Term plan or Health Insurance ? Which is more Important if you have limited money ?

Few weeks back, I posted an interesting question on our Facebook Page asking – “Given limited money – which is more important product to buy from security point of view – Term Insurance or Health Insurance ?” .

life insurance or health insurance

Lets say there is a guy – who wants both a term plan and a health insurance for his family and he only has Rs 10,000 per annum left with him, now he can either buy a 1 crore term plan for his family or buy a 5 lacs cover for his family. But he will be able to get only one of them from this Rs 10,000 left with him, then which out of term plan and health insurance is makes sense for family and is more useful? Lets see some points, raised by our facebook fans, which will help us to think about it.

1. Death is less probable compared to hospitalization

One of the argument is that, there are far greater chances of getting hospitalized because of some reason then dying. So if you look at this problem from probability point of view, you can be almost sure that in next 5-10 yrs, you or one of your family member will be hospitalized for some or the other reason – big or small. But meeting death is very less likely in comparison. So a lot of people argued that Health insurance is much more important than term plan, if you have limited money.

You can get good comparision of helath insurance at Coverfox website

2. Premiums are increasing fast in Health Insurance and its can be claim every year

Another argument in favor of health insurance over a term plan was that, its a product where you can claim every year and protects your financial life from regular attacks of money sucking illnesses and accidents and anyways premiums are increasing very fast for health insurance (or would increase in future) because of the health care inflation. However for term plan the premiums are coming down over the years (now we might be close to saturation) .

3. Hospitalization Costs can be arranged in worst case

Now some people said that term plan is more important than health insurance and the biggest reason for it was that health insurance expenses are somehow manageable in worst case. You can take a loan, swipe a credit card, ask your friends and relatives or in worst case, sell some of your home stuff.

Life will again be on track somehow. But if you ignore term plan, its a very big risk for your family future, because the amount required by your family cant be arranged by asking it from someone (just imagine you die and now your family would need their monthly expenses for lifetime , your children expenses for current and future, their whole life is at stake now). It would generally run into several lacs or few crores.

life or health insurance

High Probability – Low Impact

So its very clear that term plan has a very high impact on your financial life, but less probability of its occurrence , however health insurance has low impact on your financial life (compared to term plan) , but is high on probability and its has potential to occur multiple times in your lifetime.

Balancing both Health and Life Insurance Costs

Another workable option is to divide the money into premiums for both term plan and health insurance, but in this case you will compromise with the cover amount of both the things however small it is. This way you will have both the things in your financial life, even if its small . Do you think its a workable solution ?

What is your opinion about this question ?

74 CommentsAdd Comment

  1. PRASANNA

    I agree to the point that term insurance is essential need than health insurance. also one more point to be considered. In india most of the reputed private and public companies are giving some sort of group medical insurance for their employees. Also indians have poor rate of attrition rate after certain years from the beginning stage. Actually personal health insurance is an extra protection beyond
    personal term insurance and employer group medical insurance benefits only. It is
    always secondary when compared with term insurance.

  2. ideally these purchases are made at different points in life.

    Health insurance (at least) the moment you start working (for future generations, soon after birth) and term insurance the moment you have a dependent.

    Jagoinvestor readers should encourage young (hopefully unmarried) co-workers to get health insurance asap to ensure this question is never relevant.

  3. Dushyant Ahuja

    I personally feel that if one has less money in his pocket & he has to select one of the option then which one to go depends on many factor like age of the person, his personal obligations, family history etc.
    If he is the only whole sole earner of the family & has obligation like loan etc on his shoulder going for term insurance might be good option as in case of sudden death term insurance will take care of loan & daily needs of the family.
    But if person is suffering from bad health or series of bad health history in his family he might go for health insurance as there is a chance that he may get effected from it.
    So it is completely personal call although both the things are equally important.

