Figuring out what types of insurance policies you need can be an extremely confusing task. Poorly researched decisions can lead to you making several avoidable errors; like over or under insuring yourself, paying for plans that you don’t require, and in some cases not being aware of the extent of your policy. The last one can lead to you paying high premiums for coverage you don’t need. In light of this, we will look at the general differences between term insurance, whole life insurance and health insurance, to help you gain some clarity on the policies you need to buy. 

The first distinction to be made is that health insurance falls under the category of general insurance, while both term insurance and whole life insurance fall under the broad category of life insurance. We will first go over health insurance and then discuss the two types of life insurance policies. 

1.Health insurance: 

Health insurance is a mode of insurance that covers the medical and surgical expenses incurred by the insured party. The extent of the coverage, in terms of liabilities and mode of payment varies from one policy to another and between insurance companies. Health insurance policies, along with home and motor insurance falls under the category of general insurance. In this sense, basic health insurance should be treated as an absolute necessity for you and your family. Accidents cannot be predicted, and medical bills tend to add up extremely quickly. Owning a health insurance policy will ensure that these expenses are transferred to a third party, and don’t affect your finances severely. 

Consulting your financial planner will help you identify the quanta of health insurance and other general insurance you need to secure your basic needs and safeguard your finances. Moving on, we will see how term insurance and whole life insurance differ from general insurance policies, and subsequently understand the distinctions between the two.

2.Life insurance: 

Life insurance policies cover individuals against their untimely demise. In these policies, the insurance company pays the policyholder’s nominee a predetermined sum. A nominee is the person who receives the benefit in case the insured party dies; they are chosen at the time of buying the life insurance policy. Most commonly, nominees are either the parents, spouse or children. Whole life insurance and term insurance are two distinct types of life insurance policies:

• Whole life insurance: Whole life insurance covers the policyholder for the entirety of their life. It comes with a death benefit, and an income benefit that is exempt from taxes. While premiums are high, they remain fixed for the entire period of the policy. Whole life insurance is suitable for families that have a sole breadwinner, or other responsibilities – like children’s higher education.
• Term insurance: As the name suggests, term insurance is valid for a specific period of time. It offers death benefit to the nominee in the event that the insured person dies, during the period mentioned in the policy. However, the policy becomes redundant if the policyholder survives the insured period as it does not come with a maturity benefit. It offers the advantage of low premium that can be attractive to people who are early on in their career and the good part is  that the premiums will remain constant . 

This information can help clarify some of the basic doubts you may have had regarding insurance. But efficiently identifying your insurance needs is an extremely complex task. Talking to a certified financial planner or wealth management firm can help you get an in-depth understanding of the exact amount and type of insurance coverage you need.