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There are various types of insurance plans available today covering various types of risks. Life insurance and health insurance are two extremely popular coverages providing for extremely critical risks threatening our well-being - both physically and financially.Even though the obvious difference between the two is highlighted by their names, there are various other aspects where life insurance and health insurance differ from each other. We need to understand the difference between the two so that we can make an informed decision on whether it is necessary to include both the products in our portfolio or one is enough.
What Is Life Insurance ?
life insurance plan is basically a bond between the insurance company and policyholder that in case of untimely death of the insured person, the life insurance will pay out sum assured to the nominee of the policy holder against the premiums paid by him/her. The death benefit is usually tax-free.
What Is Health Insurance ?
A health insurance plan is contract between the insurance company and policy holder that the company will provide a fixed financial cover in case of medical emergency. There are two ways in this, either the expenses paid by you for medical needs get reimbursed by the insurer or if you have chosen a cashless policy then the bill amount is directly settled by the insurer.
Life Insurance vs Health Insurance
Let us examine some key differences between life insurance and health insurance:
| Aspect | Life Insurance | Health Insurance |
| What does it entail? | Provides death benefit in the form of sum assured in the event of the policyholder’s demise. | Provides coverage for one’s medical and hospitalization expenses up to the amount of sum insured by the policy. |
| Purpose | Financial support to the deceased person’s family so as to help them to maintain their lifestyle and achieve their goals in their absence. | With healthcare costs on the rise, an unforeseen illness can easily burn a hole in one’s pocket. Financial aid in the time of a medical crisis relieves the insured individual of mental stress. |
| Core benefit | The sum assured is paid to the nominee specified by the policyholder. | Coverage for medical treatment costs incurred by the insured individual, subject to maximum sum assured, copayment clause, and sub-limits. |
| Additional benefits | Depending on the plan you opt for, your life insurance policy may include additional benefits such as term rider, waiver of premium rider, maturity benefit, surrender benefit, loyalty additions, etc. over and above your base cover. | Depending on the plan you opt for, your health insurance policy may include additional benefits such as no claim bonus, wellness benefits, maternity rider, critical illness rider, etc. |
| Tax benefits | Under section 80D of the Income Tax Act, 1961 an individual can claim a deduction up to Rs. 25,000 on premiums paid for health insurance plans that cover self and family and an additional deduction up to Rs. 30,000 for plans that cove senior citizen parents. | Under section 80C of the Income Tax Act, 1961 an individual can claim a deduction up to Rs. 1.5 lakh on premiums paid for a life insurance policy. As per section 10(10D) of the Income Tax Act, 1961 the amount of sum assured plus any bonus (i.e. the policy proceeds) paid on maturity or surrender of policy or on the death of the insured are completely tax-free for the receiver subject to certain conditions. |
| Types of Plans | Individual or Group (Family) coverage | Individual or Family Floater or Group coverage |
The Verdict Since it is clearly evident that health insurance and life insurance are two entirely distinct products, fulfilling two completely different needs, it would be financially prudent to incorporate both into one’s portfolio.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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