  4. Debojyoti Das

    Hi,
    In my personal view and update pointed by Mr. Prasanna, it is evident that the Term Insurance scores over Health insurance. As an employee, almost all/most companies offer group family insurance which covers day-to-day hospitalization needs. Also, when employee changes companies, the same will be provided by new organization. Cover will not be present during the interim of changing companies. The Term insurance is a absolute necessary and adequate cover is utmost important. We don’t know when the unfortunate time comes and our family members are in no-where when you are single bread earner of family. In regards to Premiums, Term insurance premium changes year-on-year as per age and when you take the cover, the premium is constance except charges levid by Govt. For health insurance, the premium is constant for a specific age range, eg, 25-30, 30-35, 35-40, etc. Individual can plan accordingly and defer purchasing Health cover as per the slab, nevertheless, during this time, company health cover protects you for your hospital needs. Hope this information will help community in decision making. Regards. Debojyoti.

      • Jwalant Desai

        Dear All
        During your company change over period you will be dark zone for medical / term insurance.
        Nowdays Most likely to happen company will close or reduce health policy or term insurance to employee for cost cutting in recession.

        I had faced for same. health insurance was reduced to limited family members.
        They excluded Parents who needs most health insurance at letter stage of life.

        After such incident if go for helath insurance for your parents premium will be very high & some diseases will not be coverd.

  5. Rachana Oza

    I think at a time one should take term plan and health insurance cover both,irrespective of how much he/she can take, then try to increase the health cover by saving some money from starting of year. At the same time if financial position strengthens then one can take another term plan and can increase health cover also.

  6. angan chandra

    One should not compare between health & term insurance. Both are two different product but both are necessary in financial planing. You will have to plan well so that you can buy both health & term insurance. It is not necessary you’ll have to buy term cover of 1cr., based on your annual income cover to be decided. So one have to plan very well so that every necessary thing are getting covered.

    • VRKNAIR

      It is not that much easy to get 1 crore term insurance. The company will decide it based on your annual income and in most cases they will decide it after verification and health check up. On these pages I see people talking about term insurance as if they are available like potato in the market. Whoever says this kindly approach an insurer for health and term policies and if you are above 50 it is very difficult to get the policy. My request is to take both these policies as early as possible in life. Research all the insurers personally, once convinced, purchase the policy. Please do not follow any body like the cattle.

  7. Abhijit

    I am buying a term plan as well as health insurance (in addition to what I have from my employer) both are must & one should make it possible any how……good luck & thanks to Manish.

  8. My 2 cents. cut back on some other meaningless tax saving investments in LIC policies, NSCs (even a part of PPF) & arrange the money from this tax saaving amount to purchase both covers. Why should we compromise at all on both if both are essential? Just need to think out of the box to arrange money. :)

    Thanks

    Ashal

    • VRKNAIR

      PPF and LIC comes under 80C whereas health insurance comes under 80(d)(perhaps) So how will reduction in 80C instalments, benefit us in 80(G) I could not understand? PM’s relief fund/Charity 80(G) it is over and above the 1 lakh under 80(c) and 80(D) 15000/-. Am I right?

  9. Sreekanth Yelicherla

    People who have expressed that most employers provide health policy so term insurance is the way to go seem to have forgot that more than health insurance, most of the employers provide life insurance. So as per that argument there is no need of insurance at all! Indeed both are needed here. The question is like which eye you select – Left or Right?. There can not be a confident answer for it. He can open an ICICI bank account and start using the debit card every month to meet the condition of insurance. He will get some life insurance on this though small but there is no cost involved in this.
    http://www.icicibank.com/campaigns/offers/insurance/insurance.html

    He then needs to identify if the employer provides any death benefit. Finally, if not completely he should ensure at least some money goes to the cheapest term plan. The rest by getting into a health insurance possibly from a public sector company in which premiums are less. He may try with a health insurance along with Super Top up or directly a super top up without health insurance. So, both the Eyes are Important for an investor. So, the answer should be more about managing both than sacrificing one. Frankly, the question itself is wrong for me! One can not say I can buy only Life or Health Insurance. Both are probabilities, one needs both. Reducing unnecessary phone bills, junk foods, fancy mobiles etc for just one year will surely fetch the money for the second product be it Life or Health insurance.

  10. Aravind

    In this situation always first choose Term insurance, this is most important for all middle-class & lower-class families.

  11. Health Insurance and Personal Accident with disability cover should be the way to prioritize as PA rates are very affordable and the probability of that is more than natural death. Then comes critical illness cover followed by term insurance.

