What is the difference between health insurance and life insurance?

It’s only natural to want to protect what we have, and in our modern age, this is often demonstrated through purchasing insurance policies. Consumers subscribe to dozens of protective policies, covering all manner of things: cars, houses, expensive assets, and physical wellbeing. Among these, health and life insurance are both important types of coverage that deserve a place in the conversation - and a closer look at.

Even if you have a basic understanding of these two insurance types, knowing more and being able to distinguish between them should help you make informed decisions when you purchase one or both policies for yourself, or on behalf of someone else. This article will examine various aspects of health and life insurance policies.

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What is life insurance?

Life insurance is cover intended to provide compensation in the event of the death of the insured person or persons. In some cases, the compensation also takes effect if the insured party becomes seriously ill.

The compensation offered is typically a lump sum payment exempt from taxes, with the beneficiary commonly being a family member (possibly several) of the person who took out the insurance policy, or just another person they officially selected.

The coverage is affirmed with a contract, typically signed with an accredited company and maintained through regular monthly or annual payments to the provider.

Most modern insurance providers deliver documentation to clients in paper and/or digital form. This is highly convenient, as you can often research and enrol for a policy online without leaving your home. This would typically involve sending scans of any needed documents and receiving relevant scans back.

The agreement itself should contain (or refer to) the comprehensive terms of the contract and be signed by both parties. If you buy life insurance, be sure to get at least a copy of the signed agreement.

Other relevant documents may include:

  • Full policy guide, with all of the contract terms and conditions
  • Summary with the main key points to remember
  • Proof of insurance with the identifying code/number of your policy

A standard life insurance policy should list specific conditions in which compensation would be granted or denied, proper timeframes for making payment, submitting a claim, and receiving payment – as well as the benefits provided under the cover.

What’s the purpose of life insurance?

The motivation for buying life insurance is normally a selfless one. Because the funds are delivered after a person falls seriously ill or dies, they have little to no opportunity to spend them. Instead, the thought is that these funds should go to their children, other family members, or close friends.

Another purpose of life insurance is to support a scenario that may see an individual spend weeks, months, or years receiving expensive medical care prior to their death, and their families are left footing the bill for this care after the person passes. The insurance payment becomes valuable funds that cover the bills associated with this and funeral expenses – and could possibly leave some money for the beneficiary to invest in the future.

How much does life insurance cost?

Most life insurance providers do not give a flat rate – instead, they offer quotes based on your individual history and situation. Age, health, exercise habits, and profession are all factors that a company might use to determine the price of your policy.

For instance, an active 20-year-old with no health conditions will likely pay much less than someone in their 50s who smokes. Even though young adults are the least likely to think about dying and plan for what comes after, they have the best terms for securing the best deal on insurance.

The payment plan may be locked in at a single monthly sum or be subject to change based on your life circumstances and economic factors.

What are the different variations of life insurance?

The prevailing notion of life insurance is that it begins when the policy is purchased and yields the lump sum when the policy holder dies. However, beyond this coverage type (usually called ‘Whole of Life Insurance’), there are a few other variations.

One popular approach among consumers is to purchase Term Life insurance, which has a set duration, such as 10 or 20 years. If the policy owner passes away after the term ends, no compensation is provided. Some providers support the option of updating a term-type policy to a longer period or converting it to a full life duration.

We have also previously mentioned serious injury as a condition for the compensation to kick in. Usually, the illness must be new, severely debilitating, and chronic in nature for coverage to be granted. Other optional stipulations and variations include: coverage for accidental death, cancer diagnosis, or death before pension.

Who is eligible for life insurance?

The conditions for getting life insurance vary from one provider to another, but there are some eligibility criteria that are very commonplace. For one, you must be an adult, typically in the age range of 18-70. Over 50s and over 70s are often sold as separate policies.

Most insurance providers also evaluate your circumstances before taking you on as a client. They consider your health history, habits and lifestyle, hobbies, work activities, and other factors. This evaluation can take place in the form of a survey, interview, or background check run by the organisation.

Another important thing to keep in mind is that eligibility for a policy can be revoked even after you have signed up for a policy. The most common cause of this is a failure to pay your premiums.

What are the pros of life insurance?

The financial compensation that comes with life insurance is certainly a good motivator for getting it, but not the only one. Let’s examine some of the reasons why people opt to purchase cover:

Support for loved ones

Death is a sombre affair that can seriously upend the lives of their family and loved ones – causing emotional, organisational, and financial difficulties. However, life insurance offers some peace of mind, and the beneficiaries of this payment get some aid that will help them cover various funeral expenses, pay off debt, and otherwise keep moving with their lives. In this way, the deceased keeps caring for them.

Affordable rates

The fees for life can be affordable – especially if you subscribe to the coverage while you are still young and healthy.

Tax exemptions

The payment that comes with such a policy is exempt from tax in most countries and regions, so it is a much more reliable way to pass on wealth than physical possessions or stock – which are already prone to changing value over time, and inheritors receive even less from them due to taxes that they have to pay.

What are the cons of life insurance?

If we look at advantages, it is only fair to also go over some of the reasons why people opt against purchasing a life plan.

Growing expenses

The premiums that come with life insurance if you sign up later in life can be expensive.

Risk of cancellation

You need to keep up with the payments in order for the policy to pay out.

No investment growth

Life insurance doesn’t grow in value, like interest in a bank account or a successful stock investment.

What is health insurance?

