Life insurance VS Health Insurance

by April 19, 2017
Life Insurance vs from Health Insurance

A young working professional was talking to me about his aspirations and life goals. He also touched upon the financial aspects of it and was curious to know the important steps that ought to be taken. I told him to opt for a good life (term) insurance policy and a good health insurance policy. I also told him that the premium would be cheaper if he started young.

But Life Insurance and Health Insurance is the same, isn’t it?”, he asked me. That’s where I thought it is important for everyone, especially young working professionals, to understand the difference.

What is life Insurance?

If you were to, unfortunately, die today, who would take care of your liabilities and provide for your family? This would be covered by a good life insurance policy. A life insurance cover should be computed in such a way that it takes care of the following:

  1. Your debts, loans and any other liabilities

  2. A life cover should also provide your children, parents, and your wife a good claim amount so that they can continue to receive money to the extent of your income in the years ahead.

If you are the policy holder, life insurance would require you to pay a premium (mostly annual) and in case of an unfortunate incident leading to your death, your nominee (could be your parent, wife etc.) can claim the sum assured.

What is Health Insurance?

Health Insurance will cover you in case of treatment required for certain illnesses / diseases. It may cover the cost of your hospitalization and facilitate cashless hospitalization. It does not cover for your death and there will be no pay-out from a health insurance policy in case the policy holder dies.

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Do you need both Life Insurance and Health Insurance?

The answer is Yes. The purpose of both is different as explained above. If you opt for a decent life insurance cover and a health insurance cover as soon as you start working, you can enjoy the benefits of both by paying an affordable premium. As you grow older, the annual premium payment for both would increase.

What are the other benefits?

Apart from the obvious cover on your life and health, both these policies help you to save taxes to the extent that you pay towards annual premium. The premium payment made towards life insurance can be completely deducted from your taxable income to the extent of Rs. 1.5 Lakh under section 80 C of the Income Tax Act. The premium payment made towards health insurance enjoys tax benefits under section 80 D of the Income Tax Act.

Is there a need to upgrade the cover?

Again, the answer is Yes. Whether it is life insurance or health, your liabilities may keep going up and is not always proportional to the rise in income. For example, if you buy a new home, a substantial loan amount gets added to your liabilities. In such cases, it is advisable to upgrade your life insurance cover to account for the increase in liabilities. The life cover should be reviewed periodically, say every five years, to check if all your liabilities are covered and your family can manage to live well with the sum assured in case anything happens to you.

As for health insurance too, depending on your life stage, you may get married, have children and may be more prone to health problems that earlier. Hence, you should periodically review if the health cover is enough and decide to upgrade it to ensure that you (and your family) can get the best treatment for illnesses.

I recommend that you opt for a good life insurance policy and a good health insurance policy right away if you do not have one. It is wise to consult a financial advisor, or someone with better knowledge of finance, so that you can select the insurance policy that best suits your needs.





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