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Life insurance and health insurance are two very different products that are meant to serve very different purposes. If you are ready to plan for the future and protect your assets, chances are you have a need for each type of insurance plan.
While you might have a need for each, you also need to understand how the two differ from one another. By reading a consumer guide that explains the benefits and coverage options of both life and health insurance, you can start to comparison shop for the plan that takes priority to you.
Read this Life Insurance vs Health Insurance consumer guide, and find out everything that you need to know. Use our FREE search tool above to find and compare quotes instantly!
What is life insurance?
Life insurance is a financial product that is designed to pay your beneficiaries listed on the policy if you pass away while the policy is still in effect. Life insurance can be purchased from life insurance providers who offer a wide variety of policy types and a large range of coverage limits.
While the features and the structure of each policy may be different, the purpose of each life insurance policy is to provide the named insured peace of mind while offering protection to their family.
Who needs life insurance?
You will never find a product on the market that 100% of all consumers need, but life insurance is a product that a majority of the population does.
Many people who choose not to carry life insurance have a misconception that they do not need coverage because they are single, do not own a home, and do not have children.
These may be the most common stages in life where people begin to price and shop for insurance, but there is a need even before your life changes.
If you have any type of debt and you do not have thousands put away to cover your final expenses, you have a need for at least a minimal policy.
Failing to buy insurance, even when you are a young adult living care-free, can end up putting a financial burden on your family if something were to happen to you.
The last thing that you want to do is place the weight of dealing with hefty burial fees on the shoulders of your family when they are already mourning.
This is why a majority of people who do not have a large chunk of money put away will need life insurance at any life stage.
What is life insurance commonly used for?
Life insurance products are not one-size-fits-all like many consumer goods are. One individual may be buying coverage to pay for strictly burial expenses and another couple may decide to buy coverage to pay for dependent care and to replace income.
There are a myriad of different uses for life insurance when you are buying it for future financial planning.
The most common use of life insurance is to replace income when you have someone who relies on your stream of income to survive.
Another common use is to payoff mortgage loans, car loans and other types of debt. Some may use life insurance to pass on a legacy, pay for estate taxes, or to keep their business open if they have a partnership. As you can see, there is not just one use to life insurance.
This is why it is imperative that you research all of your options as you are contacting insurers and comparing pricing.
Group Life vs. Individual Life
There are two different ways that you can purchase life insurance.
You can either buy coverage through your employer or you can purchase coverage on your own.
An employer-sponsored life insurance plan is a form of group insurance.
Not all employers offer this fringe benefit, but if your employer does you will pay discounted rates for coverage. Your employer may even pay a portion of your premium, up to a stated face amount.
Many love group life because they cannot be declined because of their health.
Policies that you buy on your own are called individual insurance.
One of the primary differences is that you will have the freedom to buy coverage from any company and you will own your plan, but you will not receive special group rates and you can be denied for pre-existing conditions.
The benefit of carrying individual plans is that you can select higher limits, you can shop the market, and you will not lose your coverage if you change jobs.
This is why most financial consults and experts will recommend that you always carry an individual life plan even if you have a group policy.
What is health insurance?
Health insurance can actually be defined as the opposite of life insurance in that it is designed to protect the named insured by paying for their the costs of preventative care, acute care, emergency care services, hospital stays and other healthcare costs.
Life insurance helps the family when you pass and health insurance is a product that helps pay for treatment and doctor visits when you are sick or trying to avoid getting sick so that you do not deplete your bank account to receive care.
Who needs health insurance?
Just like most people need life insurance, most people also need health insurance.
Once the major differences between the two is in the age range of people who are in need of the product. Newborns and seniors alike need health insurance because everyone in every age range will need access to a doctor or medical services at some time in their life.
Now, people do not only need health insurance, they are required by law to carry it and can be penalized if they are not covered. This is why so many people are rushing to buy health insurance when they have not carried it in years.
Group vs. State-funded vs. Individual Health Insurance
There is a variety of different ways that you and your family can get covered. For individuals who are employed, it is common to buy coverage through a group insurance plan.
Health insurance is much more inexpensive when it is offered by your employer because they pay a portion of the costs.
The deductibles and copayments tend to be a lot lower as well.
State-funded insurance is offered to low income individuals and families. Some of the programs require you to pay a deductible and others do not.
Individual health insurance is purchased through health insurance providers to people who cannot get coverage through work or who are self-employed. From extremely low-cost high-deductible plans, to more expensive full-featured plans with small copayments and high annual limits, there are a lot of individual health plan options.
Similarities Between Life Insurance and Health Insurance
Aside from the fact that life and health plans are both different types of insurance, there are some similarities that you should know about.
This will help to familiarize yourself with the insurance industry.
The biggest similarity between the two is how each marketplace works. In each marketplace, the insurer will collect premiums and then use these premiums to invest in conservative investment vehicles.
They will earn a percentage from the investments and this is what is used to pay for operational costs and for claims payments. The better the investments, the better the rates the company can charge and the more likely the company is to stay in business.
Risk and Rates
Another similarity is how insurance rates are calculated. All insurers need to assess risk when they are developing rates.
This is referred to as underwriting. Underwriting is part of the process after you apply for insurance no matter what type of insurance you are applying for.
If the companies failed to underwrite your applications and verify the information that you stated on your application, they could issue a low-priced policy to someone who is high-risk.
Then they would not be able to collect enough premiums to cover the risk the insured presents.
Rates are calculated in each marketplace based on how much risk you present. Health insurers and life insurers have what is called rating classifications. Classifications will categorize people based on their health and their lifestyle.
Someone who smokes will pay higher rates for health and life insurance because they will need more treatment and are likely to contract life-threatening diseases. It is believed that the underwriting process for life insurance is more thorough than for health insurance.
Now that you know the differences and similarities between life and health insurance, you need to decide which one is a priority.
If you want to buy life insurance and you are looking for the best rates, use an online rate comparison tool that connects you to individual life rates. After you enter all of your information, you will be directed to instant quotes so that you can see just how affordable life insurance really is.
Be sure to use the FREE comparison tool below to start your search instantly!