Life Insurance vs. Health Insurance: What's the Difference?

Life insurance and health insurance serve distinct purposes in your financial plan. Health insurance covers your medical expenses during your lifetime, while life insurance provides financial protection for your beneficiaries after your death.

Life insurance offers financial protection for your beneficiaries after your death. The insurance company pays a death benefit to the people you designate when you die. Your beneficiaries can use it to cover living expenses, pay off debts and maintain financial stability.

Life insurance policies have three key components: premiums (your regular payments to the insurance company), the death benefit (the amount your beneficiaries receive), and beneficiaries (the people who receive the death benefit). Some policies build cash value over time that you can borrow against while you're alive.

Term life insurance offers coverage for specific periods (often 10, 20 or 30 years). It offers lower premiums than other types. Term life works well if you need coverage until your children are grown or your mortgage is paid off.

Permanent life insurance, such as whole and universal, covers you for your entire lifetime. It builds cash value that grows over time and has higher premiums than term life. The cash value grows on a tax-deferred basis, and you can borrow against it.

Learn more: Types of Life Insurance

Life insurance replaces your income so your dependents can maintain their standard of living. The death benefit covers funeral costs, medical bills and outstanding debts, allowing your family to keep up with the mortgage and fund your children's education.

You can use life insurance for estate planning, as it can provide liquidity to pay estate taxes. It protects your mortgage so your family can stay in their home. You can fund your children's education even if you're not there to help them.

The cost of life insurance depends on different factors, including age, gender, health, lifestyle, coverage amount and policy type.

According to MoneyGeek's analysis, a term policy for a 40-year-old nonsmoker costs an average of $55 per month. This is based on a 20-year term life insurance policy with $500,000 coverage. A whole life insurance policy for the same profile and coverage amount averages $667 per month. Universal life insurance costs an average of $294 per month.

Health insurance covers your medical expenses during your lifetime. The insurance company pays for covered healthcare services when you need treatment. You pay premiums to maintain coverage, then share costs through deductibles, copays and coinsurance when you use medical services.

These plans include several cost-sharing elements. Your deductible is the amount you pay out-of-pocket for covered services before insurance starts sharing costs. Copays are fixed amounts you pay for specific services like doctor visits. Coinsurance is the percentage you pay after meeting your deductible. The out-of-pocket maximum caps your annual spending on covered services.

Health insurance covers common medical needs, like annual checkups and vaccinations. It also protects you from big expenses like hospital stays for surgeries or serious illnesses, plus prescription medications and specialist visits. Most plans also cover mental health services, physical therapy and emergency care.

Individual and family health plans provide comprehensive medical coverage you buy on your own. These plans cover routine care, hospital stays, prescriptions and specialist visits. You choose the coverage level that fits your needs and budget.

• HMO (Health Maintenance Organization) plans require you to choose a primary care physician who coordinates your care. You need referrals to see specialists and must use in-network providers except for emergencies. HMO plans typically have lower premiums but less flexibility.
• PPO (Preferred Provider Organization) plans let you see any provider without referrals. You pay less when you use in-network providers, but can go out of network for higher costs. PPO plans offer more flexibility but charge higher premiums.
• EPO (Exclusive Provider Organization) plans require you to use network providers except for emergencies. You don't need referrals for specialists, but pay all costs for out-of-network care. EPO plans fall between HMOs and PPOs in cost and flexibility. Premiums vary by insurer and market.

Learn more: Types of Health Insurance Plans

Health insurance provides financial protection against high medical costs that could drain your savings. Hospital stays, surgeries and serious illnesses cost thousands or tens of thousands of dollars without insurance.

Health insurance provides access to preventive care that keeps you healthy. Annual checkups, cancer screenings and vaccinations catch problems early when treatment is easier and less expensive. You'll pay less out of pocket for routine care and prescriptions.

The cost of health insurance depends on the plan type, applicant profile and state. Based on MoneyGeek's analysis, the average adult with a Silver-tier plan pays $687 per month. Children pay an average of $425 monthly, while the cost for seniors averages $1,448 per month.

Unlike life insurance, health insurance has a deductible. This is the amount you need to pay before your insurance coverage starts.

The right amount of coverage depends on your financial situation, family needs and health status. Use these guidelines to estimate your insurance needs, then adjust for your specific circumstances.

A general rule suggests 10-12 times your annual income for life insurance coverage. This calculation ensures your family can maintain their lifestyle without your income.

Include your outstanding debts when calculating coverage needs. Add your mortgage balance, car loans, credit card debt and student loans to your income multiple. Your life insurance should pay off these debts, so your family doesn't struggle with monthly payments.

Consider your children's education costs if you have kids. Check estimated expenses for higher education. Add this amount to your coverage if education funding is a priority.

Adjust your coverage for your spouse's income and existing savings. If your spouse earns a high income, you might need less coverage than someone whose family relies entirely on their paycheck. Subtract existing savings and assets that could support your family.

Use our life insurance calculator to estimate the right coverage amount for your family.

Look at your current health status when choosing health insurance. If you have chronic conditions like diabetes or heart disease, you need coverage with lower deductibles and better prescription benefits. Healthy people with few medical needs might choose high-deductible plans with lower premiums.

Factor in your prescription costs when comparing plans. Check if your medications are covered and what you'll pay after insurance. Some plans charge copays for generic drugs, while others require you to meet a deductible first.

Consider your preferred doctors and hospitals when selecting a plan. Call your doctor's office to verify they accept the insurance you're considering. Check if your local hospital is in network, especially if you have ongoing health issues.

Balance premium costs against out-of-pocket expenses when comparing plans. For a quick estimate, use our health insurance calculator.

Life insurance and health insurance work together to protect your financial security. Health insurance covers your medical expenses while you’re alive. Life insurance offers financial protection for your loved ones after your death, replacing your income and covering expenses.

Most people need both types of coverage since they address different financial risks. Start by securing health insurance to protect yourself from immediate medical expenses. Then add life insurance if you have dependents who rely on your income. Compare quotes from multiple insurers to find affordable coverage that meets your needs.