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Difference Between Term Plan and Health Insurance Plan

dateKnowledge Centre Team dateMarch 02, 2021 views123 Views
Difference Between Term Plan and Health Insurance Plan

Even though India's insurance industry is booming, with around 57 insurance companies active in the country, general literacy among Indians about insurance and terms of policies is usually low. Often, misunderstandings about insurance terms lead people to make poor decisions.

To prevent such mishaps based on misconceptions, it is important to educate oneself about the difference between various types of plans, for example, the difference between term insurance plans and health insurance plans. To choose the best term plan or health insurance plan, you should be aware about the benefits these 2 plans offer.

plan, you should be aware about the benefits these 2 plans offer.

What is a term insurance?

Term insurance provides pure protection. This product is designed to provide a predetermined amount of money, usually paid out in a lump sum, to whoever the policyholder nominated. The nominees will only receive benefits after the policyholder dies.

A term insurance is completely necessary for every individual because it provides the benefits of life insurance. Many term plans do not provide a maturity benefit to the policyholder unless the plan specifically says it does. Therefore, these shouldn't be considered as saving plans.

What is a health insurance?

Health insurance works as a contract between the policyholder and the insurer. It essentially covers all the insured's medical expenses, provided that they pay a fixed premium regularly. Health insurance can be bought for an entire family so that whenever they run into a medical emergency, they will be covered effectively.

These policies are also necessary, especially for families living in urban areas where health care costs a lot and diseases are caught more often. If you get cashless treatment or complete reimbursement of the medical bills, you can rest assured that life moves on like usual after the medical emergency.

What is the Difference Between a Term Plan and a Health Insurance Plan?

Term Insurance Health Insurance
Provides maturity benefits at the end of policy term. Doesn’t provide any maturity benefits when the policy term ends.
Offers life cover. With some plans you can also choose a cover for your entire life. No life cover is offered in a health insurance plan.
Term insurance has affordable premiums. The premium you have to pay for a health insurance is comparatively high.
Provides the nominee with a lump sum amount if the life insured happens to pass away. It doesn’t provide any death benefits in case the life insured is no more.

Benefits of having a term insurance

  • The best term insurance policy usually asks for the lowest premium compared to other insurance plans.
  • Whatever money you get from term insurance can be used to repay debts and loans, pay for your funeral costs, and replace the income that your family lost after your untimely demise.
  • If you have started investing at a younger age with the help of hybrid plans like Canara HSBC Oriental Bank of Commerce Life Insurance's Invest 4G, you will be able to provide your family with a fixed monthly income, leading a comfortable life.
  • If you choose a term plan with return of premium, whatever premium you paid throughout the policy term will be returned at the end.
  • Most term insurance policies offer tax benefits where you are eligible for tax exemptions under Section 80C, up to Rs. 1.5 Lakhs.
  • The income you receive as a part of the maturity claims will be tax-free under section 10(10(D)) of the Income Tax Act.

Benefits of having a health insurance

  • You will be completely safe in case of a medical emergency - regardless of how huge your bill is, the bank is liable to pay it off or reimburse it, provided your case meets the terms and conditions.
  • Less stress for you in the face of a medical crisis because most health insurance plans take care of pre-hospitalization and post-hospitalization expenses.
  • The options when it comes to health insurance available in the market right now.
  • Tax benefits are available - if you pay health insurance premiums for your family, including your extended family or elderly parents, you will be eligible for income tax exemption under Section 80D of the 1961 Income Tax Act.

Should you buy a term life insurance or a health insurance plan?

A term plan works differently as compared to a health insurance plan. Depending on your needs and financial circumstances, you can choose a plan that suits you. Term insurance plans also offer terminal illness cover, which will be beneficial if you are diagnosed with a terminal illness. However, a health plan acts as an ultimate health protection blanket that covers your medical expenses.

As both the insurance plans serve different purposes, it is better if you buy a term plan and if your financial circumstances allow you, you can also buy a health insurance plan. Assess your needs and choose the best insurance plan that will help achieve your goals.

It is always a good idea to have both term insurance and health insurance in your investment portfolio. The two provide entirely different benefits, which are both necessary to safeguard your family against imminent financial threats. Ensure you are at peace with the decision you make; the best term insurance or health plans should not stress you out but rather give you assurance.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to Ask while Buying a Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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