To deal with financial protection, both term plans & health plans serve distinct purposes. Where a term plan offers life protection for the family members, on the other hand, a health plan covers against medical costs, treatment costs, hospitalisation expenses, etc. Let us understand the differences between the two through this article in detail.
Benefits of a Term Insurance Plan
- In case a covered illness is diagnosed, one can take advantage of critical & terminal illness rider benefits to get financial assistance.
- Its primary aim is to provide income support to the family in case your death occurs during the policy tenure.
- Funds that are raised can be used to fund the children’s education or some other long-term financial goals.
- It helps to settle outstanding debts or loans, avoiding financial liabilities for families.
- It helps you maintain your lifestyle, which includes expenses like utility bills, shopping, rent, maintenance, property tax, investments, etc.
- The death benefit received is exempt from the tax under section 10 (10D) of the Income Tax Act.
Benefits of a Health Insurance Plan
- These plans encompass a comprehensive range of health services & medical expenses, including hospitalisation expenses, pre- & post-hospitalisation expenses, room rent charges, ambulance charges, etc.
- This plan includes OPD costs as well, i.e. outpatient treatment.
- This plan allows for the availability of tax benefits of up to INR 25,000 in case of an individual health insurance plan & up to INR 50,000 in case of a senior citizen health insurance plan.
- This plan offers a cashless treatment, meaning all the costs will be incurred directly by the insurance company.
- This plan also includes pre-existing diseases, excluding some major ones, which become eligible after a certain waiting period.
- This plan offers an attractive list of additional riders for an additional premium, resulting in increased coverage.
Difference between Term Plan & Health Plan
Provided are the differences between the Term Plan & the health insurance:
| Basis of Difference | Term Plan | Health plan |
| Purpose | Term Plan offers financial security to the dependent family members of the policyholder in case of their sudden demise. | The Health Plan covers medical costs incurred by the policyholder on their illness, hospitalisation, or injury. |
| Objective | Its main objective is to offer financial support to the policyholder’s family. | Its main objective is to lower the burden of medical costs on the policyholder. |
| Coverage | It offers a lump sum amount to the nominees of the policyholder in case of their sudden demise. | It bears the medical costs, hospitalisation bills, treatment costs, etc. |
| Premium | It is affordable. | It is comparatively higher. |
| Payment Mode | It normally offers an annual mode of payment, though some insurance companies may allow it to be monthly or quarterly. | It normally offers an annual mode of payment, though some insurance companies may allow flexibility in payment modes as well. |
| Return of Premium | Under a term plan with a return of premium, the insurance company is supposed to return the premium on the completion of the policy tenure in case the insured survives the policy term. | There is no such option. |
| Rider Benefits | It includes riders, such as an accidental death benefit, a waiver of premium, a permanent disability rider, & a critical illness rider. | It includes riders, such as maternity benefits, critical illness cover, wellness programs, &worldwide treatment cover. |
| Tax Benefits | It allows tax deductions on the amount of premium paid u/s 80C of the Income Tax Act, 1961. | It allows tax benefits on the amount of premium paid towards health insurance u/s 80D of the Income Tax Act, 1961. |
Different Types of Term Insurance Plans
Before you buy a term insurance, get yourself aware of its different types, which are as mentioned below:
- Level Term Plans
Under this plan, the policyholder is required to pay a certain fixed premium during the policy tenure. The policy tenure can range from 5 years to 10 to 30 years, which will depend on the needs of the policyholder.
- Increasing Term Insurance
Here, the amount of sum assured increases by a certain amount or percentage on an annual basis, considering inflation & some other factors. It could be a simple or compounded rate of interest, which will remain the same throughout the tenure of the policy.
- Decreasing Term Insurance
Under this plan, the amount of sum assured decreases by a certain amount or percentage on an annual basis. Here, the death benefit gets reduced every year, but the premium amount remains the same.
- Term Insurance with Return of Premium
Under this plan, the insured will receive a return on premium at the end of the policy tenure, if they survive the policy tenure. In case the insured dies before the end of the policy tenure, his/ her nominees will receive dual benefits, i.e., death benefits & a return on the premium payout.
- Convertible Term Plans
Under this plan, a term policy can be converted into a life policy without getting the health examinations done again. This plan allows for the conversion of a term life plan to a regular life or an endowment plan, where the death benefit is equal to the amount of sum assured.
Different Types of Health Insurance Plans
Provided below are the different types of Health Insurance plans:
- Individual Health Insurance
Individuals can get expenses compensated for illness along with medical expenses, including hospitalisation, surgical, & pre- & post-medical expenses until the insured limit is exhausted. An individual can also cover spouse, children, & parents by paying an extra premium under the same plan.
- Senior Citizen Health Insurance
It covers the cost of hospitalisation & medicines, as well as some other benefits like Domiciliary Hospitalisation& Psychiatric benefitsto those 65 years & above. Also, the premium is comparatively higher as senior citizens are more prone to diseases.
- Critical Illness Insurance
It provides insurance by offering a lump sum amount of money for life-threatening diseases. When the insurance is bought, one has to choose the health-related problems, & if the insurer is further affected by any of the same, the insurance can be claimed.
Conclusion
While both play a vital role in everybody’s life, they serve different purposes. Provided are the factors that let you decide which plan to choose:
- Evaluate the requirements of your family members.
- Buy a plan based on the financial condition & budget by assessing the premium amount & sum insured.
- Plan the decision, like purchasing a health plan when you are young & a term plan when you have a family.
