Difference Between Health Insurance and Life Insurance


What is Life Insurance?

Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. For the contract to be enforceable, the life insurance application must accurately disclose the insured’s past and current health conditions and high-risk activities.

There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.

What is Health Insurance?

Health insurance is a contract that requires an insurer to pay some or all of a person’s healthcare costs in exchange for a premium. More specifically, health insurance typically pays for medical, surgical, prescription drug, and sometimes dental expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly.

It is often included in employer benefit packages as a means of enticing quality employees, with premiums partially covered by the employer but often also deducted from employee paychecks. The cost of health insurance premiums is deductible to the payer, and the benefits received are tax-free, with certain exceptions for some corporation employees.

There are two basic types of health insurance:

  • Mediclaim Plans:Mediclaim or hospitalisation plans are the most basic type of health insurance plans. They cover the cost of treatment when you are admitted to the hospital. The payout is made on actual expenses incurred in the hospital by submitting original bills. Most of these plans cover the entire family up to a certain limit.
  • Critical Illness Insurance Plans: Critical Illness Insurance Plans cover specific life threatening diseases. These diseases could require prolonged treatment or even change in lifestyle. Unlike hospitalisation plans, the payout is made on Critical Illness cover chosen by the customer and not on actual expenses incurred in the hospital. The cover gives the flexibility to use the monies for changing the lifestyle and medicines. Also it’s a substitute for income for the time you could not resume work due to illness. Payout under these plans are made on the diagnosis of the disease for which the original medical bills are not required.

Life Insurance vs Health Insurance

Life insuranceHealth insurance
Life insurance is a comprehensive cover that offers you complete Insurance all through your life span, it is not limited to a certain expense. It actually is the coverage in the eventuality of the insured’s demise, when the sum assured goes to the beneficiary.Health insurance is usually limited to only catering to your medical/surgical/ hospital needs, providing just a medical emergency cover as and when required. It does not go beyond your medical expense care.
The premiums are both fixed and flexible depending upon the type of Life insurance picked. Some Life Insurance plans also come with future investment value policies for better cash value.The premiums are mostly fixed. Health insurance provides coverage to deal with expenses incurred during medical emergencies. Investment is not the motive of these plans, protection is. One can claim a No-claim bonus in some cases.
Life insurance is a long-term plan.Health insurance is a short-term plan.
Life insurance is generally for a fixed tenure. It normally is terminated once the tenure of the Insurance is over.The tenure of this kind of insurance is not fixed. Under normal circumstance, the insured renews the policy annually so he/she can continue to have the protection coverage it offers.
Life insurance is mainly protecting your family/beneficiary/nominee financially in the eventuality of the insured’s demise.Health insurance is the protection cover for self as well as the family, in order to avoid any unfortunate eventuality such as loss of life due to financial constraints.
Life insurance, depending upon the insurance you choose offers both Survival and Death benefits at the end of the insurance term.Health insurance comes with no Survival or Death benefit, it only caters to your current medical needs and treatment.
In some cases, by paying a little extra premium, the money you invest comes back to you tax-free, upon maturity, in case you outlive the policy term.No amount is refunded at the end of the policy term. The amount comes back only as reimbursement that too against the expenses you incurred during the term for your illness or any other medical expenditure.

What you need to know

  • Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured.
  • Choosing a health insurance plan can be tricky because of plan rules regarding in- and out-of-network services, deductibles, copays, and more.
  • Life insurance is a legally binding contract that pays a death benefit to the policy owner when the insured dies.
  • A life insurance policy is only as good as the financial strength of the company that issues it. State guaranty funds may pay claims if the issuer can’t.
  • Term life insurance policies expire after a certain number of years. Permanent life insurance policies remain active until the insured dies, stops paying premiums, or surrenders the policy.
  • When the insured dies, the policy’s named beneficiaries will receive the policy’s face value, or death benefit.
  • For a life insurance policy to remain in force, the policyholder must pay a single premium up front or pay regular premiums over time.