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

Health insurance and term insurance both protect you from financial shocks, but in totally different ways. One covers your medical bills while the other pays your family a lump sum if you pass away during the policy term, so they are not left struggling financially. These insurance plans do not compete with one another but offer more comprehensive protection when taken together. 

No one plans to get sick or have an accident and face the financial problems that can follow. It can be burdensome for both individuals and their families, especially since hospitalisation costs are currently estimated to be twice the inflation rate. To safeguard against this, obtaining health insurance or term insurance is essential. But what exactly is the difference between term life insurance and health insurance?

While Health insurance plans and term insurance offer several benefits, the main reason to choose either is the extra financial protection they provide in case of unexpected events.  This could relate to a smaller procedure, such as appendicitis, or even an untimely death caused by a road accident. We rarely think of ourselves alone when planning for such events, and since family is an important part of our lives, it is essential to plan for their care if the primary breadwinner of the household passes away. These events undoubtedly cause emotional turmoil, so why add extra stress to one’s finances as well?

What is Health Insurance?

A health insurance policy is nothing but a safety net for your medical bills that you can incur because of unexpected illness or accidents. The working mechanism is very simple: you pay for a policy, and if you get sick or hurt, the insurer covers the costs. 

In this agreement between you and your chosen insurer, the amount covered by the latter is dependent on your specific plan, what it covers, and any limitations or exclusions it has. The core idea behind investing in such a plan is to protect you from being hit with a huge, unexpected medical bill.

Types of Health Insurance Plans

There are broadly two kinds of health insurance: 

1. Mediclaim Insurance

This is basic medical insurance that covers hospital expenses incurred while receiving treatment for an illness or an accident. This means that if an individual undergoes surgery, the treatment can be paid for through mediclaim. Additionally, it often accounts for family members as well if one opts for family health insurance plans, and it usually includes coverage for a number of other services as well, such as post-hospitalisation expenses and follow-up checks.

2. Critical Illness Cover

Critical Illness offers coverage to those with long-term, chronic diseases, such as cancer, heart attack, stroke, or kidney failure. In contrast to a basic health plan, critical illness cover offers a lump sum amount when you're diagnosed with a serious disease. You can use this financial aid for treatment, recovery expenses, or to replace lost income during prolonged illness.

3. Family Health Insurance

Also known as a family floater plan, it covers your entire family under a single plan, helping you avoid the hassle of buying separate plans for everyone. Your spouse, kids, and dependent parents can share one sum insured locked under this single plan. 

4. Senior citizen Health insurance 

These are built for older adults, since their healthcare needs tend to go up with age. They are designed to include age-related illnesses, hospitalisation, and routine check-ups, among others. Premiums for these policies tend to be higher because senior policyholders have a higher risk of hospitalisations. Still, investing in these plans is a smart decision to make as it allows seniors to get the care they need without impacting their savings.  

What is Term Insurance?

Term insurance, on the other hand, is a form of life insurance policy. This means that if the policyholder passes away during the specified period of the policy, the individual’s beneficiaries will receive an assured sum as a death benefit, allowing them to maintain their lifestyle, meet financial obligations and continue pursuing financial goals. The death benefit serves as an income in case the individual was a primary earner, but also the sum can be put towards a goal such as a child’s education. Term insurance is a life insurance policy that is in effect only for a specified period. It should ideally be purchased when you are young and healthy, as trying to secure a policy after a major health scare can lead to steep premium hikes or application rejections.

Types of Term Insurance Policies

Term insurance is a simple, affordable plan that helps protect your loved ones’ financial stability in case of your untimely demise. With a complete understanding of its various types, you can make an intelligent decision and choose a plan that best suits your family’s needs and long-term financial goals. Mentioned below are several kinds of term insurance policies you should know about: 

1. Level Term Insurance

This is the most common and straightforward plan where the life cover (sum assured) remains the same throughout the entire policy duration. It is ideal for individuals with stable financial responsibilities who want a predictable, fixed premium.

2. Increasing Term Insurance

Under this policy, the sum assured increases by a fixed percentage or amount every year to keep up with rising inflation. It is best suited for young professionals who expect their income and family responsibilities to grow over time.

