Difference Between Life Insurance & Health Insurance

  • postauthorOnsurity Editorial
  • postdateMarch 23, 2024
  • postreadtime15 min read
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When it comes to securing one’s financial future and planning, insurance assumes a crucial role. Two crucial types of insurance that often get entangled in discussions are health insurance and life insurance. While both are designed to offer protection and financial security, they serve distinct purposes and cater to different aspects of an individual’s well-being. Read on to know the difference between life insurance and health insurance.

Life insurance and health insurance

In the cozy neighbourhood where Soumya lived, life was rather comfortable. She was a 35-year-old with a cool job, a loving partner, and two kids. One evening, while Soumya was out with her family, she got a call that changed her perspective towards having insurance. Her close friend had a sudden heart attack, leaving the whole family shocked.

The medical bills piled up, and the family was in a total mess – feeling lost and desperate. This hit Soumya hard, making her realize how life can throw curveballs when you least expect it. Right then, Soumya decided she needed a safety net.

As she delved into the world of insurance, she discovered two products that could be her family’s shield: health insurance and life insurance. Health insurance, she learned, would protect her and her family against the rising medical bills.

While Soumya was smart enough to get a health and life insurance cover for her family, a concerning trend persists in India, where over 73% of the population lacks health insurance protection. Despite the evident advantages offered by health insurance, a substantial number of individuals opt not to buy it, eventually getting into healthcare-led debt or extremely high out-of-pocket expenses.

According to the findings in the 2023 Progress Report on Sustainable Development Goals National Indicator Framework, more than 90 million individuals in India reside in households where healthcare expenses constitute over 10% of their overall spending. Among them, a staggering 31 million individuals live in households where health expenditures exceed a quarter of the total household budget.

A similarly concerning trend looms over the landscape of life insurance in India. As per a recent Economic Survey released by the Ministry of Finance, shockingly, only 3 out of every 100 individuals in the country have a life insurance policy. This statistic underscores a significant gap in financial preparedness for unforeseen circumstances and highlights the urgent need for heightened awareness and accessibility to life insurance coverage among the Indian population.

Quick Read: Cashless Health Insurance Claims

Life insurance vs Health insurance: A Comparision

Feature Life Insurance Health Insurance
Purpose Provides financial protection to your loved ones in case of your death  Covers medical expenses incurred during illness or injury 
Payout Death benefit paid to beneficiaries upon your death  Reimbursement for eligible medical expenses
Coverage Period Term life: coverage for a specific period (e.g., 20, 30, 40 years) or until death of the policyholder  Varies depending on the plan; typically, annual renewal with coverage throughout the year 
Cost Premiums are typically based on age, health, and sum insured amount  Premiums based on age, health, location, and chosen plan 
Tax Benefits Premiums for most life insurance policies are tax-deductible under Section 80C of the Income Tax Act Premiums paid towards retail health insurance policies are tax deductible under Section 80 C of the Income Tax Act  
Types Term life, whole life, ULIPs, Guaranteed plans, Money back plans etc Individual, family, employer-sponsored, Critical illness, super top up.  

What is life insurance?

A life insurance policy is an agreement between an individual and the insurance provider. In this agreement, the insurance company commits to paying a predetermined sum of money to the family or designated nominee of the policyholder in the event of their death.

This commitment is contingent upon the individual making regular payments, known as premiums, typically on an annual basis. The person purchasing the insurance is referred to as the policyholder.

In the unfortunate event of the policyholder’s demise, a life insurance policy ensures that a lump sum amount is disbursed to the family. While monetary compensation cannot fully compensate for the loss, it serves to mitigate financial challenges for the family, providing financial stability after the primary earner’s passing.

Beyond the protective coverage against life’s uncertainties, some life insurance policies also serve as a means to cultivate savings. It presents opportunities for the policyholder to build a financial cushion for future expenses, such as funding higher education or covering the costs associated with a child’s marriage.

In the event of untimely death of the life assured, the death benefit is offered to the beneficiary. In essence, life insurance acts as a versatile tool that not only safeguards against risks but also facilitates prudent financial planning for the future.

