Buying an insurance policy is an effective way of securing one’s finances against the unpredictable events that may occur in one’s life. Insurance is broadly categorized into general insurance and life insurance. The category of life insurance secures one’s life and provides financial relief to loved ones against an untimely passing away. It has sub-categories as well. Depending on your requirements, you can buy a term plan, a ULIP, or an endowment life insurance plan. General insurance is an umbrella term encompassing non-life insurance policies. These include health insurance, motor insurance, home insurance, and so on. 

In this article, we look at the differences between term insurance, health insurance, and life insurance. 

Term insurance: an overview 

Term insurance is a kind of life insurance that is valid only for a particular period. If the policyholder passes away during this period, the nominee/s receive/s the sum assured as prescribed in the policy. If the policyholder survives the maturity of the policy, they may not receive any compensation unless they have opted for the ‘return to premium’ feature. This feature enables the policyholder to receive the total premiums paid and the maturity benefit when they survive the maturity of the policy. 

A term insurance policy is usually opted for to cover important events in the policyholder’s and their loved ones’ lives that are likely to occur within a particular period. A term insurance plan ensures that the uncertainties of life do not financially affect major life events such as children’s higher education, career investments, children’s marriage, and so on. Term insurance benefits can be maximized by opting for various riders such as critical illness benefit rider, waiver of premium rider, accidental death rider, and so on, which add an extra layer of coverage at an additional premium. 

Premiums are paid at regular intervals or in a lump sum. A term insurance premium calculator can be a helpful tool to understand the cost of insurance you will have to incur. 

Health insurance: an overview 

A health insurance policy provides compensation to the policyholder when they undergo hospitalization or suffer from health issues covered by the policy. Health insurance does not cover the passing away of the insured under any condition. Health insurance has the feature of a sum insured which refers to the upper limit of the amount that the insurer will pay in case of any medical emergency. When you buy a term plan or whole life plan, there are a limited number of claims you can make. In a health insurance plan, one can make multiple claims within a year until the sum insured is exhausted.

While health insurance is a kind of investment in the figurative sense, it does not offer any direct returns based on market performance, as is possible with some equity-linked life insurance policies. 

Similar to a term plan premium calculator, there is a health insurance premium calculator that considers your age, your health history, and other factors to give you a premium estimate. 

Life insurance: an overview 

Life insurance is an insurance policy that provides financial compensation to loved ones when the insured member passes away under circumstances mentioned in the policy. Term insurance, too, is a kind of life insurance policy. While you get covered for a limited period when you buy a term plan, a whole life insurance plan is valid as long as one lives. There are some life insurance policies such as Unit Linked Insurance Plans that allow you to receive insurance coverage and invest in market-linked financial instruments at the same time. In these plans, you get returns based on how the market is performing; thus, they come with a certain amount of risk as well. 

There are many other types of life insurance policies, such as universal life insurance, child insurance, money back insurance, group life insurance, and so on. 

Features common amongst all three types of insurance policies 

Financial security 

Each of the three types of insurance policies mentioned provides financial security to the policyholder and thus is an important addition to their financial portfolio. 

Tax-saving element 

While Section 80D of the Income Tax Act, 1961 allows tax deductions against health insurance premiums, Section 80C tax deductions against the premium are an important part of life and term insurance benefits. 

Remember, whether you intend to buy a term plan, a ULIP, or a health insurance plan, self-research, and consultation with an expert are wise choices to take before going ahead.