In the past few decades, batteries have increased in importance for many applications, mainly electric vehicles and energy storage systems, to encourage a global move toward sustainable energy ecosystems. Among these types of batteries, lithium-ion batteries have been spearheaded with characteristics including high energy density, long cycle life, and low self-discharge rate. All these features render them suitable for use in electric vehicles, portable electronics, and grid-level energy storage applications. Although Li-ion batteries are widely accepted, the health and safety of such batteries must be inspected. A large body of literature addresses the various difficulties associated with Li-ion battery performance and reliability, while there is an ever-emerging concern about thermal runaway risks. The phenomenon arises through an internal short circuit, overcharge, or elevated operating temperatures, therefore significantly threatening safety. Understanding the causes and mechanisms of thermal runaway is essential for formulating effective mitigation strategies. Furthermore, it highlights the significant role of BMSs in real-time monitoring, energy optimization, fault detection, and life cycle extension. It presents the key features and technical specifications of a good BMS selection with its current testing methods for the reliability and safety of the product. This paper emphasizes the integration of strong thermal management systems to dissipate heat rapidly, thus avoiding any catastrophic failure and enhancing the operation safety of Li-ion batteries. This review will address Li-ion batteries, including modeling, health management techniques, and a detailed analysis of the issues associated with thermal runaway. Further, the paper discusses current and emerging methods for the prevention and mitigation of such thermal risks in order to ensure the safe operation of Li-ion batteries in numerous applications.