Difference between life insurance and health insurance

Life insurance is a contract between an insurance company and a policyholder. You need to pay premiums at specified intervals. On the death of the insured or after a predetermined period, the insurer will pay out the sum assured. 

If the insured person passes away during the specified term, a lump sum amount is paid to the nominee(s). However, if they survive the time, depending on the type of policy, the insurer will offer the policyholder a maturity benefit.

Types of Life Insurance Plans

Life insurance plans come in different types and you can choose the one that best suits your needs. Every insurance plan has certain conditions, so it is vital to understand them.

1. Term life insurance: A term life insurance plan is one of the most affordable life insurance plans. As the name suggests, these plans have a predetermined period, and expire at the end of the term of the policy. Therefore, if the policyholder survives the insurance term, there will be no payout to the nominee.

2. Whole life insurance: Whole life insurance plans offer life coverage until you attain 99 years of age. The payout you receive in cash is tax-free. It is a very suitable policy for individuals with dependents.

3. Unit-linked insurance plan (ULIP): Unit-linked insurance plans offer life cover and also have an investment element in them. These have a lock-in period of 5 (five) years, and you can choose the underlying scheme for investment element depending on your goals and risk appetite.

4. Endowment insurance plan: An endowment insurance plan gives you saving opportunities as well as insurance benefits. If you survive the policy tenure, you are offered maturity benefits. The plan is best suited to meet long-term financial goals.

5. Money back insurance plan: A policyholder of a money back insurance plan gets investment and protection benefits. If you survive the term, you get periodic payouts as survival benefits or a fixed amount at the end of the policy period. In case of the policyholder’s demise, the dependents get the payout. 

Before discussing the differences between life insurance and health insurance, let’s understand what health insurance is and its types in detail. 

What is Health insurance? 

It is an insurance product where the policyholder or insured person is covered for their medical expenses. Some policies may also cover your hospitalisation bills and surgical expenses for certain illnesses. With some health insurance plans, you may need to bear the cost yourself and then get the amount reimbursed from the insurer. In other cases, the insured can get treated in a network hospital of the insurer and make a cashless claim.

Types of Health Insurance Plans

Every individual has different medical needs, and a single type of health insurance plan can’t meet the needs of different individuals. Hence, it is crucial to understand the plan type you need and then choose accordingly. Here is a brief of the different health insurance plans available in the market. 

1. Individual health insurance - This health insurance plan can be availed for yourself and dependents. It offers coverage against all kinds of medical expenses like hospitalisation, daycare procedures, hospital room rent and more.

2. Family Floater health insurance - This plan enables you to cover you and your dependents like parents, spouse, and kids under a single policy. When compared to an individual health insurance policy, these are more affordable as the sum assured can be shared among the number of dependents, when needed. 

3. Senior citizen health insurance: These plans are specifically designed for senior citizens. They offer additional cover for elderly people like domiciliary hospitalisation, psychiatric benefits, etc. Insurance companies may ask for a full medical check-up before issuing these health plans to senior citizens. 

4. Group health insurance: Employers purchase such plans to cover a large number of individuals under a single policy. This is done to provide for the basic health requirements of their employees. Sometimes, these group health insurance plans also cover extended family members of employees either on pay of additional premium, or without any additional premium.

5. Critical illness insurance: With so many diseases on the rise, the demand for critical illness insurance plans has also increased. It covers the expenses incurred for the treatment of specified life-threatening diseases like cancer, kidney failure, coronary heart disease, neurological conditions, etc after diagnosis. A lump sum amount (sum assured) is offered to the policyholder on diagnosis of these diseases, irrespective of the actual expenses incurred. 

Difference between life and health insurance

Different insurance policies serve different needs. Now that you know what these two insurance policies mean and what their types are, let us look at how they differ. 

Here are some major differences between life insurance and health insurance.

Now that you understand the difference between life insurance and health insurance, the last step is to choose wisely. Both types of insurance fall into different categories and cover various risks. If you research well, you will realise that many insurance companies and online credit marketplaces like Wealthy offer these plans at competitive rates.