on death, while medical insurance covers hospital and treatment costs.
   
   
2. What is the difference between term and health insurance in premiums?

Term insurance generally has lower premiums but offers no survival benefit. Health insurance premiums are higher due to frequent claims and ongoing healthcare coverage.

1. Which is better: health or term insurance?
   
   Understanding which is better, health insurance or term insurance, depends on your needs. Health insurance is for medical coverage; term insurance is for family protection.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.