Quick Read: What is Adverse Selection in Insurance?

How does life insurance insurance work?

Life insurance operates as a contractual arrangement between an individual (the policyholder) and an insurance company.

Here’s a step-by-step explanation of how life insurance typically works:

  • The individual interested in obtaining life insurance selects a specific type of policy based on their needs, such as term life insurance or whole life insurance.
  • An application is made to the insurance company. This application often includes information about the individual’s health, lifestyle, and other relevant details.
  • The insurance company then gets into the underwriting process, which involves assessing the risk factors associated with insuring the individual. This process helps determine the premium amount.
  • The policyholder is required to make premium payments which need to be paid on a monthly, quarterly, or annual basis. The payment interval usually depends on the policy and the insurer.
  • The policy document outlines the terms and conditions of the coverage, including the amount of the death benefit, the premium amount, and other relevant details.

In case of the death of the policyholder during the tenure of the policy, the coverage amount is paid out to the beneficiary after the claim is filed.

If the insured individual outlives the term, then the policy matures, and the maturity benefit is paid to the policyholder. In the case of term insurance, no maturity benefit or survival benefit is offered to the policyholder.

Types of Life Insurance

types of life insurance

1. Term insurance:

Term insurance is a straightforward and cost-effective form of life insurance that provides coverage for a specified term or duration. Unlike other types of life insurance, term insurance does not accumulate a cash value over time.

Instead, it focuses solely on providing a death benefit to the beneficiaries if the insured person passes away during the policy term. If you have any loans or liabilities and are the primary breadwinner of the family then having this type of insurance is highly recommended.

Also, Read: What is Group Term Life Insurance?

2. Endowment plans:

Among all the life insurance options, endowment plans are straightforward. A portion of your premium is invested, while the remaining is allocated to a death fund. If you pass away during the policy period, your beneficiaries receive the death benefit. While the plan is active, the invested amount earns dividends, providing guaranteed returns.

3. Unit Linked Insurance Plans (ULIP):

Widely chosen for investment, ULIPs allocate a portion of your premium to the financial markets. One part is secured in an insurance fund for your family’s financial security, while the other is invested.

ULIPs offer various funds catering to different risk appetites, from low-risk cash funds to higher-risk equity funds. Although associated with risks, ULIPs can yield higher returns, and many leading Indian life insurance companies offer them.

4. Whole Life Insurance Plans:

More of an investment than insurance, whole life insurance plans assure coverage until the end of your life, with ongoing investments. While more expensive than regular life insurance, these plans offer substantial investment options among various life insurance plans.

5. Money Back Plans:

A practical life insurance option, money back plans allow you to invest for the future. Within fixed intervals, you receive payouts as a percentage of the sum assured. These plans are flexible, enabling you to invest for specific life events, such as starting or upgrading a business, while ensuring continuous life coverage.

6. Child Plans:

Investing in your child’s future is crucial, and various life insurance plans cater to this need. Child-specific ULIPs, money back plans, and endowment plans are readily available.

These plans not only help you save for your child but also provide life insurance coverage. In the event of any unforeseen circumstances, your child is financially protected.

Also, Read: What is Employer Employee Insurance?

What is health insurance?

Health insurance is a type of insurance that offers coverage to the insured individual against the rising medical expenses. In case of hospitalisation, medical expenses are covered by the insurance company in exchange for the premium paid by the insured.

This form of insurance ensures comprehensive coverage against medical bills, offering both financial protection and a prudent approach to managing healthcare expenses.

What does health insurance cover?

Health insurance typically covers a range of medical expenses, and the specific coverage can vary based on the policy.

Costs that are usually covered under health insurance include:

  • 24-hour Hospitalisation: Expenses related to in-patient care, including room charges, surgeries, and associated costs.
  • Outpatient or (OPD) expenses: Some health insurance plans offer coverage for doctor visits, diagnostic tests, vaccines, and out-patient procedures as well.
  • Pre and post hospitalisation expenses: Expenses incurred before and after hospitalisation are also covered. These expenses are usually covered for 30-60 days, basis the policy you opt for.
  • Preventative health check-ups: Coverage against healthcare screenings, vaccinations, routine check-ups, etc are covered, subject to your policy’s terms and conditions.
  • Maternity care: Delivery expenses along with pre-and post-natal care expenses are covered. This may be subject to a waiting period as stated in the policy document.