3. Decreasing Term Insurance

The coverage amount in this plan gradually reduces over time, usually in sync with a major liability like a home loan or mortgage. It ensures that if something happens to you, the insurance payout covers the outstanding debt without you paying for unnecessary extra cover.

4. Return of Premium (TROP)

Unlike standard plans where you get nothing if you survive the term, a TROP plan refunds all the premiums paid at the end of the policy period. While these plans are more expensive, they appeal to those who view regular term insurance as a "sunk cost."

A Common Mistake to Avoid

Many people buy a large term insurance cover but skip health insurance altogether, assuming they are young and healthy and will not need it. With medical inflation in India consistently hovering around 11-13%, nearly double the general inflation rate, a single major surgery can cost lakhs and wipe out years of savings. However, when you invest in both plans without prioritising one over the other, you cover all bases and stay prepared for any unexpected financial hit. 

How Does a Health Insurance Plan Differ From a Term Plan?

You can say without a doubt that both policies offer security while catering to very different needs. The former is more focused on protecting you from increasing medical costs; however, the latter secures your family’s financial future. Let’s understand the key differences between the two: 

If you are trying to decide where to start, think of it this way: health insurance answers “what happens if I get sick tomorrow,”; on the other hand, term insurance answers “what happens to my family if I am not around.” Most financial advisors recommend buying health cover first, since medical costs are far more likely to hit you in any given year than death is, but if you have dependents and a home loan, term insurance shouldn’t wait too long either. 

Conclusion

Regardless of one’s current health status and financial situation, a health insurance policy and a term insurance plan are essential in today’s world. While buying a health insurance policy or group health insurance policy , always compare health insurance plans to ensure that the one that is finally chosen reflects all your goals and financial needs, and that you fully understand all the aspects of your health insurance plan before opting for it.

At Niva Bupa, we design health insurance around real-life needs like pre- and post-hospitalisation cover, prescription medicines, diagnostics, and more, so that when you do need to make a claim, the process works the way it should. We ensure that you have a partner who supports you in your times of need. 

People Also Ask

1. What is the difference between health insurance and term insurance?

The difference between these two insurance types is mainly their purpose. Health insurance covers medical expenses; term insurance provides a lump-sum payout to the family if the policyholder dies.

2. Can I buy both health insurance and term insurance for the same duration?

Yes, and it is actually considered a smart decision. Health insurance would take care of your medical emergencies, whereas term insurance would protect your family’s finances in the long run.

3. Who should invest in health insurance?

Pretty much everyone can and should invest in health insurance, no matter their age or how healthy their lifestyle is. Medical expenses can occur without any warning and having insurance makes it easier for you to handle those unexpected expenses without putting a dent in your savings. 

4. Who should consider term insurance?

If you have people who depend on you financially, term insurance is worth having. It is less about medical costs and more about making sure your family is financially secure if something happens to you. 

5. Does term insurance cover medical or hospital expenses?

No, it doesn’t. That is the main factor differentiating these plans. A term plan is about income replacement, but health insurance is what actually pays for the treatment, hospital bills, and related costs. 

6. Does health insurance provide any death benefit?

Health insurance does not offer any death payout. This itself is one of the most striking differences between a health plan and a term plan, since the latter is designed to provide death benefits.

7. Should I buy my own policy if I already have health insurance through my employer? 

A company-provided policy is a decent starting point, but it is not enough as their coverage would end when you leave the job or retire. Also, the amount insured is mostly too small to cover a medical bill.  

8. Can I claim tax benefits on both health and term insurance together?

Yes. Premiums for health insurance are deductible under Section 126 (previously known as Section 80D), while term insurance premiums qualify under Section 123 (previously known as Section 80C), and the payout to your family is tax-free under Schedule II(2) (previously known as Section 10(10D)) of the Income Tax Act. 

9. How much term cover do I need?

A common starting point is to add up a year of your family’s essential expenses, then add any outstanding loans. That total is roughly your minimum term cover target. Some advisors suggest keeping it to 10 to 15 times your annual income, especially if you have young children or long-term financial obligations.