In today’s fast-paced world, securing your family’s future and protecting your health expenses are two essential pillars of financial planning. Insurance products like term insurance and health insurance serve these critical needs, but they function very differently. Many individuals often get confused between the two or mistakenly believe they serve the same purpose.
In this comprehensive guide, we will compare term insurance and health insurance, outline their differences, benefits, and ideal use cases, and help you choose the right plan for your personal and family needs.
What Is Term Insurance?
Term insurance is a type of life insurance policy that provides financial coverage to the policyholder’s family in case of the policyholder’s death during the policy term. It is a pure life cover product with no maturity benefit (unless you opt for a return of premium variant).
Key Features of Term Insurance:
- Provides a lump sum death benefit to nominee upon policyholder’s death.
- Offers high coverage at low premium.
- No survival or maturity benefit.
- Policy term usually ranges from 5 to 40 years.
- Riders available for critical illness, accidental death, etc.
What Is Health Insurance?
Health insurance is a policy that covers your medical and hospitalization expenses. It ensures that in case of illness or an accident, your medical bills, including pre- and post-hospitalization costs, are taken care of.
Key Features of Health Insurance:
- Covers hospitalization and treatment costs.
- May offer cashless treatment at network hospitals.
- Covers pre- and post-hospitalization expenses.
- Includes daycare procedures, ambulance charges, etc.
- Can be taken as individual or family floater plans.
Term Insurance vs Health Insurance: Head-to-Head Comparison
Here’s a table that highlights the primary differences between the two:
| Feature | Term Insurance | Health Insurance |
|---|---|---|
| Purpose | Provides financial security to dependents after death | Covers medical expenses during illness or accident |
| Benefit Type | Death benefit (monetary payout to nominee) | Hospitalization and treatment cost coverage |
| Payout Type | Lump sum on death | Cashless treatment or reimbursement |
| Policyholder’s Benefit | No benefit if alive during policy term | Direct benefit through claim on medical expenses |
| Tenure | Fixed term (5–40 years) | Renewable annually or for multi-year terms |
| Premiums | Low premiums | Higher premiums, increases with age |
| Tax Benefits | Section 80C | Section 80D |
| Maturity Value | None (unless return of premium is chosen) | None (except in some wellness rewards plans) |
| Add-ons/Riders | Accidental death, critical illness, waiver of premium | Maternity cover, critical illness, personal accident |
| Who Should Buy | Breadwinners with financial dependents | Everyone, regardless of age or income |
Importance of Term Insurance in Financial Planning
Term insurance is essential if you are the primary earner in your family. Here’s why:
1. Financial Security for Family
If something unfortunate happens, your family receives a tax-free lump sum, which can be used to pay off loans, cover education costs, or manage daily expenses.
2. High Cover at Affordable Premiums
A healthy 30-year-old non-smoker can get ₹1 crore term cover for as low as ₹500–₹1,000 per month.
3. Peace of Mind
Knowing your loved ones are protected gives you the emotional peace to plan long-term goals without fear.
Importance of Health Insurance in Daily Life
Health insurance is a must-have due to rising medical costs and unpredictable health risks.
1. Protects Against Medical Inflation
A single hospitalization can cost anywhere from ₹50,000 to ₹5 lakhs. Health insurance shields your savings from these unplanned expenses.
2. Cashless Treatments
Network hospitals allow you to get admitted without upfront payments—your insurer settles the bill directly.
3. Regular Health Check-Ups and Wellness
Many plans offer free annual checkups, fitness programs, and wellness rewards for healthy habits.
Can You Rely on Just One? Absolutely Not.
Many people wonder—should I buy term insurance or health insurance?
The truth is, both serve distinct purposes, and you need both to create a robust safety net.
Term Insurance Alone Is Not Enough:
- It won’t help you during a medical emergency.
- You cannot claim any benefit unless you die during the policy term.
Health Insurance Alone Is Not Enough:
- It won’t support your family financially if you pass away.
- It does not provide any income replacement for your family’s future.
How to Choose the Right Term Insurance Plan
When selecting a term plan, consider the following:
| Criteria | What to Look For |
|---|---|
| Coverage Amount | 10–15 times your annual income |
| Policy Term | Until at least age 60 or retirement age |
| Claim Settlement Ratio | Choose insurers with 95%+ CSR |
| Premium Affordability | Select premium that fits your budget |
| Riders | Add-on for critical illness, accidental death, etc. |
Popular Term Insurance Providers in India:
- LIC Tech Term
- HDFC Click 2 Protect
- Max Life Smart Secure
- ICICI Pru iProtect Smart
- Tata AIA Sampoorna Raksha
How to Choose the Right Health Insurance Plan
While picking a health insurance policy, consider these factors:
| Criteria | What to Look For |
|---|---|
| Sum Insured | At least ₹5–10 lakhs per person |
| Network Hospitals | Wide cashless hospital network in your city |
| Waiting Period | Shorter waiting periods for pre-existing diseases |
| Maternity and OPD Cover | If you’re planning a family |
| Renewability | Lifelong renewability is a must |
Top Health Insurance Providers in India:
- Niva Bupa Health Insurance
- Star Health and Allied Insurance
- HDFC ERGO Health
- ICICI Lombard
- Care Health Insurance
Tax Benefits: Section 80C vs 80D
Term Insurance (Section 80C):
You can claim a deduction up to ₹1.5 lakh per year under Section 80C for term insurance premiums.
Health Insurance (Section 80D):
You can claim:
- ₹25,000 per year for self and family (if under 60)
- ₹50,000 per year for senior citizen parents
- Additional deductions if parents are also covered
Real-Life Example: Why Both Matter
Case Study:
Ravi, a 35-year-old IT professional, earns ₹12 lakh per year. He has a wife and one child.
- He buys ₹1 crore term plan for 30 years – ₹12,000 annual premium.
- He buys a ₹10 lakh family floater health plan – ₹20,000 annual premium.
Result:
- His family is protected from financial loss if he passes away.
- His family also gets access to quality healthcare without financial strain.
Total Annual Cost: ₹32,000 for complete protection.
FAQs on Term vs Health Insurance
Q1. Can I claim both term insurance and health insurance benefits together?
Yes, they are independent. You can claim health insurance for treatment and term insurance for death benefit.
Q2. Is it mandatory to have both?
Not mandatory, but highly advisable. They serve different and equally important purposes.
Q3. Can I get tax benefits on both?
Yes. Term insurance under 80C, and health insurance under 80D.
Q4. What happens if I don’t use my health insurance?
No benefits are lost, but some insurers offer no-claim bonuses that increase coverage without extra premium.
Conclusion: Which Insurance Should You Get First?
If you’re young and healthy, start with a term plan to lock in a low premium. But don’t delay health insurance, as premiums rise with age and health conditions.
Final Recommendation:
Buy both term and health insurance as early as possible. Together, they form the backbone of a secure and stress-free financial life.