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Difference Between Life Insurance and Health Insurance

Team AckoJan 17, 2024

It is said that life is uncertain. You cannot control the uncertainties life throws at you. For example, COVID-19. However, what you can control is your response to the uncertain event. This is where insurance as a concept is helpful. But which insurance to buy? Life Insurance or Health Insurance? Or both? Buying insurance can be a bit confusing if you are not aware of the details and benefits of different types of policies. Read ahead to know the difference between Life Insurance and Health Insurance.




What is a Life Insurance Policy?

Primarily, a Life Insurance policy is like a contract between a policyholder and the insurer where the insurance company provides a predefined sum assured amount to the nominees/beneficiaries after the untimely demise of the policyholder in exchange for the premium. This is as per the terms and conditions of the chosen plan. 

The main objective behind such a policy is to financially support your family so that they do not struggle in your absence. There are different types of Life Insurance policies that offer varying benefits such as receiving a lump sum amount on the maturity date of the plan.

Types of Life Insurance Policies:

Here are three major types of life insurance policies. Note that the information presented here is simplified for your understanding. Please read the Policy Wordings of the respective plan before buying it.

1)Term Life Insurance

Term Life Insurance provides benefits to the nominees in case the policyholder dies during a specified period. This insurance cover can be considered as ‘income replacement’. Term life insurance comes at a lower premium as compared to other variations of life insurance policies. 

2) Whole Life Insurance

If you are searching for an insurance plan that provides lifetime coverage (100 years), Whole Life Insurance is the one that you can opt for. Generally, this insurance cover comes with a fixed premium amount to offer a tax-free sum to the beneficiaries upon death or maturity. 

3) Endowment Policy

An Endowment Policy, is a popular type of Life Insurance Cover. It results in a pay-out in case the policyholder dies during the policy period and even if the person is alive on the policy’s maturity date. This plan offers a dual combination of financial security and savings.

What is a Health Insurance Policy?

Health insurance, is a contract between the insured and the insurer where the insured pays an insurance premium in exchange for financial coverage in case of hospitalization. Without health insurance, you might end up exhausting your savings to pay the hospital bills in case of a medical emergency. With such a cover, the savings need not be touched as the insurer settles most of the hospital bill on your behalf.

Types of Health Insurance Policies:

Here are some of the popular health insurance plans in India:

1) Individual Health Insurance Plan

An Individual Health Insurance policy covers the medical expenses for an individual in case of hospitalization. This type of insurance offers coverage costs of hospitalization due to illness and injuries, surgeries, day-care procedures, hospital room rent, etc. Usually, individuals above 18 years of age can opt for this insurance policy. The payable premium, coverage, and the sum insured will depend upon the policy’s terms.

2) Group/Employee Health Insurance Plan

Group Health Insurance is designed for a group of people. For example, employers can purchase this insurance plan for the employees. This health insurance plan covers employees till the time they work in the employer’s company. This policy usually covers accidental injuries, maternity expenses, and a lot more.

3) Senior Citizens’ Health Insurance Plan

A Senior Citizen Policy is designed for people above 60 years. This policy covers the pre and post-hospitalization costs arising due to accidental injuries, illness, and medical costs. Senior citizens can be more susceptible to diseases and disorders. A dedicated insurance plan for them can mitigate medical expenses from your pocket.

4) Family Floater Plan

This plan can be viewed as a group plan for your family. For example, a family of a husband, wife, two children, and a set of grandparents can be covered under this Family health plan

5) Critical Illness Plan

Such plans are meant to cover specific or a list of diseases such as Cancer. Treating such a deadly disease can dent your savings. However, a Critical Illness Plan will offer a fixed sum assured in the unfortunate event of being diagnosed with Cancer.

Also read; Fixed Benefit Health Insurance

Life Insurance vs Health Insurance:

The major difference between a Life Insurance Plan and a Health Insurance Plan is that Life Insurance is primarily about ensuring financial support (for beneficiaries) in case of untimely death of the policyholder; whereas Health Insurance is about timely monetary assistance while settling hospital bills related to medical expenses. Both policies offer different types of plans with a range of benefits. 

Here’s a detailed section that explains the basic differences between a life insurance policy and a health insurance policy:

Points Life Insurance Health Insurance
Concept Life Insurance offers an assured sum to the beneficiaries in the eventuality of the insured's demise. Health insurance covers the cost of hospital/surgical expenses if the insured person is hospitalized.
Risk Factor Insures financial risk/loss of income related to the insured’s death. covers financial risk associated with hospitalization due to illness, injuries, and related expenses.
Benefits Financial support for your family/beneficiaries even in your absence. Financial support in case of unexpected medical emergencies.
Tenure The coverage has a fixed, long tenure. Terminated once the tenure is over. Tenure is not fixed. The insured has the liberty to renew the policy once the tenure gets expired, which is usually a year.
Inclusions Includes survival and death benefits at the end of your insurance policy. No survival or death benefits are offered to the insured unless mentioned specifically. It only caters to the recent treatment charges and medical needs.
Premium Calculation Premiums are both fixed and flexible as per the insurance policy. Premiums are usually fixed.
Tax Benefits Tax benefits for a premium paid as per Section 80c of the Income Tax Act. Tax benefits as per Section 80d of the Income Tax Act.