Also, Read: Waiting Period in Health Insurance

How does health insurance help with managing healthcare costs?

1. Financial protection:

Health insurance provides a safety net against exorbitant medical costs. By covering a substantial portion of healthcare expenses, insurance ensures that individuals don’t face financial ruin due to unexpected medical bills.

2. Comprehensive coverage:

A health insurance policy encompasses various coverage benefits, including pre and post-hospitalisation expenses, domiciliary hospitalisation costs, ambulance charges, and more.

Additionally, certain plans offer a daily hospital cash cover, assisting in managing ancillary expenses like travel and food. In situations where handling medical costs becomes challenging, a health insurance policy proves invaluable, alleviating the associated hassles and providing financial relief.

3. Preventative care:

Some health insurance plans emphasise on preventive care, offering coverage for routine check-ups, vaccinations, and screenings. This proactive approach helps catch potential health issues early, preventing more serious and costly conditions down the line.

How does health insurance work?

A health insurance plan serves as a crucial safeguard, offering protection to individuals and their families against the unforeseen financial burdens that often accompany medical emergencies or chronic illnesses.

This comprehensive coverage extends to the various medical expenses incurred during unexpected health crises. By paying regular premiums, individuals gain access to these benefits, allowing them to navigate healthcare costs more effectively.

Health insurance plans typically fall into two main categories:

  1. Indemnity plans
  2. Fixed-benefit plans.

Quick Read: Pre-Existing Disease in Health Insurance

1. Indemnity plans:

Indemnity plans, also known as fee-for-service plans, provide a more flexible approach to healthcare coverage. Policyholders have the freedom to choose healthcare providers and services. After receiving medical care, the policyholder submits a claim to the insurance company, which then reimburses the covered expenses up to the policy’s limits.

Advantages: The key advantage of indemnity plans is the flexibility to choose healthcare providers without being limited to a network. Policyholders have the freedom to decide when and where to seek medical services.

2. Fixed-benefit plans:

Fixed-benefit plans, on the other hand, offer predetermined payouts for specific medical events or services, irrespective of the actual costs incurred. These plans provide a fixed sum for services like hospital stays, surgeries, or other covered events.

Advantages: Fixed-benefit plans provide clarity on the maximum payout for each covered service, making it easier for individuals to understand their potential financial exposure. These plans may be more cost-effective for those seeking basic coverage without the need for extensive medical services.

In essence, health insurance, whether indemnity or fixed benefit, serves as a financial safety net by mitigating the impact of medical expenses. The choice between indemnity and fixed-benefit plans depends on individual preferences, healthcare needs, and the desired level of flexibility in accessing medical services.

Quick Read: What is an Insurance Health Card?

Types of health insurance

types of health insurance

1. Individual health plans:

This is a type of health insurance plan designed to cover hospitalisation expenses of a single individual; it takes care of the expenses till the coverage limit i.e. the sum insured you have opted for. This type of policy can also be purchased for your spouse, children, or ageing parents.

For example: If Nidhi, who has a health cover of Rs. 4.5 lakh meets with an accident and her hospitalisation expenses mount to Rs. 5.5 lakh, then in such a case, the insurer will only pay Rs. 4.5 lakhs i.e. the coverage amount opted for by Nidhi.

Also, Read: Types of Health Insurance

2. Family floater plan:

This is a type of health insurance plan, providing coverage for your family members under a single umbrella. Under this plan, you can cover your spouse, kids and yourself. Few insurers also let you extend the coverage to your siblings, parents and in-laws. Single premium every year must be paid for securing all the family members since all individuals are covered under the same plan.

