Explain Like I am 5: Key differences between life and health insurance

Deepika Chelani
Updated: 03 Jan 2022, 12:02 PM IST

While health insurance covers medical expenses, especially in case of hospitalisation, life insurance is meant to give financial support to the dependents in the case of the death of an insured. Let us explore more on this.

Health insurance covers medical expenses whereas, life insurance can assist your family in reducing their financial burden in the event of your unexpected death.

Health insurance covers medical expenses whereas, life insurance can assist your family in reducing their financial burden in the event of your unexpected death.

It's reassuring to know that if your health takes a turn for the worse, you and your family will be financially secure. Paying for both a life insurance policy and healthcare coverage each month might be difficult when money is tight. When bills start piling up, it's tempting to cut one or the other to make ends meet. While health insurance covers treatment costs, life insurance can assist your family in reducing their financial burden in the event of your unexpected death.

It is however important to understand the difference between life and health insurance. Let us start by understanding the insurance in detail.

What is life insurance?

Life insurance is a contract between the insured and the insurance company that, in the case of the insured's death, the life insurance for which he or she paid premiums bears fruit in the form of financial advantages to the beneficiary/nominee.

Two basic categories of life insurance

Whole life insurance

Whole life insurance has fixed premium payouts and provides a tax-free and fixed sum assured to the beneficiary. Because of its consistency and low or no risk approach, this insurance is less expensive than universal life insurance. In some circumstances, taking a loan against this type of insurance is also an option.

Universal life insurance

Universal life insurance offers a death benefit to the nominee, but it may also be viewed as an investment policy. Premium payments are usually flexible, and a portion of the payment is invested to increase the cash worth of the sum insured.

Benefits of life insurance

  • The two most essential advantages of life insurance are financial stability and protection.
  • The majority of payouts are tax-free in life insurance.
  • A death benefit is assured under this policy.

What is Health insurance?

Health insurance is a contract between the insured and the insurance provider that guarantees you financial protection in the event of a medical emergency. For his or her health insurance, the insured pays a certain premium.

Three basic categories of health insurance

Individual Health Insurance

Individual health insurance is a form of coverage designed specifically for a single person to protect and cover them against a variety of illnesses , hospitalisation costs, accidents and other medical emergencies that may occur throughout their lifetime. Individual health insurance policies also provide extra benefits such as Maternity Benefit, OPD costs, AYUSH, and so on.

Family Floater Health Insurance

A family floater health insurance policy is one that is tailored to fit the needs of the complete family under a single premium. All family members are protected and covered against different illnesses, accidents, and other medical demands that may happen throughout a person's lifetime.

Senior Citizens Health Insurance

Senior citizens health insurance, as the name implies, is a form of health insurance coverage for persons over the age of 60. It is tailored to meet the medical and psychological requirements of older persons, and includes advantages like organ donation fees, and critical illness coverage.

Benefits of health insurance

  • Restoration Benefit is a feature of health insurance that allows the insurance company to restore your Sum Insured if it has been used to treat an illness.
  • Critical illness cover covers hospital expenditures in the event of a severe illness whether purchased as an add-on or as part of the plan.
  • Accidental Hospitalisation - In the event of an accident, this benefit covers the costs of ambulance, pre-hospitalization, and post-hospitalization charges such as ICU, physician fees, occupational therapy and more.

Here are some benefits of health insurance

Difference between life and health insurance

  1. Life insurance is a holistic policy that covers you for the rest of your life and is not limited to a certain expenditure. Health insurance, on the other hand, is often restricted to solely covering your medical requirements, with only medical emergency coverage available as needed.
  2. Life insurance is generally a long term plan whereas health insurance, a short term.
  3. Depending on the type , you might get both survival and death benefits at the conclusion of the life insurance policy term. Health insurance does not cover you in the event of your death ,it simply takes care of your present medical requirements and treatment.
  4. The majority of life insurance policies are for a set period of time. When the period of the insurance expires, it is usually terminated. A health insurance policy's duration isn't set in stone. In most cases, the insured renews the insurance every year so that he or she may continue to benefit from the protective coverage it provides.

Life and health insurance are different terms with varying features and benefits. People may get confused sometimes which one to buy. Paying for health and life insurance at the same time becomes a lot less frightening when you just acquire the coverage you really need. 

Therefore, it is advised to carefully understand and research about them before choosing the right solution to your needs.

First Published: 03 Jan 2022, 12:02 PM IST
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