How Does A Life Insurance Policy Work?

Life Insurance provides financial assurance to your loved ones after your death. As a policyholder, you have to pay the recurring premium to obtain the benefits. The death benefits act as income replacement, so the nominees can afford housing, food, and other expenses. The exact working of the policy will depend upon the chosen policy and the insurer from whom you have purchased the plan.

Benefits of Having a Life Insurance Plan:

A life insurance plan offers the following top benefits:

  • Financial security after the demise of the policyholder

  • Tax-free pay-outs subject to terms and conditions

  • Enables financial security and savings (depends upon the chosen plan)

How Does A Health Insurance Plan Work?

The main objective of having a health insurance plan is to secure your finances at the time of medical crisis. Before buying this policy, read the inclusions and exclusions, and know the overall policy issuance process to make an informed health insurance decision. For example, some insurance companies conduct detailed medical examinations to assess your health conditions before issuing a health insurance policy.

The claim process is hassle-free and easy. You have two options to file a claim against your policy. A Cashless Claim is a method where you can get treatment in the network of hospitals (part of the insurance company’s network as they have a tie-up). Your insurer will pay the medical bill directly to the hospital as per the terms and conditions.

On the other hand, you can opt for a Reimbursement Claim where you need to submit the hospital bills, medical reports, doctor’s prescriptions, etc. to the insurer. Once the verification is done from the insurance company’s side, you will receive the claim amount.

Here’s the common Health Insurance process:

Step 1: Buy an insurance policy that covers your health risks

Step 2: Raise a claim in case of hospitalization

Step 3: The Third-party Administrator (the link between you and the insurer) will verify the claim

Step 4: Bill shall be settled by the insurer with the hospital as per the policy’s terms and conditions

Step 5: You will have to pay the remaining part of the bill that is not covered by the policy

Benefits of Having a Health Insurance Policy:

Health insurance offers the following top benefits.

  • Financial assistance during medical emergencies

  • Specific insurance covers for specific diseases (For example, COVID-19 Cover)

  • Tax deductions as per premium paid.

Which insurance should one buy?

Life insurance and health insurance are both necessary for those who care for their family’s well-being. While medical expenses are taken care of by your health insurance, life insurance ensures your family will be aided accordingly in your absence. It’s highly recommended to have both these policies.

Final Thoughts:

Both Life Insurance and Health Insurance have their benefits and limitations. It is not about choosing between them. It is about picking what suits your requirements. Ideally, you should have a balanced insurance portfolio consisting of a Life Insurance Plan as well as a Medical Insurance Plan. Consider including these two types of insurance plans in your overall financial/investment planning endeavors such as fixed deposits, mutual funds, stock market investments, etc. for a well-rounded personal financial plan.

Frequently Asked Questions:

The following section covers some common questions and answers related to the difference between Life and Health insurance policies.

Q1) Out of a Life insurance plan and a Health Insurance Plan, which one is better?


Life insurance helps to reduce the financial burden for the nominated beneficiaries in case of the premature death of the insured. Health insurance, on the other hand, covers the medical expenses incurred due to hospitalisation (accidental injuries or illness). Both the insurance plans are different and important to guard your savings.

Q2) What is the top difference between a Term Insurance Policy and a Health Insurance Policy?


A term insurance plan is specifically designed to offer a sum assured to the nominated family members in case of the demise of the policyholder. This insurance plan replaces the future income that your family will need to lead a peaceful life. However, a Health Insurance Policy covers medical expenses incurred for hospitalization in exchange for a specified premium.

Q3) What kind of deaths are not included in the life insurance plan?


The following kinds of deaths are usually not covered under a Life Insurance Policy.

  • Death due to natural calamities

  • Death due to undisclosed disease

  • Death outside the country

  • Death due to critical illness such as HIV, the fourth stage of cancer, and many more

Q4) What are the major disadvantages of a Life Insurance Policy?


Here are two points you need to consider before purchasing a Life Insurance Policy:

  • If you are unhealthy and old, life insurance can be expensive to purchase at that stage.

  • Sum assured values are usually less than compared to the premium and other investment-on-return-based plans. Thus, it becomes vital to be clear as to why you need the policy.

Q5) Is it possible to cancel a life insurance policy at any time?


Yes, it is possible to cancel your life insurance policy at any time. Note that the exact details might vary. Some insurance companies work on 30 days cancellation notice after purchasing a cover. If you decide to cancel your policy, you can inform your insurer, and as per the company norms and regulations, you can discontinue your policy.

6) Is there a concept of a bonus for not raising claims in health insurance?


Insurance companies often offer a No Claim Bonus (NCB) in case you do not raise any claim during your policy period. NCB can be in the form of a discount in the premium, or an additional sum assured amount.


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