Most people start investing before they protect themselves. Contributing SIP accounts crossed 10 crore in August 2026, and monthly SIP contributions reached ₹32,297 crore, according to AMFI data reported by Onmanorama. Insurance cover has not grown at the same pace. India’s overall insurance penetration was 3.7% of GDP in FY2025, about half the global average of 7.3%, and only around 39% of the population has health cover when government schemes are counted, according to a September 2026 McKinsey report covered by Business Today.

This article explains what each policy does, how they differ, why the order matters, how much cover to buy, and what the tax rules look like for FY 2026-27.

What Is Term Insurance?

Term insurance is pure life cover. You pay a premium for a fixed period, for example 30 years. If you die during that period, your nominee receives the sum assured. If you outlive the term, no amount is paid. Because there is no maturity payout, term premiums are lower than those of savings-type policies for the same cover.

Some insurers offer a Return of Premium (TROP) variant that refunds the premiums paid if you survive the term. It costs more for the same cover, so compare it against a regular term plan plus a separate SIP.

Awareness is high but ownership is low. Axis Max Life’s India Protection Quotient 7.0 found that 74% of respondents were aware of term insurance but only 34% owned it.

What Is Health Insurance?

Health insurance pays for hospitalisation, surgery and treatment up to the sum insured. It works in two ways. In a cashless claim, the insurer settles the bill directly with a network hospital. In a reimbursement claim, you pay first and the insurer refunds you after verifying the documents. Policies renew every year and can cover one person or a whole family under a floater.

A standard health policy reimburses actual bills. It does not pay a lump sum when you are diagnosed with an illness. A lump-sum payout on diagnosis of listed conditions such as cancer or heart attack comes from a separate critical illness plan or rider. Check which one you are buying.

Term Insurance vs Health Insurance: Key Differences

 Why Health Insurance Comes Before Investing

Medical costs are rising faster than incomes and general prices. A Milliman analysis published in April 2026 puts India’s medical cost trend at 12% in 2024 and 13% for 2025, more than three times general inflation of 4.2%.

Claim sizes show the same pattern. On Policybazaar’s platform, the average health claim paid rose from ₹62,014 in 2022-23 to ₹81,025 in 2024-25, an increase of 30.7%, and severe cases can cost ₹30 to ₹40 lakh. This is data from one large aggregator, so treat it as an indicator and not a national average.

Families still carry much of the cost themselves. National Health Accounts data shows out-of-pocket spending was 43.4% of India’s total health expenditure in 2022-23.

If you have no health cover, the bill comes out of savings. That usually means redeeming mutual funds, breaking fixed deposits or pausing SIPs. If the market is down at that time, you sell at a loss and lose the compounding on the money you withdraw. A health policy pays the hospital so your portfolio stays invested.

Points to check when buying

•      Sum insured: A common approach is a base policy plus a super top-up to reach a higher cover at a lower cost, as explained in the Business Standard article on health claims.

•      Employer cover: Group cover ends when you leave the job. Keep a personal policy as well.

•      Waiting periods: Pre-existing conditions are covered only after a waiting period, so buying while you are healthy is cheaper and simpler.

•      Disclosure: Declare all medical history and habits accurately. Non-disclosure is a common reason for claim disputes.

Why Term Insurance Comes Before Investing

An investment portfolio takes years to build. Your family’s need for income starts the day you are no longer earning. In the early years of investing, your corpus is small compared with school fees, a home loan and daily expenses.

Many people underestimate this. The Policybazaar report found that 87% of non-buyers underestimate their family’s long-term financial needs, often leaving out education, medical costs, spouse support and debts. The same report found that 47.6% of Indians were unaware of term insurance.

How much term cover is enough?

A widely used starting point is 10 to 15 times your annual income. Then adjust it:

•      Add outstanding loans such as a home loan or car loan.

•      Add future goals that depend on your income, such as children’s education.

•      Subtract existing life cover and liquid savings meant for the family.

•      Review the amount after marriage, a child, a new loan or a big income change.

How to choose an insurer

Do not choose only on premium. Look at the claim settlement record, and read it carefully. IRDAI data for FY 2022-23 showed an individual death claim settlement ratio of 98.45% by number of claims but only 94.69% by claim amount, as reported by Cafemutual. Check both figures, the insurer’s claim process and the policy exclusions. Keep your nominee’s details updated and tell your family where the policy documents are.

An Example: Rahul, 32, With a Home Loan

This example is illustrative and uses simple numbers. Rahul is 32, earns ₹12 lakh a year, has a spouse, a child and a ₹30 lakh home loan, and runs a ₹10,000 monthly SIP.

