Health Insurance vs Term Insurance - What Should You Buy First?

In this world of uncertainties, securing your future and that of your loved ones is not just a wise but an essential move. Two popular tools to do this are Term Insurance and Health Insurance.

However, like many others, are you also confused about which one to buy first? Should you protect your health or your family’s financial future when you are away?

Let’s break down the difference between term and health insurance and understand how they work.

What is Term Insurance?

A term insurance plan provides financial security to your loved ones if something unfortunate happens to you during the policy period. The policy ensures that even if you are not around, your family (nominee) still has strong financial backing. Also, it is a pure protection plan. So, it is unlikely to offer any returns or maturity benefits if you (the policyholder) outlive the policy term.

Benefits of term insurance:

1. Low premiums, high coverage: The policy offers a high extent of coverage at low premiums. For example, a 30-year-old non-smoker can get up to INR 1 crore cover for premiums as low as INR 500 to INR 1,000 per month.
   Fixed policy duration: You can choose a policy term ranging from 5, 20, or 30 years, to 40 years, depending on your needs.
2. Death benefit: If the policyholder (you) passes away during the policy term, the nominee or beneficiary will receive a lump sum amount.
3. No returns on survival: It is not a savings plan. So, it does not accrue any cash value and offers no payout if you survive the term (unless you opt for Return of Premium plans).

What is Health Insurance?

As the name suggests, health insurance or medical insurance pays for the cost of hospitalisation, surgery, and other medical expenses.

In India, where going to a hospital can be quite expensive, having a comprehensive health insurance policy ensures you do not have to worry about finances should a medical emergency happen.

Benefits of health insurance:

1. Coverage: It covers hospitalization costs, including doctor's fees, room rent, tests, and surgeries, among others.
2. Day-care: Some health insurance policies are likely to cover day-care procedures and often pre- and post-hospitalization expenses.
3. Cashless hospitalization: You are likely to get cashless hospitalization facilities at the network hospitals of the insurance provider you choose.
4. Tax Benefits: You are also entitled to get tax benefits under Section 80D of the Income Tax Act on health insurance premiums.
5. No-Claim Bonus (NCB): If you do not claim during your policy period, you are likely to get the NCB.

What are the Differences Between Term Insurance and Health Insurance?

Refer to the table below to get clarity on the differences between Term Insurance and Health Insurance: 

Why are Term Insurance and Health Insurance Important?

Both health and term insurance are crucial in their own ways. Let’s find out how you can benefit from them:

What Should You Buy First - Term or Health Insurance?

Well, it is one of the most commonly asked questions, and the answer depends on various factors, especially your current life situation. However, in a general context, you should buy health insurance first and then go for term insurance at the earliest.

Here are the reasons why:

Health emergencies often arise suddenly, regardless of age. Even a 20-year-old may need hospitalization following a medical emergency, such as a road accident or dengue. So, without medical insurance, you will end up making out-of-pocket payments, which may drain your savings or get you into debt.

Many young professionals rely only on their employer’s health coverage. However, it may not be enough as group policies often have low coverage of somewhere around INR 2 to 3 lakhs. Most importantly, it ends when you leave that employer and is unlikely to cover all your family members. Hence, getting personal health coverage early ensures you and your loved ones are protected even if you switch jobs.

Although term insurance is essential, you may have a little more breathing room, especially if you are single or just starting out. However, buying it early, say in your 20s or early 30s, helps lock in a low premium for the entire term. Waiting longer means higher premiums or even the risk of rejection if you develop health issues.

Here are some real-life scenarios to help you prioritize better:

Final Words

Both term insurance and health insurance are crucial components of financial planning. While health insurance covers your immediate needs during illness, term insurance ensures your family’s future is safe in your absence.

If you are just starting and must choose one, health insurance should come first, especially in India, where healthcare costs can be financially devastating. But do not delay buying term insurance too long either, as it only gets costlier with age. Make smart choices today to live a stress-free life tomorrow.