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Difference Between Term Insurance and Health Insurance

Team AckoJul 22, 2021

The importance of having a financial back-up through insurance has increased due to the pandemic. Insurance not only helps you with the money during emergencies but also provides convenience in terms of services like cashless benefits, death cover, wellness programs, etc. The Term and Health insurance are two major types of policies discussed in this article. It also lists the differences between Term Insurance and Health Insurance.

Difference Between Term Insurance and Health Insurance

Term Insurance vs Health Insurance Policies:

The Term insurance is a type of life insurance policy whereas Health insurance comes under general insurance policies. Here is a table that lists major differences between these two policies:

Parameter Term Insurance Health Insurance
Category Life insurance General insurance
Meaning Term insurance is a policy that is valid for a certain "term". If the policyholder suffers death during this period, the next of kin will receive the payout of the Term Insurance policy. A health insurance policy helps you pay the hospital bills in case of injuries or disease. It also provides various options to buy add-ons that can help in extending the scope of coverage.
Coverage Term insurance provides a financial back-up to the family members if the policyholder dies. Health insurance provides financial help to pay the hospital bills if the policyholder or insured family members suffer from injuries, diseases, or disability.
Maturity Benefit None No Claim Bonus in case of no claims in the previous policy period.
Tax Benefit The claim paid out to the family is tax-free. The premium paid is considered for tax benefit. The premium paid is considered for tax benefit.
Premium The premium for buying term insurance is usually less than compared to Health insurance. Health insurance policies are costly as compared to term insurance.
Policy Duration Usually 5 years or more. One year.

What is meant by Term Insurance?

Term insurance is similar to motor insurance where the policy period is a fixed number of days/years. While motor insurance pays only for damage or injuries, Term insurance pays when the policyholder suffers from an unfortunate event like death.

Types of Policies Under Term Insurance:

Here are different types of Term insurance plans you can consider buying:

  1. Level Term insurance plan: The sum assured of a Level Term insurance plan does not increase or decrease during the policy period. It is set at a fixed number.

  2. Convertible Term Plan: A Term plan that can be converted to an endowment plan is called a Convertible Term Plan.

  3. Increasing Plan: The premium of the policy and the sum assured, increase with each passing year in an increasing Term plan.

  4. Decreasing Plan: The sum assured decreases with each passing year in a Decreasing Term plan.

  5. Term Plan Add-ons: The policyholder can buy add-ons with a Term plan and extend the scope of coverage.

  6. Return of Premium Option: If the policyholder survives through the policy period, then the premium will be returned at the end of this term plan.

What is meant by Health Insurance?

Health insurance is a type of insurance plan that offers coverage for health-related expenses like hospitalization, day-care procedures, wellness programs, diagnostic tests, etc. The policyholder can buy a plan for the family members to insure them against these risks as well. 

Types of Health Insurance Plans:

Here are different types of Health insurance plans you can consider buying:

  1. Individual Health insurance: The policyholder is the only person insured under this Health insurance plan. All the benefits of this plan will be extended only to the policyholder.

  2. Family-Floater Plans: Apart from the policyholder, other family members can be insured under this plan. The sum insured will be shared among the insured people. The benefits of the plan will be applicable to all the insured persons.

  3. Employee Health Insurance: This is a Health insurance benefit that an employee of a company can receive as a part of his/her employment package. The employer can decide which type of Health insurance policy to provide and can give an option to add family members of the employee under the Health insurance plan.

  4. Critical Illness Cover: This plan is specially designed to cover the expenses related to a major, life-threatening medical condition. For example, Cancer.

  5. Senior Citizen Health insurance: As the name suggests, this is a Health insurance policy for senior citizens i.e. policyholder above the age of 60 years.

Which is Better Health or Term Insurance?

To understand which type of insurance policy is better, we first need to take a look at the benefits of both plans:

Benefits of Term insurance:

While it is a good idea to be covered under an adequate Health insurance policy at all times, it is also a good idea to consider buying a Term plan. Term plans provide a blanket of financial safety over your family when you are not around anymore. The payout of this plan can help your family financially survive on their own, and they don't have to worry about sacrificing education or work extra hours to make more money for survival. 

Benefits of Health insurance:

A Health insurance plan ensures that the best medical treatment is available for you and your loved ones. You don't have to worry about the hospital bills if you have adequate coverage under Health insurance. Additionally, you can customize a Health insurance plan to suit your needs with more coverage. These things make both Term and Health insurance plans worth your consideration.

Note that Health and Term plans are different types of insurance policies that offer financial back-up in different situations. These plans are not substitutes for one another rather consider going for a both as they offer better financial security for you and your family.

Frequently Asked Questions:

1) What is the meaning of "Rider"?

Riders are additional coverages that the policyholder can choose to buy while buying an insurance plan. These are also called add-ons.

2) What happens when a Term Insurance plan expires?

At the end of the policy period of a Term Insurance plan, the maturity benefit will be paid if the chosen plan was of the type Return of Premium. This plan will pay the premium back to the policyholder. The maturity benefits (if any) will be mentioned in the policy document.

3) What are the types of claims in Health insurance?

Health insurance claims can be made in two ways, cashless and reimbursement. A cashless claim is when the policyholder pays only a minor part of the hospital bill and the remaining part is settled by the insurance company. A reimbursement claim is when the entire bill is paid by the policyholder and then a claim is made to the insurance company. The insurer then settles the claim after considering deductibles. 

Take ACKO for example, claim process here is easy and seemless due to the company's wide network of hospitals. Irrespective of the type of claim being made, the policyholder does not have to go through the hassle of repeated follow-ups or arrangement of confusing paperwork.

4) Which documents are required to make a Health insurance claim?

The following set of documents are usually required to raise a Health insurance claim:

  • Health card

  • ID proof

  • Hospital Bills

  • Any other documents as requested by the insurance company

5) Is buying multiple Health insurance plans allowed?

Yes, getting financial security with multiple Health insurance policies is allowed. It is usually recommended that different types of Health insurance policies are bought. For example, Family-Floater plan, Critical Illness Cover, Individual Health Insurance Plans, etc.

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CIN: U66000KA2016PLC138288

IRDAI Registration No: 157

Category: Non-Life Insurance

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