Articles 509 views September 17, 2019

Difference Between Life Insurance and Health Insurance

Those new to the concept of insurance or its nuances often inquire about the difference between life insurance and health insurance. While the basic concept underlying both the kinds of insurances lies in covering the insured against any sudden or unfortunate event in the future, the manner in which they protect and preserve are entirely different. Similar in concept, but contrasting in functionality, life insurance plans serve to secure life cover for the insured, and thus, ensure a secure future for their nominees while health insurance is bought to offset the expenses pursuant to medical treatment in the future.

In What Aspects Do Life Insurance and Health Insurance Differ with Each Other?

Life Term Insurance is essentially a contract between the insurance company and the insured person according to which the insurer is liable to pay the predetermined amount of sum assured to the dependents of the policyholder in the event of death during the policy period. The sum assured, in most cases, is roughly 10 times the yearly premium paid, though the Insurance Regulatory Development Authority of India (IRDAI) has proposed to bring down the sum assured to seven times the annual premium in case of regular premiums and 1.25 times the premium amount in case of one-time premium. Death by suicide is not considered in most cases. The death benefits or sum assured may be handed over to the beneficiaries in a lump sum or doled out as annuities spread over a definite period. The contract of health insurance binds the insurer to pay for the medical treatment and hospitalization expenses of the insured in return for regular premium payments.

While the former covers risk against unforeseen death during the term of the policy and promises benefits to the nominee(s) of the insured, the latter covers the cost of treatment in case of critical illnesses or grievous accidental injuries.

The following table will help understand other key points of difference between life insurance plans and health insurance policies.

Points of DifferenceLife Insurance Health Insurance

Added Benefits
One can choose to top the base cover by opting for additional benefits including Maturity Benefit, Surrender Benefit, Loyalty Additions, etc. Some health insurance policies allow option of No Claim Bonus. There are others that do not charge for health check ups.
Kinds of CoversBoth Individual insurance and Group coverage are available.The policyholder can choose to buy an individual health insurance, family floater policy or group coverage.
Types of Plans Covered Under Life Insurance.Term plans, Traditional Savings plans, Child-related (wealth creation) plans, Retirement policies, etc.Health insurance plans offering comprehensive cover, critical illness cover, etc.

Tax Benefits
Premiums paid eligible as deductions under Section 80C while the maturity proceeds are eligible for tax benefits under Section 10(10D) of the Income Tax Act 1961.Premiums paid towards a health insurance policy that covers you and your family is eligible for tax deduction up to Rs 25,000 under Section 80D of Income Tax Act, 1961.

It is important to realize the importance of both life insurance and health insurance as essential financial tools that people must include in their investment portfolio depending on their requirements and the extent of their assets and liabilities. Before buying any policy, be it health coverage or life cover, one must browse through the benefits offered by each plan and make an informed decision regarding which plan to pay for. 

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