Rahul, 25, works for a reputed marketing firm. He is planning to get married in a couple of months but before he wants to buy a term plan and health insurance for himself. However, he can only spare Rs 10,000 per annum after paying rent, repaying his education loan, and financially supporting his parents. With the extra funds, he can either buy a Rs 1 crore term plan or a Rs 6 lakh cover for his family. While Rahul would have chosen a life cover with a health insurance rider, such plans are not available. So which plan should he buy?
Rahul is not alone in this confusion. It always happens that individuals who want to purchase insurance face with this dilemma.
Both death and illness are risks that need to be covered. If Rahul can afford to, he should opt for both protections. But if he were to choose one given his limited resources, Rahul must weigh both events in terms of probable risk.
There are various other factors come into play while making decisions regarding insurance, such as the outstanding liabilities, number of dependents, and accumulated wealth. His parents are also dependent on him financially to a certain extent. He has debts to pay off and has no other assets to fall back on.
Further, health-related expenses, however high, can be arranged using a loan from a bank, relative or a friend. Regrettably, the same cannot be said in case of death.
Let’s have a look at some points which will help you and Rahul to decide on between a term plan and Health Insurance :
Term Insurance Plan is designed to provide a defined amount (lump sum) of money to the family, in case of the demise of the policyholder. The money will go to the people you nominate as beneficiaries on your policy. The benefit under such a pure term insurance plan is payable only upon the demise of the policyholder.
Health insurance covers all costs related to the medical expenses of the insured in exchange for a fixed premium. This cover can be bought for an individual or for an entire family and can be used to seek adequate medical help in case of an emergency or even a pre-planned medical procedure without worrying about the financial implications.
Death is less probable compared to hospitalization
One of the arguments is that there are far greater chances of getting hospitalized because of some reason then dying. So from a probability point of view, you can be more or less sure that in next 5-10 yrs, you or one of your family member will be hospitalized for some or the other reason. But meeting death is very less likely in contrast. So a lot of people believe that Health insurance is much more significant than term plan if you have limited money.
- Premiums are increasing fast in Health Insurance
Health insurance is 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 also assumed to increase in future because of the health care inflation. However, for a term plan, the premiums are coming down over the years.
- In the worst case hospitalization Costs can be arranged
Health insurance expenses are somehow handy in the worst case and life will again be on track somehow. But ignoring the term plan is a very big risk for your family future because the amount required by your family cannot be arranged by asking it from someone. Just visualize that after your demise your family would need their monthly expenses for a lifetime, your children expenses for current and future, their whole life is at stake now.
It is clear that for any individual like Rahul a term plan ranks high on financial impact, while health insurance does so on the probability of occurrence. Any insurance is better than no insurance since he has dependents. He could split the premiums between both, which might mean a slight compromise on the sum assured.
Thus, you need to choose the one that benefit you the most without any delay.