Health insurance covers some or all expenses related to the insured person’s private medical care. For example, this could be a doctor’s appointment, urgent treatments and surgeries, or purchase of medication(s).

Health insurance can be offered by various entities, including employers and corporations, as well as bought by individuals. The entity may just be responsible for the financial side of health services or be fully integrated into hospitals and clinics. The coverage only works as long as there is a valid and legal agreement between the healthcare provider, policy provider, and patient.

Similar to life insurance, any health plan will probably include a signed agreement, summary of coverage, and sometimes proof of coverage (for sharing with third parties). Health insurance plans should comprehensively describe your payment schemes (premiums, deductibles, etc.) and requirements, as well as the extent and restrictions of your coverage.

It should also contain a comprehensive list of services covered and to what extent, how medications are allocated and compensated, and various exceptions to the general rules.

What’s the purpose of health insurance?

If you’d want to be treated privately for a health issue, you would have to pay for the service. Costs will vary depending on the treatment, and where you are having it done and can end up being costly.

To put it simply, health insurance is designed to make medical fees more affordable. It can be used to enhance and supplement national healthcare (such as the NHS).  

If you have health insurance, you will get money towards costs associated with private treatments, or they would be completely covered – depending on the terms and conditions of specific policies. The appeal of being able to go private is one of the biggest advantages of health insurance, but the decision to get a policy will depend on things like the likelihood of needing treatment, the current delays in NHS care, and associated costs. Within the scope of private treatment, there are lots of options to choose from.

How much does health insurance cost?

As with most insurance policies, the cost of private medical insurance will vary from person to person, so it’s not easy to generalise how much it would cost. But the average premium in the UK for private health insurance is £1,435 a year, according to statistics. Around the world, adults in most developed countries pay hundreds of dollars per month in insurance. Below are some average annual health insurance costs from major countries around the world:

  • U.S.A - $10,209
  • Germany - $5,728
  • New Zealand - $3,683
  • Japan - $3,683

Keep in mind that these sums are not necessarily coming from the pockets of the patient. Through schemes like copay, deductibles, and coinsurance, personal expenses are much more accessible.

What are the variations of health insurance?

Health insurance can be categorised by:

Public, private or company

Public healthcare refers to healthcare provided by the government and available for the general population. We see many examples of this in European Union countries, as well as the U.K., Norway, India, China – and other nations around the globe.

Private insurance can be mandatory in some countries (serving as your primary form of coverage) or just supplement national healthcare.

Finally, some companies provide healthcare as part of their workers’ benefits packages.

Individual or joint

Insurance can be covered for both individuals and groups. The most common examples of joint plans are those covering couples/spouses and whole families.

Set provider or flexible

Some insurance companies limit where you can get treatment, purchase medications, and avail of other services – while others let you make the choice for yourself.

Who is eligible for health insurance?

Eligibility is difficult to examine in a general scope, considering the hundreds of schemes and plans available around the world. However, we can say that private insurance is generally easy to come by, with providers mainly inquiring about any pre-existing health problems and legal status before taking you on as a client. Company-provided insurance is also straightforward, with the most common criteria simply being employed at the company full-time.

What are the pros of health insurance?

Private healthcare comes with its own advantages, most of which are already known to consumers.

Subsidised cost

Over the past several centuries, healthcare costs – from getting an ambulance to taking a blood sample to undergoing surgery – have skyrocketed. People are thankful they have to pay only a fraction of them when they subscribe to a health plan.

Proactive care

Visiting a doctor when you have a health concern is a good course of action, but it is even better to be proactive about health. In this regard, most health plans allow a certain number of checkups, tests, and screenings over time, and keep policy owners aware of these options. When patients know that these services are accessible to them, and covered under the plan, they should be more likely to discover health issues before they become urgent.

Peace of mind

Money and expenditures are undoubtedly things that cause us lots of stress over the course of our lives, and people tend to be especially fretful over expensive medical gear, procedures, and services. Insurance reduces many of these concerns and puts people’s minds at rest – knowing that they are protected.

Reduced wait times 

Waiting times are the bane of many public healthcare systems, simply because they do not get enough funding from the government to match all patient demands. Being seen sooner is a benefit to most private healthcare insurance policies.

What are the cons of health insurance?

As a whole, healthcare is a great thing, but private systems have their own drawbacks.

The cost

Private healthcare is considered a luxury by many. In the UK, we’re lucky to have the NHS, which offers fantastic levels of care and treatment. You don’t need medical insurance to have access to medical support, but some people prefer private healthcare services so having health insurance is beneficial.

Little flexibility

Some insurers require their patients to get treatment at only predetermined facilities – and from a limited set of specialists. Patients also often have a restricted choice of medications, procedures, and medical accessories.

Not everything will be covered

Chronic conditions are unlikely to be covered by private health insurance, as well as treatments that you want, but don’t necessarily need, like cosmetic surgery. Private health insurance also doesn’t cover you for a pre-existing condition.

Do I need life insurance or health insurance?

A key takeaway is that you do not have to choose between the two insurance types – and should not view them as exclusionary to the other. Considering the tangible benefits and value that we see people gain from these two policy types, both should be considered. Health insurance can have a great impact on the life of the policyholder, whereas life insurance is mostly targeted at those who would like to look after their family after death.

Whichever option(s) you go with, pay close attention to the terms and conditions of your policy, shop around at various providers to get a good deal, and make sure to check the company’s reputation and reliability before handing them the keys to your life and health.