•      No cover, health event: A ₹8 lakh hospitalisation in the family means redeeming ₹8 lakh from his funds. If markets are down, he sells at a lower value and his SIP may stop.

•      No cover, death at 38: After six years, he has invested about ₹7.2 lakh in SIPs. His income of ₹12 lakh a year stops and the ₹30 lakh loan is still outstanding.

•      With cover: Using the 10 to 15 times rule, term cover of ₹1.2 to ₹1.8 crore plus the ₹30 lakh loan gives a range of ₹1.5 to ₹2.1 crore. A family floater with a super top-up pays large medical bills. His SIPs continue untouched.

Premiums at 32 are lower than at 40 for the same cover, so waiting increases the cost.

Tax Benefits and GST: What Changed

The Income-tax Act, 2025 came into force on 1 April 2026 and renumbered many sections. The deductions work as before, but the section numbers in older articles are outdated.

•      Life insurance premiums: Section 80C is now Section 123, with a combined limit of ₹1.5 lakh a year across eligible items such as life insurance premiums, PPF and ELSS.

•      Health insurance premiums: Section 80D is now Section 126. The usual limit is ₹25,000 for people under 60, with higher limits for senior citizens. Budget 2026 did not change these limits.

•      Tax regime: These deductions are available only under the old tax regime. If you use the default new regime, you cannot claim them, so compare both regimes before counting on a tax saving.

•      Death benefit: The tax exemption on life insurance proceeds under Section 10(10D) continues in substance under the new Act, subject to conditions on premium and sum assured.

•      GST: From 22 September 2025, individual life and health insurance premiums are exempt from GST. They earlier carried 18% GST.

Buy insurance for the cover. A tax deduction is a smaller benefit that depends on your regime.

Common Mistakes to Avoid

•      Mixing insurance with investment: Endowment, money-back and similar plans usually give lower cover per rupee of premium than a term plan combined with separate investments.

•      Relying only on employer cover: It ends with the job, often when you need it most.

•      Under-insuring: With medical costs rising at 12% to 13% a year, a sum insured that looks adequate today buys less each year. Review it every two to three years.

•      Hiding information: Incorrect disclosure of health, smoking or income can lead to rejected claims.

•      Delaying: Premiums rise with age, and a new medical condition can make cover costlier or harder to get.

The Right Order: Protect First, Then Invest

A sound sequence for most salaried and self-employed people is:

1.       Buy term insurance and health insurance. Do this first, because age and health affect both price and eligibility.

2.       Build an emergency fund of 6 to 12 months of expenses, depending on how stable your income is.

3.       Clear high-interest debt, such as credit card balances and personal loans.

4.       Start SIPs for specific goals and increase them as your income grows.

These steps can overlap. You do not need to finish the emergency fund before starting a small SIP. Insurance should not wait for the other steps. For tax-saving choices after this stage, see our comparison of ELSS, PPF and NPS for FY 2026-27. For SIP frequency, see daily vs weekly vs monthly SIPs.

How SJS Finserve Can Help

Frequently Asked Questions

Which is more important, term insurance or health insurance?

They protect against different risks, so you need both if anyone depends on your income. If you are single with no dependents or loans, start with health insurance. Once you have a spouse, children, parents or a loan to support, add term insurance.

Can I rely on my employer’s health insurance?

Not fully. Group cover usually ends when you leave the job, the sum insured may be low, and it may not cover your family adequately. A personal policy stays with you across jobs.

How much term insurance do I need?

A common starting point is 10 to 15 times your annual income, plus outstanding loans, adjusted for existing cover and savings. The right amount depends on your dependents, goals and years to retirement.

How much health insurance cover is enough?

It depends on your city, age and family size. Private hospital costs vary widely and medical costs are rising at 12% to 13% a year. Many people combine a base policy with a super top-up to reach a higher cover at a lower premium.

Do I get tax benefits on term and health insurance in the new tax regime?

No. Deductions for life insurance premiums (Section 123) and health insurance premiums (Section 126) are available only under the old regime. Compare both regimes using your own numbers before deciding.

Is GST charged on term and health insurance?

Not on individual policies. From 22 September 2025, individual life and health insurance premiums are exempt from GST. Group policies are treated differently.

Does health insurance cover critical illness?

A standard plan pays hospital bills for treatment, including treatment for serious illnesses. A fixed lump sum on diagnosis comes from a critical illness plan or rider. Read the policy wording to see which one you have.

Can a ULIP or endowment plan replace term insurance and SIPs?

Usually not. Combined plans tend to give lower cover for each rupee of premium. Many investors prefer a pure term plan for protection and mutual funds for growth, but the right choice depends on your goals, so review it with an advisor.