  12. Balancing is a must here as the person has family. I had read way back about IRDA planning to release guidelines for the “Health and Life Combi” product, where one will have the option of buying an insurance product that combines a life insurance policy with one that covers medical expenses, including hospitalization. I am not sure if any provider actually came up with such a product or this product never entered the market due to various reasons. If anyone is up-to-date, please share your views with the JI group so that everyone including me is aware.

  13. VT

    Namaste,
    My sincere gratitude to JagoInvester for sharing the wisdom being benevolent for the novice people like me.
    While, I seek you advise and guidance on my personal front relating to the topic.
    I am 30, My father’s age is 65 and my mother age is 57.
    While I am individually covered with health insured by my company. 2 years before to my father’s retirement as a goodwill, the company where he used to work had insured both my mother and father with Health insurance facility. Though healthy (touch wood), few of the insurance company has quoted high premium with respect age and are not providing floater option (only individual plan provided).
    I kindly request the followers of JogoInvestor to help me in sharing your views on good plan with lower premium that covers both the insurers opting only for cashless hospitalization, Daily room rental & general medical claim facilities.

    Regards,
    VT

  14. Jai

    Hi Manish,
    I recently came across a friend, who said his bank is providing him with Medical Insurance Family floater for his entire family along with his parents at a very affordable price because he is a account holder.

    Can you give us your in-depth view about this kind of Policies, and also compare them with those health policies provided by Independent Health insurers.

    A article like this would be quite helpful.

    Thanks
    Jai

  15. premjipmb

    For people who are young and having children, they must take cover of ‘term plan’. When they are earning, medical expenses can be covered. However for old age, ‘health insurance’ is preferable as children may already be earning their own keep.

  16. Somashekar

    Hi Manish,

    Need your expertise here. I am Somashekar, 24 years old working in a BPO earning 25k per month. My family is completely depending on me. I have reliance cash flow policy for which Iam paying 12k premium per annum and the SA is 1,79,500. I have health insurance coverage of 5 lakh from company. Since my family is. completely dependant on me, I wanna buy term insurance of 50 lakh sum assured. Please suggest me the good insurance policy. Also, please suggest if there are any other plans. Awaiting your reply. Thanks..

    • Parag Rodrigues

      Hi Somashekhar,

      Aegon Religare has very good customer Service & they have been the 1st company to start with online term insurance policy. Yo can ask all your queries & they are very patient & clarifies all your doubts.

      With your age of 24 yrs, you can extend your term coverage for 40 yrs (i.e. 64 yrs coverage) & your premium would be very less under Aegon Religare Term plan.

      Aside, if your medical test is very good then you may get further deduction in your overall premium charges (approx. Rs. 600-700)

      You may buyout policy coverage of Rs. 1 Crore.Check for self via Aegon religare site.

      Other alternative option would ve Aviva ILife as it do have coverage till 35 yrs.

      I would recommend to have 2 Term insurance policy with distributed amount of 50 Lacs each.

      Have Good day ahead… :-)

  17. Vivek

    If dependents are there, Term insurance is an obligation one must fulfill…..

    Anyways, now a days, Employers provide Health Insurance coverage, although, meagre amount. In that case, the customers can go for Top-up Health Insurance which more than 50% cheaper. It will kick in only after threshold limit is exhausted…Its a better choice if you have limited money to pay for premiums, as you say…..More importantly, if one is above 35 years of age, comprehensive Health Insurance is as important as having food…I would suggest if one has limited money, then he should become more frugal and cut back on unnecessary expenses. It will go a long way.

  18. Venu

    I fee Term Insurance is the correct choice.

    Need for money can be arranged for the family member from anysource as the requirement is normally short term. But after death the need for money is not short term and is required for the whole life for the family.

  19. vikas

    for service folks we have term insurance and health both are provided by employer then why we need to do health insurance again.

    its good to term insurance, as earlier we start cheaper it would be.

    I have basic question on health insurance
    If someone have health insurance (family included ) provided by employer then why we need any health insurance.
    I think in such case we should invest health insurance amount in some other place
    and should do health insurance whenever our future employer is not providing health insurance.

