Difference between Health Insurance & Life Insurance

People often try to compare life insurance and health insurance plan. Here’s a ready reckoner to help you differentiate one from another and details on what to keep in mind while buying a health insurance policy? 

 

What is Life Insurance Policy?

 

A life insurance policy is a contract that in exchange for a premium payment, provides an assured sum as payment if the individual covered in the plan passes away during the defined term. This payment is known as the death benefit and is paid to the beneficiaries as per the policy.

 

Life insurance should be planned for and chosen based on the requirements of an individual as well as the family goals they wish to achieve in the future. There are different kinds of life insurance policies available ranging from term insurance to lifetime coverage. The sum assured paid as a death benefit is exempt from taxation. 

 

What is Health Insurance Policy? 

 

A health insurance policy is an insurance plan that provides financial coverage against medical expenses as a result of an accident or illness, in response to a periodic health Insurance premium payment. The expenses could range from the prescribed drugs to a life altering surgery, depending on the plan one has opted for, the coverage will be provided.

 

There are broadly two kinds of health insurance. The first is Mediclaim, which provides coverage for procedures conducted within a hospital. The second is critical illness insurance, which is for those who may have a long-term illness, which in turn may require alterations in one lifestyle along with treatment. 

 

Purpose of Life Insurance vs Health Insurance?

 

The purpose of a life insurance policy is to provide coverage against a number of negative incidents that could occur over the course of an individual’s life. The policyholder would opt for a plan based on their lifestyle to ensure that in the event that they die, their family and other dependent members will be financially covered. The sum assured essentially serves as replacement to the policyholder’s salary and allows the family to adjust to their absence without faulting on any financial requirements such as household bills. 

 

On the other hand, health insurance aims to provide funds for the situations where the policyholder requires treatment due to an accident, an illness or a pre-existing condition. This plan does not have a sum assured when a person dies but pays for the treatment costs associated with the illness being covered 

 

Do you need both Health Insurance & Life Insurance?

 

There are benefits of health insurance plans and life insurance, which is why one should opt to invest in both policies. These policies provide a layer of safety when it comes to responsibilities an individual holds to dependent members of their families.

 

With life insurance one must carefully choose a plan that not only takes care of the liabilities left behind along with daily expenses but also allow them to live in relative comfort. Health insurance of course is always a good idea as medical emergencies can appear at any time, as we have seen with the onset of COVID-19. Medical procedures are not cheap and could create a significant dent in one’s savings. One can help to reduce one’s health insurance premiums by opting for a family-floater health insurance policy over an individual health insurance policy.

 

Before opting for either plan, always conduct adequate research and possibly even contact a financial planner to discuss all your options. 

 

Key Differences between Health Insurance and Life Insurance Policies:

 

1. Nature of Payment: 

 

Health insurance pays for your medical expenses and expenses around the same, whereas life insurance pays out a death benefit in the event of the policyholder’s death. 

 

2. Tax: 

 

Health insurance falls under Section 80D of the Income Tax Act, whereas life insurance comes under Section 80C, Section 10D of the same act. 

 

3. In case of No-Claim:

 

In health insurance, if you don’t make a claim, you will receive a No-Claims Bonus, usually in the form of a discount on the next period’s payment installment or an increase in your Sum insured. In life insurance, if your policy reaches maturity and no death benefit has been paid, you receive back the sum invested with interest. 

 

Conclusion:

 

There is no right age to invest in health insurance or for life insurance and it’s never too early to choose your plan, be it for health insurance or life insurance. Always carefully compare health insurance plans to see which one best suits your needs and the needs of your family.