Health Insurance vs Term Insurance: Which One Do You Need?

Health insurance and term insurance are fundamentally different; they cover different needs. Health insurance covers eligible medical expenses as defined in a given policy, while term insurance promises a death benefit to the nominee in the event of the death of the policyholder during the policy term, subject to the terms and conditions of a given policy. The two can be taken together by individuals who need both forms of cover.
 

The phrase 'health insurance vs term insurance' seems to imply that these two are somehow opposing options when, in fact, they are quite complementary. Both options do involve an 'insurance' theme, both require a premium, and both offer to protect your family, so it is easy to see why these two are often considered together. However, the two options seek to cover very different potential needs, and an understanding of what the differences are will ensure that you don't pay for the wrong type of cover or fail to get essential cover you need.

What Is the Difference Between Health Insurance and Term Insurance?

Here is how the two policies compare on the points that matter most.

Neither policy pays out in every circumstance. Exclusions, waiting periods and other terms apply to both.

How Does Health Insurance Work?

A health insurance policy typically covers an insured person’s eligible medical expenses up to the sum insured under the policy, subject to the terms, conditions, and other details. In general, there are two ways to claim health insurance benefits:

• Cashless: The insurance company settles the eligible bill directly with the network hospitals for the coverage of the treatment availed.
• Reimbursement: You reimburse the insurance company after you have paid the hospital directly for your treatment.

Before purchasing, it is important to review the following features:

• Waiting periods: Period during which the insurance company does not meet any of the policy’s terms.
• Pre-existing disease provisions: Policies related to pre-existing diseases, such as exclusion or additional premium for such cases.
• Co-payment: The percentage that the policy owner must pay during a claim.
• Room-rent limits: The limit of rental rates to reduce the amount the company will pay, if applicable.
• Exclusions and the sum insured: Information on excluded items and the limit of the sum insured by the company.

How Does Term Insurance Work?

Term insurance is a life policy that has a fixed term. If the life assured dies during the period, the nominee receives the sum assured under the contract. The amount does not reimburse medical expenses, but provides the family funds to run the household, clear off loans, fund the children's education, and cater to other commitments.

While evaluating a term policy to buy, it is pertinent to consider the following aspects:

• Your income and for how long the family needs the support.
• The number of dependants.
• Liabilities like home loans.
• The duration of the policy cover, which is ideally supposed to be a working lifespan.
• The ratio of the sum assured to the above.

A term plan will not repay you for a treatment undertaken, and a health plan will not compensate the income lost due to the death of the breadwinner.

Do You Need Health Insurance, Term Insurance, or Both?

The answer depends on what you would struggle to afford if something goes wrong. So when you are asking do I need health insurance and term insurance, ask yourself the following questions:

• Reasons to consider getting health insurance may include: if you do not have any, your treatments would be funded by your personal savings, or you want to protect your parents or children.
• Term insurance may primarily benefit those whose family members rely on their income, or have debts to pay off that they would inherit.
• Both may be necessary options to consider if you have health risk factors and family responsibilities which come together. One provides coverage for a hospital stay, and the other manages the financial responsibility of the long term.
• Those who get their coverage through an employer should take a closer examination of the policy. Group medical insurance tends to terminate when the employment does, and the limits may not be applicable to your family.

Scenario

Consider a typical case of a wage earner who has a spouse, a kid, and a home loan. A hospitalisation may devour the savings that he has been accumulating towards the payment of his mortgage. And an untimely demise would mean the loss of his income stream that was servicing his loan. Each of these contingencies would need to be covered by distinct risk management techniques. The example is merely illustrative and should not be confused with any actuarial averages.

What Are the Factors to Consider While Selecting the Policy?

When choosing a health insurance policy in India, compare the sum insured, waiting periods, exclusions and co-payments, renewal terms, and claim settlement process.

• Compare the sum insured considering your likely needs.
• Check the waiting period and pre-existing disease clause. As per the IRDAI Master Circular on Health Insurance Business, the waiting period for pre-existing diseases shall not exceed 36 months, and there shall be a moratorium period of 60 months.
• Check your exclusions, co-payments, and sub-limits. Exclusions are conditions the policy does not cover, a co-payment is the share of each claim you pay yourself, and sub-limits cap payouts for items like room rent.
• Check the renewal terms. Confirm the policy is lifelong renewable and see how premiums rise with age and whether the no-claim bonus carries over.
• Look into how claims are settled, including the claim settlement ratio, cashless hospital network, required documents, and approval and settlement time.
• Premiums may qualify for a deduction under Section 126 of the Income Tax Act, 2025 (previously known as Section 80D of the Income Tax Act, 1961), subject to applicable limits. GST on health insurance premiums is 0% following the September 2025 GST Council decision. 

For term insurance:

• The cover required to meet income replacement needs and pay off liabilities.
• Policy term versus one’s working years.
• Affordability of the premium.
• Policy terms and declaration.

What Should You Know About Health Insurance Claims and Rights as a Policyholder?

If your claim has been rejected or delayed, there is an alternate route available:

• Contact the grievance redressal officer of the insurance company first. Complaints are acknowledged immediately and are to be resolved within 14 days.
• Take it up with the IRDAI Bima Bharosa portal if you are not satisfied with the response.
• Approach the Insurance Ombudsman under the Insurance Ombudsman Rules 2017 if your claim is eligible. Ombudsman awards are to be complied with within 30 days.

Conclusion

Health insurance helps in protecting your savings from high medical expenses, while term insurance aims to safeguard the family's financial stability in the event of an insured person's death. To understand the kind of coverage you need, first make a list of possible health and financial risks, your dependents, and your liabilities. Then match them with the appropriate insurance plan. If you feel a need for health coverage, compare Niva Bupa's insurance plans with the rest to find the most reliable one. In any case, do not forget to examine the policy's fine print before signing the contract.

Frequently Asked Questions

Can I buy health and term insurance policies from different insurers?

Yes, there can be separate contracts with insurers for both types of insurance policies, which are two distinct services.

Can group cover substitute individual cover?

When group coverage depends on the group member's employment status, it may have limitations compared with an individual health insurance policy and therefore cannot substitute for an individual policy. Therefore, it is better to have an individual health plan in addition to a group plan, as group coverage is subject to the employer's specific terms and conditions.

Can one add on to the coverage as and when required?

The policyholder can increase the sum insured during the policy period on renewal/upgrade as per the terms and conditions of the specific product, while complying with any applicable underwriting requirements.

What happens to a term insurance policy if the insured survives beyond the policy period?

On survival beyond the policy term, the policy will lapse, and no maturity benefit will be payable. However, in certain cases, the sum assured or the total premium paid on maturity may be returned to the policyholder if applicable, as per the terms and conditions of the individual policy.