    Any more artical reference in this direction are welcome

  20. Khanna

    Hi Manish,
    First of all I would like to thank you for your great contribution to the investor society .:)
    well JD group, my question is that i wanted to buy a term insurance plan for 50 lakhs. some one suggested me that i should take 25 lakh cover from LIC and rest cover from other insurance company like HDFC, aviva or bajaj. but as we all know that the premium for LIC would be around 8000 for 25 lakh will is quite high in comparison to others, but have high surety for getting the SA in case of LIC. Do you think that this approach is ok, Should i go with 50 % LIC and rest with other private player or be with private players only and drop off with LIC.
    Inputs will be highly appreciated.

    Thanks

  21. Vivek Vatve

    Sir,
    In my view the term insurance is the better option.
    -Because if you get hospitalised then your relatives, friends or neighbours may help you either way. They may arrange for the money needed at that particular time. (which they trust that you will return it back as early as possible after you feel good and join your duties.) So, you may come out of that situation of fund raising at the time of hospitalisation.
    -But, If you die then what?…
    Generally whenever someone dies, all the relatives or friends, neighbours come for the funeral or they come to meet your family showing sympathy. They also assure them that they will help them whenever they need it. But is that really happens? No. All the words given are for the time sake for those first 13 days of the death. And after the continuation of the 14th day no one from these comes to help you, instead all the others from whom the dead person had took money or who had given money to him for some works will start to come. And no one will be there now to help you.
    So, for securing our family from the financial losses and also to settle those debts we had taken inclusive of financial institutions the term insurance is the Best Solution. So I think that the TERM INSURANCE IS THE BETTER OPTION.
    -Vivek Vatve
    vrvatve@rediffmail.com

  22. Jay Harkhani

    I think one should look at it location where he/she is residing. Say a guy might need 1 crore life insurance for metro location, same guy might need around 50-60 lakh life insurance for smaller cities.

    Balance will be good, that is go for 1-2 lakh of health insurance, and rest of life insurance. In health insurance most co. are paying bonus for claim free year, so you will get addition 5-10% increase in your sum assured.

  23. harpreet

    Dear Sir,
    i am working in Merchant Navy as marine engineer, my job profile is that i have to remain on ship for 4 months and come back home and stay for 3 months on vaccations and again go and join for 4 months and so on.
    Pls let me knw which term plan is best suited for me.
    Thanks and Regards,
    Harpreet

  24. feroz

    WHAT IS DIFFERENCE HEALTH INSURANCE VS MEDICALIM INSURANCE??
    WHAT IS BENEFIT FOR ME. I HAVE 1 MEDICAL INSURANCE MAX BUMPA AND 1 HEALTH INSURANCE MAX LIFE WELLNESS PLUS PLAN AND HOSPITAL CASH

  25. Chetan Ambi

    I think term insurance scores over health insurance. As I agree with what dear Ashal Jauhari told above i.e. we just need to think out of the box to arrange money to have both life and health insurance.

  26. Jatin Patel

    What is your view on – ICICI Prudential Crisis Cover Plan
    I want to take critical illness policy. I want it up to minimum 15 t0 20 years. My age is 26. Is it good among others? Is there any other plan in which i can include my wife also

  27. DEEPAK SHARMA

    hai friends I am Deepak new member in jago investors family, I am planning to buy 50 lac amt term policy , please suggest which company is better to buy.

  28. swaraj

    Hope I am not too late to comment but to me the situation sounds like there is more to it than is related here.Priority for that person has to be have health insurance and term insurance first then only other investment and expenses.Even if we take the hypothetical case where income is low and guy only has 10,000 only then he should aim for more realistic term insurance(perhaps 25 lacs only …remember meeting death probability is very low) and invest rest in a health insurance policy which let’s him increase his cover if tomorrow his income is more.

  29. RAMESH CHANDRA

    Dear Manish

    Hi! I am Ramesh chandra and 40 yrs old. I am looking for term insurance plan for 50 -75 L. Pls suggest me which company is having best term plan and claim ration is also good. Premium for LIC & HDFC are too high considering the amount left with me after monthy expenses. Pls suggest good one.

  30. RAMESH CHANDRA

    So i can opt any one fm above listed cos. what abt AEgon???
    Is is good option to choose it for term insurance as they are offering the same on low premium.( apprx 9999 for 75 Lac). can i bank on it?
    Pls advise as i am fully depend on your suggestion as no idea how this will work for me.,

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