Key Differences – Forbes Advisor

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Health and life insurance can be two important parts of a well-rounded financial plan.

If you are interested in finding the best health insurance or purchase life insurance, it is important to understand how each type of coverage works. The main difference between life insurance and health insurance is what each is supposed to do for you.

What is the difference between health insurance and life insurance?

Health insurance and life insurance cover different things and serve entirely different purposes.

Health insurance covers medical costs

When you purchase health insurance, you agree to pay a premium to the insurance company. In exchange, the insurer agrees to disburse money for covered health expenses.

The types of things health insurance can cover include:

  • Preventive care and routine examinations
  • Diagnostic tests, x-rays and physical exams
  • Medicines and prescription drugs
  • Emergency medical care
  • Inpatient and outpatient surgery
  • Current treatments for chronic illness or health problems
  • Accidental injuries

The exact details of what’s covered vary by policy, and some health insurance plans offer more comprehensive coverage than others. Dental insurance and vision insurance may or may not be included.

health insurance premiums are the first thing you will pay for with health insurance, but there will probably also be franchisescopay and coinsurance when seeking medical care.

Life insurance pays a death benefit

A life insurance the policy is a contract between you and an insurance company. When you buy a life insurance policy, you pay a premium for the coverage. If you die while the policy is in effect, the insurance company agrees to pay a death benefit to the people you designate as life insurance beneficiaries. The death benefit could be a small amount, like $5,000, or several million dollars.

There are two main types of life insurance: temporary life and permanent life.

Term life insurance guarantees that your premiums will not change for a fixed period of time. So you could be 10 years old, 20 year term life insurance or 30-year term life insurance.

Permanent life insurance policies generally cover you for life as long as the premiums are paid. Examples of permanent life insurance include whole life insurance, variable life insurance, and universal life insurance.

Permanent insurance will be more expensive, but you also get cash value accumulation.

When to buy health insurance

Health insurance can help you pay for medical care without having to pay all the costs out of pocket. It’s worth having health insurance unless you can cover medical expenses without straining your finances.

Health insurance is especially important if you:

  • Have a chronic health condition
  • Are predisposed to certain health problems based on your family medical history
  • Have a family or plan to get married and/or start a family

If your employer offers a solid group health insurance plan, this will usually be your cheapest option for health insurance.

If you are a student, self-employed, or your job does not provide health insurance, you may need get health insurance coverage through the Health Insurance Marketplace on HealthCare.gov or an insurance broker.

Related: What if you don’t have health insurance?

When to buy life insurance

Life insurance provides compensation for loved ones you leave behind. For example, if you’re married and earning an income for your family, life insurance could help your spouse pay for living expenses, the mortgage, or the children’s school fees. Your beneficiary can use the money from the death benefit life insurance however they choose.

Even if you’re young, healthy, and single, life insurance can still be a good thing. For example, you might consider purchasing a policy if you:

  • We owe cosigner student loans and don’t want to leave your cosigners responsible for the debt
  • Owning a house with someone and wanting them to be able to pay off the mortgage if you die
  • Run a business with one or more partners and want to make sure the business could continue to operate without you
  • You want to leave enough money to cover your estate’s debts and pay for your funeral and burial expenses
  • You don’t have a family at the moment, but you plan to start one someday and you want to benefit from a low rate of life insurance now

A life insurance calculator can help you determine how much life insurance you need.

Does health insurance cover death?

Health insurance does not cover death. A health insurance plan is only intended to pay for medical care while you are still alive.

For example, if you are diagnosed with a terminal illness, your health insurance policy could help pay for radiation treatments, surgeries, hospitalization and other care you may need. But once you die, health insurance will not pay for your burial costs or provide death benefits to your loved ones.

Does life insurance cover medical expenses?

Life insurance is primarily intended to insure your life and provide a death benefit to your beneficiaries after your death. However, it is possible to use life insurance to pay for medical expenses in certain scenarios.

If your policy has living benefits or one accelerated death benefit rider, for example, you may be able to use part of the death benefit to pay for your medical care. These options help expedite policy benefits if you have a chronic or terminal illness. Accelerated benefits essentially provide you with an advance on the death benefit to pay for medical care.

Withdrawing living benefits will reduce the death benefit paid to your beneficiaries after your death. Depending on your health care expenses, there may be very few subsequent payments to your beneficiaries to pay final expenses or to settle outstanding debts from your estate.

Alternatively: If your life insurance policy has a cash value, you could borrow money from your life insurance policy or make a withdrawal and use the money for medical bills (or any other bills for that matter).

When you purchase life insurance, you may have the option of purchasing a hybrid life insurance/long term care insurance policy, which can help pay for long-term care as you get older. Here too, however, the use of the long-term care benefit will reduce the death benefit.

Definition of life and health insurance conditions

Here are some key insurance comparisons you should know.

Term insurance vs health insurance

Term life insurance is a type of life insurance with fixed premiums for a fixed term, such as 10, 20 or 30 years. If you die while the policy is in force, the insurance company pays a death benefit to your beneficiaries. If you survive the policy, it expires at the end of the term unless you choose to renew it or convert term life insurance to permanent life insurance.

Health insurance covers health care needs as long as the premiums are paid. Benefits are paid for eligible medical expenses as determined by the policy. No additional benefit is paid upon death.

Health Insurance vs Medical Insurance

In the United States, health insurance and medical insurance can be used interchangeably. Whether it’s health insurance or medical insurance, your coverage is meant to help pay for medical care. Other countries may define the two terms differently.

Medical Insurance vs Life Insurance

Health insurance pays claims for care received at doctors’ offices, hospitals, and other health care facilities, based on the coverage levels you selected during enrollment.

Life insurance pays a death benefit based on the amount you choose and the terms of the policy. Unless you take advantage of a rider that lets you collect accelerated benefits or borrow against the cash value of a permanent policy, the life insurance money is supposed to be paid out after you die.

Find the best health insurance companies of 2022

Life and Health Insurance FAQs

Is health insurance worth it?

Health insurance can be worth it if you want to avoid having to pay for medical care completely out of pocket. Although health insurance doesn’t cover everything, it can reduce what you’ll pay for routine, specialty, and emergency care.

Related: What does health insurance cover?

What is the best life or health insurance?

Life insurance and health insurance have different purposes and can meet different needs:

  • Health insurance can protect you financially during your lifetime.
  • Life insurance can provide your loved ones with financial stability after you leave.

Can you combine health and life insurance?

Health insurance and life insurance cannot be combined in the same contract.

However, you can take out a life insurance policy with living benefits or add an accelerated death benefit rider that can pay for care if you are diagnosed with a chronic or terminal illness.

You can also combine life insurance with long-term care insurance in a hybrid life insurance policywhich pays benefits to cover nursing care.


About Evelyn C. Heim

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