3. Senior citizen health insurance:

Senior citizen health insurance plan covers medical costs for individuals aged above 65 years. This type of insurance allows aged individuals to avail facilities such as cashless hospitalisation, critical illness coverage, ambulance charges, medical bills, room rent and others.

4. Super top up health insurance plan

Having a comprehensive health insurance plan is crucial for covering medical expenses, especially when considering a super top-up plan. A super top-up plan comes into play once you surpass the deductible limit on your base health insurance. For instance, if your regular health insurance has coverage up to Rs. 5 lakhs and you also have a super top-up plan with a deductible of Rs. 3 lakhs, here’s how it works:

Let’s say you encounter a health emergency with a hospital bill amounting to Rs. 4 lakhs. In this case, your regular health plan covers the entire cost because it falls below the deductible limit.

However, in the same year, if you face another health issue resulting in a hospital bill of Rs. 6 lakhs, the super top-up cover will come into effect. Since the bill exceeds the deductible of Rs. 3 lakhs, the super top-up plan will contribute towards covering the additional Rs. 3 lakhs, ensuring that your overall medical expenses are adequately taken care of.

This layered approach provides a financial cushion and ensures comprehensive coverage for unforeseen healthcare costs.

5. Maternity health insurance:

This plan is the right one to opt for, if you are planning a pregnancy. Maternity health insurance provides coverage for everything related to maternity i.e. pre and postnatal expenses, baby’s birth, ambulance charges and others. You can also opt for a maternity cover with your base health insurance plan. However, it is important to keep in mind that this type of insurance comes with a waiting period of 9-48 months.

Also, Read: Maternity Leave in India

6. Group health insurance:

This type of insurance provides benefits to a group of people, typically employees of a company or members of an organisation. This type of health insurance, in most cases, also comes with wellness benefits. Onsurity’s group health insurance membership offers health insurance coverage along with a range of wellness benefits including doctor tele-consultations, discounts on medicines and healthcare screenings, etc.

7. Critical illness:

This type of insurance offers lump sum coverage in case the policyholder is diagnosed with a severe medical condition listed in the policy document. This includes medical conditions such as cancer, heart attack, stroke or other specified illnesses.

Related Read: Individual Health Insurance vs Group Health Insurance

Importance of life insurance

Considering the uncertain nature of life, life insurance is not just a financial product but a crucial shield against life’s uncertainties.

In case of untimely death of the insured member, life insurance provides financial security to the family, helps in settling debts, and ensures the well-being of dependents. Based on the plan, life insurance also helps the insured with wealth creation, securing their financial future.

In the unfortunate event of one’s untimely demise, life insurance provides a lifeline by covering living expenses, settling debts, and ensuring the well-being of the insured’s dependents.

It extends its influence into long-term financial planning, aiding in legacy creation, estate planning, and business continuity. It is a strategic investment that transcends immediate needs, standing as a testament to the financial well-being of those we hold dear. Life insurance isn’t merely a financial product; it’s a promise to secure the dependent’s tomorrow and beyond.

Also, Read: How Does the Health Insurance Claim Process Work?

Why you should consider buying life insurance?

1. Financial protection for dependents: Life insurance provides a financial safety net for your loved ones in the event of your death. The death benefit ensures that your dependents have the means to cover living expenses, educational needs, and other financial obligations.

2. Settling outstanding debts: Life insurance can be instrumental in settling outstanding debts such as mortgages, personal loans, or credit card balances. This prevents your loved ones from inheriting financial burdens in the event of your passing.

3. Brings peace of mind: Having life insurance gives the insured and their family complete peace of mind. One can also plan retirement by taking a relevant plan wherein monthly income is offered.

4. Save tax: One can claim income tax deduction on life insurance premiums under Section 80C of the Income Tax Act, 1961. Pay-outs for death claims are tax-free under Section 10(10D) of the Income Tax Act, 1961.

Importance of health insurance

Health insurance is crucial for several reasons, and its importance cannot be overstated. Here are some key reasons why health insurance is essential:

1. Medical Expenses: Health insurance provides financial coverage for medical expenses, including hospitalization, surgeries, prescription medications, and other healthcare services. Without insurance, these costs can be prohibitively expensive and lead to financial strain.

