Difference Between Life Insurance And Health Insurance

Life insurance is like your personal safety that your family can open once you are not around to fulfill their needs. It is a bond between the person getting insured and the insurance company that in the unfortunate event of the insured’s demise, the life insurance he/she paid premiums for, bears fruit in terms of financial benefits to the beneficiary/nominee. The death benefits in most cases are income tax-free. So, the sum assured reaches the family without any substantial deductions. Life insurance offers an insurance cover for your entire life. You can think of it as your future full-proof savings plan for your family.

Health insurance is a contract between the insured and the insurance company to provide you with a financial cover in times of medical needs. The Insured pays a fixed premium for his/her health cover. If you have health insurance, you can either get the medical expenses that went through your pocket reimbursed or the insurance company pays the medical expenses directly on your behalf, both depending upon the health insurance policy that’s chosen. Certain health plans also cover the cost of your prescription medicines.

Benefits of Health Insurance

Following are five major advantages of purchasing a health care plan:

1. Coverage Against Medical Expenses

The main purpose of medical insurance is to receive the best medical care without any strain on your finances. Health insurance plans offer protection against high medical costs. It covers hospitalization expenses, day care procedures, domiciliary expenses, and ambulance charges, besides many others. You may, therefore, focus on your speedy recovery instead of worrying about such high costs.

2. Coverage Against Critical Illnesses

Insurance providers nowadays offer critical illness insurance, either as a standalone plan or as a rider. Such an insurance policy provides coverage against life-threatening diseases such as kidney failure, bone marrow transplant, stroke, and loss of limbs, among others. Upon diagnosis of any of the critical illnesses from the predetermined list of your policy, you are entitled to receive a lump sum amount. This amount may be used to meet your illness-related treatment costs, daily expenses, and any other financial obligations.

3. Cashless Claim Benefit

Many insurance providers offer cashless claim facilities. In such an arrangement, you do not have to make any out-of-pocket payments. The hospitalization expenses are settled between your insurer and the hospital. To avail of this benefit, it is imperative to get admitted at any of the insurer’s network hospitals. You may fill out a pre-authorization form and display your health insurance card to enjoy the cashless facility.

4. Additional Protection Over And Above Your Employer Cover

Many organizations cover their employees with a group insurance plan. However, such policies are not tailor-made according to the needs of every individual. Besides, you may be left uninsured in case of loss of job or change in employment. In order to protect yourself against such an event, purchase a health cover individually.

5. Tax Benefits

Health care plans provide tax benefits. Premiums paid towards your health care policy are eligible for tax deductions under Section 80D of the Income Tax Act, 1961.

Benefits of Life Insurance

Here are the major 5 benefits of life insurance: 

1. Life Insurance Payouts Are Tax-Free

If you have a life insurance policy and die while your coverage is in effect, your beneficiaries will receive a lump sum death benefit. Life insurance payouts aren’t considered income for tax purposes, and your beneficiaries don’t have to report the money when they file their tax returns.

2. Your Dependents Won’t Have to Worry About Living Expenses

Many experts recommend having life insurance that's equal to seven to 10 times your annual income. If you have a policy (or policies) of that size, the people who depend on your income shouldn't have to worry about their living expenses or other major costs. For example, your insurance policy could cover the cost of your children's college education, and they won’t need to take out student loans. 

3. Life Insurance Can Cover Final Expenses

The national median cost of a funeral that included a viewing and a burial was $7,640 as of 2019.4 Because many Americans do not have enough savings to cover even a $400 emergency expense, having to pay for a funeral can be a substantial financial burden.5 If you have a life insurance policy, your beneficiaries can use the money to pay for your burial expenses without having to dip into their own savings or use credit. Some insurers offer final expense policies. These policies have low coverage amounts and relatively inexpensive monthly premiums. 

4. You Can Get Coverage for Chronic and Terminal Illnesses

Many life insurance companies offer endorsements, also known as riders, that you can add to your policy to enhance or adjust your coverage. An accelerated benefits rider allows you to access some or all of your death benefit under certain circumstances. Under some policies, for example, if you are diagnosed with a terminal illness and are expected to live less than 12 months, you can use your death benefit while you’re still living to pay for your care or other expenses. 

5. Policies Can Supplement Your Retirement Savings

If you purchase a whole, universal, or variable life insurance policy, it can accumulate cash value in addition to providing death benefits. As the cash value builds up over time, you can use it to cover expenses, such as buying a car or making a down payment on a home. You can also tap into it if you need to during your retirement years. However, a life insurance policy should not replace traditional retirement accounts like a 401(k) or an IRA. What's more, cash value life insurance is considerably more expensive than term life insurance, which has no savings component but simply a death benefit.

Take Away

When you only buy the coverage you truly need, paying for health and life insurance simultaneously becomes a lot less daunting. For those of you age 30 and younger who don't suffer from chronic illness may be able to get by without the latter. But For people with dependents, these are two needs you really can’t avoid.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.