In the landscape of personal finance and risk management, insurance plays a crucial role. Two of the most common types in India are term insurance and health insurance. Though both serve as protective financial tools, they cater to very different needs.
In this guide, we will compare term insurance vs health insurance, exploring their purpose, benefits, differences, and how to decide which one you need—or if you should have both.
What Is Term Insurance?
Term insurance is a type of life insurance policy that provides financial coverage to the policyholder’s nominee in case of the policyholder’s untimely death during the policy term. It is pure protection—there’s no survival or maturity benefit unless you choose a return-of-premium plan.
Key Features:
- Low premium, high sum assured
- Pays only on death (not on survival)
- Fixed policy duration (10, 20, 30 years)
- Optional riders (like accidental death, critical illness)
What Is Health Insurance?
Health insurance, on the other hand, covers medical expenses arising due to illness, accidents, hospitalization, or surgery. It ensures that your savings are not depleted by unexpected healthcare costs.
Key Features:
- Covers hospitalization, surgeries, OPD, etc.
- Can include individual or family floater plans
- Renewable annually or for multi-year tenures
- Includes cashless treatment at network hospitals
Term Insurance vs Health Insurance: Quick Comparison Table
| Feature | Term Insurance | Health Insurance |
|---|---|---|
| Primary Purpose | Financial security for dependents on death | Covers medical/hospitalization expenses |
| Benefit Trigger | Death of policyholder | Medical treatment or hospitalization |
| Payout Type | Lump sum to nominee | Reimbursement or cashless treatment |
| Premiums | Lower (for young buyers) | Higher based on age, health, and coverage |
| Coverage Duration | Long-term (10–40 years) | Renewable annually or for a few years |
| Tax Benefits | Section 80C & 10(10D) | Section 80D of Income Tax Act |
| Riders/Add-ons | Critical illness, accidental death | Maternity cover, room rent waiver, etc. |
In-Depth Analysis: Term Insurance
1. Who Should Buy Term Insurance?
Term insurance is ideal for individuals with dependents—spouses, children, or aging parents. It ensures that your family’s lifestyle and goals (education, marriage, home loan repayment) are not affected if you’re not around.
2. Benefits of Term Insurance
- Peace of mind: Your loved ones are financially protected.
- High sum assured: You can get ₹1 crore+ coverage at nominal premiums.
- Tax savings: Premiums up to ₹1.5 lakh deductible under Section 80C.
3. Limitations
- No return unless the policyholder dies during the term.
- Premium increases with age and pre-existing conditions.
- Doesn’t cover disability or hospitalization unless opted.
In-Depth Analysis: Health Insurance
1. Who Should Buy Health Insurance?
Every individual, regardless of age or income, should consider health insurance. With rising medical inflation in India, even a minor hospitalization can cost ₹50,000–₹1 lakh or more.
2. Benefits of Health Insurance
- Cashless hospitalization in network hospitals
- Annual health check-ups under some plans
- Tax savings under Section 80D (up to ₹25,000–₹1 lakh for senior citizens)
- Coverage for day-care, pre & post-hospitalization, and more
3. Limitations
- Waiting period for pre-existing diseases (usually 2–4 years)
- Room rent capping in some plans
- Exclusions for certain treatments or conditions
Key Differences Between Term and Health Insurance
Let’s break down the critical distinctions:
1. Purpose of Insurance
- Term insurance protects your dependents in case of death.
- Health insurance protects you and your family against medical costs.
2. Claims and Payouts
- Term insurance pays a lump sum once.
- Health insurance pays multiple times (as per sum insured) during the year.
3. Cost Implications
- Term insurance is cheaper and fixed for a long term.
- Health insurance can become costlier with age, especially post-60.
Sample Cost Comparison (for a 30-Year-Old Non-Smoker)
| Policy Type | Sum Assured | Annual Premium (Approx.) | Coverage Duration |
|---|---|---|---|
| Term Insurance | ₹1 crore | ₹8,000–₹12,000 | 30 years |
| Health Insurance | ₹5 lakh (individual) | ₹7,000–₹10,000 | Renew every year |
Note: Premiums vary by insurer, city, and medical history.
Can You Buy Both Term and Health Insurance?
Absolutely! In fact, you should.
Term and health insurance complement each other:
- Term insurance takes care of your family after you’re gone.
- Health insurance protects your savings while you’re alive.
Together, they offer complete financial protection.
How to Choose the Right Insurance Plan
Here are some tips for making the right choice:
For Term Insurance:
- Choose a sum assured at least 10–15x your annual income.
- Opt for a policy term till retirement or age 65–70.
- Compare plans on claim settlement ratio, premium, and riders.
For Health Insurance:
- Go for a minimum ₹5 lakh coverage (₹10+ lakh in metro cities).
- Check the hospital network and cashless facility.
- Look for no claim bonus (NCB), restoration benefit, and day-care procedures.
Tax Benefits: Term vs Health Insurance
| Tax Section | Term Insurance | Health Insurance |
|---|---|---|
| Section 80C | Up to ₹1.5 lakh on premiums | Not applicable |
| Section 10(10D) | Death benefit is tax-free | Not applicable |
| Section 80D | Not applicable | Up to ₹25,000 (₹50,000 for senior citizens) on premiums |
Common Myths Busted
❌ Myth 1: Health insurance is enough.
➡️ Truth: Health insurance doesn’t help if you pass away. Term insurance secures your family’s future.
❌ Myth 2: Term insurance is a waste if I survive.
➡️ Truth: The goal is to protect your family. It’s like a safety net—you hope they never need it.
❌ Myth 3: Employer health insurance is sufficient.
➡️ Truth: Employer plans are limited and may end with your job. Always buy personal health coverage.
Final Verdict: Which One Should You Buy?
There’s no either-or between term and health insurance. Both serve different but equally critical financial purposes.
| Scenario | Recommended Insurance Type |
|---|---|
| Young professional with dependents | Term insurance (high sum assured) |
| Family person with aging parents | Health insurance (family floater) |
| Salaried individual in metro cities | Both (comprehensive protection) |
| Freelancer/self-employed | Both (no employer coverage) |
Conclusion
Understanding the difference between term insurance and health insurance is crucial for building a robust financial safety net. While term insurance ensures your family’s financial security in your absence, health insurance helps you manage the growing cost of medical care.
✅ Final Tip:
Don’t wait. The earlier you buy these policies, the lower your premiums and higher your coverage options.
Secure your life and health. Invest in both wisely.
Frequently Asked Questions (FAQs)
Q1: Can I buy both term and health insurance from the same insurer?
Yes, many insurers offer both types. You can also buy separately depending on your needs.
Q2: What happens if I miss my premium payment?
For term insurance, your policy may lapse. For health insurance, you lose coverage and have to wait through the waiting periods again.
Q3: Are there any government health insurance schemes in India?
Yes, schemes like Ayushman Bharat provide free health coverage for low-income families.