2. Peace of Mind: Knowing that you have health insurance coverage can alleviate the stress associated with potential healthcare expenses. This peace of mind contributes to overall well-being.

3. Regular Check-ups: Health insurance encourages individuals to seek regular preventive care and health check-ups, leading to the early detection and prevention of potential health issues.

4. Timely Treatment: Having health insurance ensures that individuals can access necessary medical services promptly, reducing the likelihood of delayed treatment that can worsen health conditions.

Also, Read: What is Group Health Insurance Policy?

Life insurance benefits

A life insurance plan provides key advantages, including:

  • Financial security for beneficiaries in the event of the policyholder’s passing.
  • Tax-free payouts, contingent upon specified terms and conditions.
  • Facilitation of financial security and savings, the basis of the chosen plan.

Health insurance benefits

Health insurance provides the following primary advantages:

  • Financial support in times of medical emergencies.
  • Coverage for preventative health check-ups and vaccines to identify potential health issues.
  • Tax deductions corresponding to the paid health insurance premiums.

Read also: Exclusions in group health insurance

Life insurance or health insurance: what to choose?

The choice between life insurance and health insurance depends on your specific needs, priorities, and financial situation. Both types of insurance serve different purposes, and ideally, individuals should consider having both types of coverage for comprehensive financial protection.


In conclusion, the choice between life insurance and health insurance ultimately depends on your individual needs and priorities. Life insurance provides financial security for your loved ones in the event of your passing, ensuring they are protected from potential financial hardships.

On the other hand, health insurance is crucial for covering medical expenses, safeguarding your well-being and providing peace of mind during unforeseen health emergencies.

It’s essential to carefully evaluate your current circumstances, future goals, and budget constraints to make an informed decision. Striking the right balance between life and health insurance is key to comprehensive coverage that addresses both the immediate and long-term aspects of your overall financial well-being.

FAQs: Life insurance vs Health insurance

1. What is the basic difference between health insurance and medical insurance? 

While health insurance and medical insurance are often used interchangeably by many, there is a slight difference between the two in terms of coverage. Health insurance provides comprehensive coverage, including inpatient hospitalization costs, room rent, etc.

On the other hand, medical insurance offers limited coverage for hospitalization expenses, specifically for predetermined ailments and accidents. The maximum coverage offered under medical insurance is Rs. 5 lakhs, and it does not allow policyholders to opt for a rider to obtain additional coverage.

2. Should I get both life and health insurance? 

Yes, you should have both life and health insurance as they serve different purposes. Health insurance provides coverage for medical expenses, ensuring you receive necessary healthcare without a significant financial burden.

On the other hand, life insurance offers financial protection to your loved ones in the event of your death, helping cover living expenses and outstanding debts. Having both types of insurance provides a comprehensive safety net for you and your family. Moreover, both types of insurance offer tax benefits.

3. Which is better life or term insurance? 

Term insurance is a life insurance policy that provides coverage to your family in the event of your unfortunate death. This type of term insurance plan is affordable compared to other life insurance plans, allowing policyholders to focus on creating wealth and enjoying market-related returns.

4.  Is insurance and life insurance same?

No, insurance and life insurance are not the same. Insurance is a broad term comprising of various types of insurance such as health insurance, auto insurance, property insurance and more. Life insurance is a specific category within insurance that offers financial protection to the beneficiaries of the policyholders in case of his/her death.

5. Is it possible to cancel a life insurance policy at any time? 

No, you can cancel life insurance only at the time of free look period i.e within the first 30 days of the policy purchase. If you fail to pay your premiums beyond the grace period, the policy may expire. However, this depends on the policy terms and conditions as well.

6. What is the difference between group health insurance and individual health insurance?

Group health insurance is typically offered by employers or organizations to their members, like employees or union members. You get enrolled with a pre-selected plan unless you opt out. Individual health insurance, on the other hand, is purchased directly by you, meaning you choose the plan and who’s covered (usually just yourself, although some cover families).

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