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Difference Between Health Insurance & Term Insurance Plans

Posted On : 22 November 2023, 5 Months Ago. Blog Total Read 682

difference between term insurance and health insurance

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No one plans to fall ill or have an accident, and face the financial difficulties that can arise from these unfortunate events. It can be taxing on both the individual and their family, particularly since the rise of hospitalisation expenses is currently estimated to be twice the inflation rate. To help protect against this, getting a health insurance or term insurance is crucial. But what exactly is the difference between Health Insurance and Term Insurance?

While there are a number of benefits of health insurance plans and term insurance, the primary reason why someone should opt for either is the added layer of protection on one’s finances in the event that an unforeseen circumstance were to occur. This could be with respect to a smaller procedure such as an appendicitis or even untimely death due to a road accident. We never think of simply ourselves while planning for such things, and family being an important part of our lives, it is crucial to plan for their care in the event that the primary earning member of the household passes away. Such events create emotional turmoil without a doubt, so why create any added stress on one’s finances as well?

What is Health Insurance?

A health insurance policy provides financial aid when an individual incurs medical expenses due to an accident or illness.

Healthcare insurance is a contract between the policyholder and the insurance provider that pays out money if the insured contracts a certain sickness. Your health policy's conditions and coverage limitations will determine how much money you will get. Its goal is to protect your finances against unplanned, significant medical costs. Normally, the award is capped at the lesser of the actual costs spent or the amount insured.

Types of Health Policies

There are broadly two kinds of health insurance:

1. Mediclaim Insurance:

This is a base medical insurance that accounts for any hospital expenses that may be incurred while receiving treatment at a hospital either due to an illness or an accident. This means that if an individual undergoes surgery, the treatment can be paid for through mediclaim. Additionally, it often accounts for family members as well if one opts for family health insurance plans and it usually includes coverage for a number of other services as well such as post-hospitalisation expenses and follow up check

2. Critical Illness Cover:

Critical Illness cover type of medical insurance caters to individuals who seek cover against long-term, life threatening diseases.

What is Term Insurance?

Term insurance, on the other hand, is a form of life insurance policy. This means that if the policyholder passes away during the specified period of the policy, the individual’s beneficiaries will receive an assured sum as a death benefit allowing them to maintain their lifestyle, meet financial obligations and continue pursuing financial goals. The death benefit serves as an income in case the individual was a primary earner, but also the sum can be put towards a goal such as a child’s education. Term insurance is a life insurance policy that occurs only for a specified period and is often opted for when someone has a health scare and would like to be on the safe side.

Types of Term Insurance Policies

There are several kinds of term insurance policies, among which a few are listed below:

1. Traditional Term Insurance Plan

For the duration of the plan, your premium payment stays the same. Also unchanging is the insurance payout. If the policyholder passes away during the plan's term, the nominee will get the equivalent of the sum covered.

2. Term Insurance with a Return of Premium

The conventional term insurance plan does not provide any benefits for policyholders who live to the end of the policy's term. But, if you choose a term insurance plan with a "Return of Premium" option, you will get a return after the policy's term. The nominee will receive the sum determined by the term insurance policy in the event of unexpected death during the term. This plan's premium is somewhat more expensive than a typical term insurance plan.

3. Extension of Term Insurance

The value of money declines annually due to inflation. If you had self-insurance for Rs. 5 lacs now, the value of it would be insignificant after 20 or 30 years. It is wise to update the term insurance over time to make sure that your nominees get a sizable payout in the terrible event of your passing. You will pay an annual premium that is somewhat more under rising term insurance, and your amount guaranteed will also rise accordingly.

4. Reduction of Term Insurance

For each year the insured is covered, the insurance firms take on an increasing amount of risk. Yet, the insured's financial resources are constrained. In this situation, the insurance provider agrees to provide term insurance at a set rate but with a decreasing amount of coverage each year. Only if your money is limited should you choose such a package. In actuality, the inflationary impact over time lowers the value of the insured money.

Difference between Health Insurance and Term Insurance:

While both provide protection against financial strain, here are a few key differences between health insurance and term insurance -

1. Purpose :

Health insurance is meant to provide financial aid in case the policyholder requires medical treatment either due to an existing condition or due to an emergency. Term insurance is meant to provide a safety net for family members in case the policyholder passes away during the term of the policy and provide them with a death benefit which could allow them to continue living their lifestyle in a comfortable manner.

2. Payment :

Health insurance provides a sum based on the treatment required by the individual while receiving treatment for an illness or injury. Term insurance provides an assured sum as a death benefit if the policyholder passes away specifically during the course of the policy.

3. Premium Charges:

Health insurance premium tends to be higher in comparison to term insurance which is can be low for similar amount of cover.

4. Maturity Benefits :

With health insurance, if one does not avail of the services provided within a year, the amount can roll forward to the next year to create benefits such as reduced premium payments and additions to the sum assured.

5. Investment Plan :

Term insurance does not work like an average investment policy, however if the policyholder outlives the term insurance plan, they may be able to get their premium payments back at the end of the policy providing the plan has a premium return policy. On the other hand, some insurance providers can have the option of market linked health insurance policies which would serve as an investment in addition to the financial safety.

Conclusion:

Regardless of one’s current health status and financial situation, a health insurance policy, and a life insurance policy such as a term insurance plan are essential in today’s world. While buying a health insurance policy or group health insurance policy, always compare health insurance plans to ensure that the one that is finally chosen reflects all your goals and financial needs and that you fully understand all the aspects of your health insurance plan before opting for it.

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