Life Insurance vs Health Insurance: What’s the Difference?

Comparing health insurance to life insurance is similar to comparing socks to shoes. They are two different things that work well together when paired. Health insurance protects our vital health. But life insurance protects the finances and well-being of our loved ones when we die. Here we explain what health and life insurance have in common, how they differ and how they can work together to protect your money.

What is life insurance?

Life insurance is a contract between the person who buys a policy and the life insurance company. Essentially, it says, “I will make the periodic premium payments. In return, if I die while the policy is active, you will pay a set amount to my beneficiaries.”

It is the person who takes out the policy who decides what type they want, how long they want it to last (the “Term”) and how much the life insurance coverage should be worth to their heirs (the “Death Benefit”). ).

Benefits of life insurance

Life insurance provides benefits during the lifetime and after the death of the policyholder. These include:

  • The knowledge that after the death of the policyholder, loved ones will have the money they need to survive.
  • Some policies pay dividends and build up cash value for the policyholder to borrow.
  • Some policies last a policyholder’s entire life as long as premiums are kept up to date.

Types of life insurance

It can be confusing to determine which type of life insurance is best. To give you an overview of the possibilities, here are some of the most common types of life insurance.

  • Duration: As the name suggests, term life insurance is valid for a certain number of years. The policyholder pays into the policy for each of those years, but once the term expires, the policy is no longer active. The majority of term life insurance policies do not refund any premiums paid, while the few that do charge a much higher premium.
  • Whole life: A life insurance policy lasts the entire life of the policyholder as long as premiums are paid. Whole Life offers a guarantee that premiums will not increase, death benefits will not change and the policy will create cash value. All of life is viewed as a kind of “permanent life” politics.
  • variable life: Another type of permanent life insurance is variable life insurance. It is ideal for a person who wants to take an active role in investing their life insurance premiums. The problem with variable life is that the policyholder can lose the cash value contained in the policy and even part of their death benefit if they make poor investment decisions.
  • Universal Life: One of the more difficult types of life insurance to fully understand, not all universal life insurance is created equal. For example, one’s premiums may change while another may (or may not) build cash value.
  • survival time: With survivor insurance, two people are covered by one policy. A payment to the beneficiaries is only made after the death of both persons. For years, survivor insurance had the benefit of being cheaper than two separate policies.

What is health insurance?

Like life insurance, health insurance is an agreement between a policyholder and their insurance company. The policyholder agrees to make regular payments and the insurer promises to cover part of their medical expenses. Typically, there are health-related costs that are not covered by health insurance. This includes procedures such as cosmetic surgery and some experimental treatments.

Health insurance benefits

A valid health insurance has the following advantages for the policyholder:

  • Protects the policyholder against high medical expenses.
  • Allows a policyholder to budget knowing how much their total medical expenses can be in a year.
  • Usually covers regular check-ups and helps doctors diagnose some conditions before they become serious.
  • Provides policyholders with peace of mind that their entire family is covered.

Types of health insurance

As with life insurance, there are different types of health insurance that you can choose from.

Employer-sponsored: In an employer-sponsored plan, the insured pays part of the plan premium and the employer pays the rest. The employee may or may not have a say in the type of plan they are enrolled in.

Private: When a person buys a plan on their own, they have a wide range to choose from based on their specific needs and budget. Often the person starts by visiting the federal market for health insurance online. There they can review the plans available through the Affordable Care Act (or “Obamacare”).

Once a person visits the marketplace, they have to choose between plans like these:

  • Exclusive Provider Organization (EPA): Care is only covered when the patient uses the doctors and hospitals in the plan’s network, unless it is an emergency.
  • Health Maintenance Organization (HMO): Typically limits coverage to doctors and hospitals who either work for or contract with the HMO. The focus of an HMO plan is usually on prevention.
  • Service point (POS): A plan that offers healthcare benefits at a lower cost but with fewer choices. A POS is a combination of a Health Maintenance Organization (HMO).
  • Preferred Provider Organization (PPO): This plan offers a discounted rate as long as the insured uses medical providers in the plan’s network.

What is the difference between life insurance and health insurance?

While health insurance and life insurance can both be purchased through an insurance agent and the insured must pay both premiums, there are some differences:

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