Health insurance can help cover the short term by paying for immediate medical bills and health expenses. Life insurance, on the other hand, offers long term coverage and can help financially protect you and your family in the event of debilitating illness or death.
Life insurance vs. health insurance
Health insurance protects you financially if you get sick or injured. Life insurance protects your loved ones financially if you pass away. Some life insurance policies can also provide additional financial protection for you and your family if you get sick or injured by paying you a lump sum to cover what health insurance won’t.
Life insurance
Health insurance
Definition
An insurance policy that covers specified life events, such as death, disability and serious illness or injury.
An insurance policy that covers medical appointments, procedures, prescriptions and hospitalizations.
Who gets paid?
Payments are made directly to the policyholder.
Payments are made directly to medical professionals for services or prescriptions.
When do they get paid?
After the specified event takes place. For example, term life insurance pays out upon death, and critical illness insurance pays out upon diagnosis.
After billing for a medical appointment, procedure, prescription or hospitalization.
How much do they get paid?
The amount listed in the policy.
As much as is required to pay medical costs, minus any deductibles and copays listed in the policy.
What can the money be used for?
Anything — there are no stipulations on how funds can be used.
Medical bills.
Life insurance
Life insurance provides a lump sum benefit in the event of the policy owner’s death or if diagnosed with a terminal illness and not expected to live for longer than 12 months. This lump-sum benefit ensures that the policy owner is able to meet their financial obligations without leaving any financial burden behind to their friends or family. It can also help your family pay for any expenses after you pass, including mortgage payments, school and day-to-day needs.
Critical illness insurance
A critical illness insurance policy can be added onto or bundled with traditional life insurance. It can provide a lump sum benefit in the event that the insured suffers a condition such as stroke, cancer or heart attack. While health insurance can provide assistance in covering some medical and hospital expenses, life insurance with critical illness benefits will help cover financial obligations that you could face after being forced out of work, such as:
Equipment for rehabilitation
Nursing care
Home or car modifications
Keeping up with debts and bills
Health insurance
Health insurance pays doctors and hospitals directly for medical costs — it doesn’t pay you for any financial hardship. Depending on your policy, your health insurance may cover:
Doctor’s appointments
Prescription medications
Home nurse care
Hospital expenses
Ambulance services
Overseas medical costs
Physical therapy
Chiropractic treatment
Dental and vision care
Protect your loved ones
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Do I need a life insurance policy if I have health insurance?
Yes. Life insurance covers you in a completely different way, and you need both to be fully financially protected. Life insurance can provide coverage for:
Term or whole life insurance
Your child’s education
Buying a new house or paying off a mortgage
Paying off your credit card debt
Day-to-day expenses after the loss of your income
Critical illness or disability insurance
Ongoing medical expenses not covered by health insurance
Hiring a caretaker
Modifications to your home
Recovery costs
Bottom line
While health insurance can cover immediate hospital and medical expenses, it will not provide support for your mortgage, school expenses for your children, food, rent, clothing and any other expense that will need to be taken care of. A life insurance policy can protect your loved ones from the loss of your income.
Frequently asked questions
No. Critical illness insurance pays a lump sum after you’re diagnosed with an acute illness, such as cancer or a stroke. It provides a lump sum payout intended to help you financially until you’re able to return to work. Disability insurance provides financial protection if you’re permanently unable to work. For example, if you break your back and are no longer able to work in your current field.
No. Critical illness insurance can be purchased individually or as an add-on to your life insurance policy.
Possibly, but it depends on the insurer. If you’d rather avoid the doctor, there are life insurance policies available that don’t require a medical exam.
Roslyn McKenna Ayers is insurance manager at ValuePenguin and a former publisher at Finder, specializing in home and auto coverage. Her expertise and analysis has been featured on Bankrate, MSN and Reader's Digest. She holds a BA in writing and communications from Maryville College.
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