Health insurance and life insurance plans have become a need of the present. There is comfort in knowing that if you fall sick or face a health crisis, you can rely on a health insurance policy to bear the financial expenses. Alternatively, there is also immense peace of mind knowing that your family will be financially secure in case of your unfortunate demise because of your term insurance policy.

Even though there is a need for both health insurance and life insurance plans, most often, your finances do not allow you to save in both policies at the same time. The choice between life insurance or health insurance is debatable for decades. Both insurance policies serve a unique purpose and provide a different level of assurance and financial protection. But when finances are tight, you might have to choose one out of two.

Here is everything you need to know about life insurance plans and health insurance plans, and which one should you choose:

 

What is life insurance?

Your family can use the benefit received from a term insurance plan at their discretion. The sum can help your loved ones fulfil their living expenses, maintain the standard of living or achieve financial goals, such as buying a house, paying for your child’s education, sponsoring the marriage of your child, etc.

The death benefits of the term policy are exempt from taxes*, which means the nominee gets financial security without paying any taxes*. You can think of a life insurance policy as a foolproof savings plan for your loved ones and dependents.

What is health insurance?

Health insurance is a contract between you and the insurance company, where the latter agrees to reimburse or pay for your medical expenses in return for a fixed premium paid by you. A health insurance policy only offers financial cover in times of medical needs.

If you have a health insurance policy, you can opt to pay your medical expenses from your pocket and get reimbursement from the insurance company later. Alternatively, you could file for a cashless facility, where the insurance company directly pays for the medical bills on your behalf. Each health insurance policy explicitly specifies the different illnesses, diseases or medical conditions covered under the plan.

The premiums you pay for a health insurance plan are tax-deductible*. These plans do not offer any sum assured to your family in case of your demise. A health insurance policy only covers your healthcare-related expenses.

Difference between life insurance plans and health insurance

Here is a quick analysis of the differences between life insurance plans and health insurance plans:

Basis	Life Insurance Plans	Health Insurance Plans
Reason for purchase	Complete protection for your life and is not limited to a specific type of expense.	Only covers medical or healthcare-related expenses. No coverage beyond your medical expense care.
Premiums	Premiums can be fixed or variable depending on the type of plan. Some life insurance plans also offer a cash value.	The premiums are usually fixed. There is no cash value in these plans.
Tenure	Long-term plan	Short-term plan
Core benefit	Pays a defined sum assured to the nominee in case of your demise during the policy tenure.	No sum assured is paid to the nominee in case of your demise. Only the hospital bills are covered.
Other benefits	Surrender value, loyalty additions, etc., are added to the base sum assured.	No claim bonus for each claim-free policy year.
Types of covers	Individual or group coverage	Individual, family or group coverage
Types of plans	Term insurance, savings plans, retirement plans, Unit-linked insurance plans, etc.	Health insurance plans, critical illness plans, etc.
Tax* benefits	Tax* benefits under Section 80C of the Income Tax Act, 1961 for premiums paid. Tax* benefits also available under Section 10(10D) for death benefits received by the nominee.	Tax* benefits under Section 80D for the health insurance premiums paid.

Life insurance vs Health insurance: Which is better?

Both life insurance and health insurance serve a completely diverse purpose and offer different coverage. A life insurance plan, like a term policy, pays out a defined death benefit to your family in case of your demise during the term insurance policy tenure. A term policy does not pay your family to cover the medical expenses involved in the treatment of your health.

The purpose of a term insurance policy is to replace the lost income for the dependents, ensuring they do not suffer in your absence. Your family has the freedom to use the death benefit for their purposes. They can use the money to cover the funeral costs or their living expenses, pay off any financial liabilities, pay for medical expenses, fund the college for kids, etc. A term insurance policy gives your family continuity in finances so that they do not struggle after you are gone.

On the other hand, health insurance is a different policy than a term policy. A health cover supports you financially to cover your medical expenses such as hospital bills, doctor visits, medications, diagnostic tests and procedures, etc. Health insurance helps you financially so that you get the best possible treatment and stay healthy.

In reality, both a health insurance and a term policy are required. If you have to make a choice, you can either opt to have both insurances with limited coverage or choose a term policy now and get a health insurance cover when your finances are in order. However, if you are young and have dependents, saving wisely in a term policy and a health insurance policy is critical. It is possible to cut down your unnecessary expenditure and redirect the funds to ensure you have adequate health expense coverage and also, your family is secure. Remember to buy term insurance that is equal to or ten times your annual wage. That said, both life and health insurance plans give you tax* benefits. The exemptions reduce your tax* liability and increase your disposable income.

Understand the need for each plan and make an informed choice.

If you want to buy term insurance, trust TATA AIA term life insurance policy to provide a failproof financial shield for your family in case of your absence.

L&C/Advt/2022/Aug/1934