Life Insurance vs Health Insurance: Which One Should You Get First?
If you’re confused about whether you need life insurance or health insurance first, you’re not alone. Many people think they serve the same purpose. However, life insurance and health insurance are designed for different needs.
While life insurance protects your loved ones financially if something happens to you, health insurance helps cover your medical expenses while you’re alive.
Let’s break down the key differences between life and health insurance, explain how each works, and help you decide which one to prioritise.
Key Highlights
- Life insurance supports your family financially after your death.
- Health insurance covers your medical expenses while you're alive.
- Life insurance offers lump sum payout; health insurance provides cashless/reimbursement.
- Tax benefits: Life – Section 80C; Health – Section 80D.
- Best financial safety net = having both policies.
Table of Contents
Let's go to the basics
Both life insurance and health insurance are a contract between the policyholder and the insurance company. The insured agrees to pay premiums regularly, and, in return, the company will offer the below advantages.
- For life insurance: If the policyholder dies during the policy tenure, the nominee/beneficiary is paid a lump-sum amount. In some schemes, the maturity benefit is provided if the insured survives the whole term.
- For health insurance: It covers medical expenses up to the sum insured in case of illnesses, hospital stays, or treatments.
Now that we have a general idea, let’s examine the key features of each and understand the difference between life insurance and health insurance.
Life Insurance: Key Features
|
Features of Life Insurance |
Explanation |
|
Death Benefit |
The nominee receives the sum assured if the policyholder dies during the policy term. |
|
Maturity Benefit (for Certain Plans) |
Endowment and money-back plans pay the policyholder if they survive the policy term. |
|
Premium Payments |
You pay a fixed premium regularly until maturity or the insured’s death. |
|
Includes term insurance, whole life, endowment, ULIPs, and money-back plans. |
|
|
Tax Benefits |
Premiums qualify for tax deductions under Section 80C; payouts are tax-free under Section 10(10D). |
|
Financial Security to Family |
It ensures your family faces no financial burden after your death. |
|
A 10–30 day period to review and cancel the policy for a partial refund. |
Let’s understand this with an example:
Rahul, a 35-year-old professional, buys a 20-year term life insurance policy with 1 crore assured sum. In case of his death within this period, his family will receive 1 crore.
Health Insurance: Key Features
|
Features of Health Insurance |
Explanation |
|
Covers Medical Expenses |
Covers hospitalisation, surgeries, doctor fees, and treatments. |
|
Bills settled directly by insurer at network hospitals. |
|
|
Individual, family, senior, group, critical illness. |
|
|
Pre- and Post-Hospitalisation Cover |
Pays for tests and treatment before and after hospitalisation. |
|
Tax Benefits |
Premiums exempt under Section 80D. |
|
No-Claim Bonus (NCB) |
Get a discount or higher cover for claim-free years. |
|
15–30 days to cancel and get a refund (minus charges). |
Let’s understand this with an example:
Anjana, a 30-year-old working professional, has a health insurance policy with a 5 lakh sum insured. One day, she experiences severe abdominal pain and is diagnosed with appendicitis. She undergoes surgery and is hospitalized for 3 days.
The total bill comes to ₹1.8 lakh. Since the hospital is part of her insurer’s network, Priya opts for cashless treatment. The insurer directly settles the bill with the hospital. Priya doesn’t pay anything out of pocket, and her remaining sum insured stays available for future claims.
Difference Between Life Insurance and Health Insurance
|
Feature |
Life Insurance |
Health Insurance |
|
Purpose |
Provides financial security to the family after the policyholder’s death |
Covers medical expenses of the policyholder while they are alive |
|
Coverage |
Death benefit or maturity payout |
Medical expenses, hospitalization, treatments |
|
Payout Type |
Lump sum amount paid to the nominee |
Reimbursement or cashless claim settlement |
|
Tax Benefits |
Premiums exempt under Section 80C; payouts tax-free under Section 10(10D) |
Premiums exempt under Section 80D |
|
Who Benefits? |
Family members/nominee after the policyholder’s death |
The policyholder themselves and their families (if covered) during their lifetime |
|
Types of Plans |
Individual, family floater, critical illness, group insurance |
Benefits of Life Insurance vs. Health Insurance
Advantages of Life Insurance:
- Provides financial security to dependents.
- Loan repayment (home loan, personal loan, etc.).
- Long-term investment (in the case of ULIPs or endowment policies).
- Tax-saving benefits under section 80C.
Advantages of Health Insurance:
- Save during a medical emergency.
- Expensive treatments that would be impossible otherwise.
- Provides cashless hospitalisation for an unpleasant experience.
- Income tax benefits under section 80D.
Choosing Between Life Insurance and Health Insurance
If you need to make a choice, here are some pointers in making your decision:
- If you've got dependents (spouse, kids, or even parents who need help), then life insurance is your top priority. This will ensure their financial security.
- Health insurance is also important if you are the main breadwinner. Medical expenses are increasing day by day, and a good policy will ensure that your savings are not drained in the event you need health care.
The best situation is to have both. Life insurance is for your family's future, while health insurance is to save you from unforeseen major medical bills.
Can You Have Both Life and Health Insurance?
Yes. In fact, it's probably the best financial decision one can make. Life insurance takes care of the family in case of demise, while health insurance sees to it that money is there for emergencies related to medical treatment.
Some insurance companies have combo plans whereby, with a single policy, one can obtain life insurance and health. However, it is wise to assess one's particular needs before going for one.
Life insurance and health insurance differ, but both are necessary in today's uncertain world!
If your focus is long-term financial security, then you are better off starting with life insurance first. If you want protection against medical expenses right away, health insurance will suit you best. The best choice, however, will be to buy both! This way, you can rest assured that you are now financially secure and will remain so in the future.
