Life vs. Health Insurance: What’s the Difference and Which One Should You Buy?


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Updated: September 24, 2024

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Understanding the difference between life insurance and health insurance is key to making informed decisions about your financial security. Both play significant roles in a comprehensive financial plan and serve different purposes. Knowing which one to prioritize depends on your circumstances, financial goals and life stage. Health insurance is intended to cover medical treatments, medications and preventative check-ups for you and others included in your plan. Life insurance, on the other hand, offers a cash payout to your loved ones if you pass away during the policy term.

Generally, when it comes to necessity, health insurance should be your top priority because it pays for expenses while you are alive. Conversely, life insurance gives your loved ones a lump sum to help pay off any debts or expenses in the event of your passing.

Key Takeaways

Life insurance gives your beneficiaries a lump sum to help support their finances after your death.

Health insurance pays for your medical costs, such as routine care, prescription drugs, emergency care, specialty care and more.

Between health and life insurance, health insurance is more important to have first as it can help pay for medical expenses while you are alive.

What Is the Difference Between Life Insurance and Health Insurance?

Understanding the differences between life insurance and health insurance can help you discover which one is best for your needs. What’s best for you will depend on where you are in life, what type of benefit you’re looking for and more.

Life vs. Health Insurance

Life Insurance
  • Life insurance covers the death of the policyholder, enabling you to leave a lump sum, called the death benefit, in the event of your demise.
  • The death benefit is given to the beneficiaries you designate, which are often members of your family or a loved one.
  • Life insurance can suit everyone, particularly those with a spouse, kids or family members who will need financial support after their passing.
  • Life insurance is only available from private companies.
Health Insurance
  • Health insurance helps pay for preventive services and other medical care, whether due to an accident, a disease or a health issue.
  • When receiving care, policyholders must pay out-of-pocket costs — such as a deductible, copays and co-insurance — before the insurer takes over the rest of the costs.
  • Health insurance is necessary for everyone at any age to help manage the costs of medical care.
  • The government offers health insurance through Medicaid and Medicare, but coverage can also be purchased from private companies through the Health Insurance Marketplace.

Overall, life and health insurance differ in their purpose. Life insurance is primarily intended to ensure the financial security of your beneficiaries after your passing, while health insurance is meant for you.

For instance, if you get into an accident, health insurance can help you pay for any medical costs you incur. However, you will have to pay a few out-of-pocket fees before your insurer takes over most of the medical costs. On the other hand, if you pass away, your family will simply need to file a claim with your insurer, and after the insurer processes it, they will be given a death benefit to help take care of any expenses they may have.

Coverage Comparison: Life Insurance vs. Health Insurance

Get an understanding of the difference between health insurance and life insurance coverage and figure out which one is right for you.

Coverage Differences Between Life Insurance and Health Insurance
Coverage For
Life Insurance
Health Insurance

Ambulatory Patient Services

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Emergency Services

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Hospitalization

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Laboratory Services

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Preventive & Wellness Services

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While it may seem like life insurance covers less, remember that the purpose between health insurance and life insurance differs. Additionally, some life insurance types, such as whole life insurance and universal life insurance, can include a cash value component — something not found in health insurance.

This cash value component can serve as a form of savings or investment, as a portion of your monthly premium will be set aside to be invested by the company. You can typically withdraw this after a certain period or even have it included in your death benefit if you pass away before being able to withdraw it.

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LIFE INSURANCE VS. MEDICAL INSURANCE

Life insurance and medical insurance are fundamentally different, especially in coverage. Medical insurance and health insurance are terms often used interchangeably to describe coverage that helps pay for medical expenses. Both cover costs related to doctor visits, hospital stays and preventive care. However, the term "medical insurance" is sometimes specifically used to refer to plans that cover illness and injury treatments, while "health insurance" can also encompass broader wellness services and preventive care. In general usage, though, they essentially refer to the same types of coverage.

Life Insurance vs. Health Insurance: Pros and Cons

Both life and health insurance come with unique benefits and challenges. Weighing these pros and cons helps in making informed decisions that align with your individual needs and circumstances.

Life Insurance: Pros and Cons

Pros
  • Financial Security: Ensures your family's financial stability after your demise
  • Debt Coverage: Helps in settling debts, reducing financial burdens on your family
  • Estate Planning: Aids in efficient asset distribution to beneficiaries
Cons
  • Cost: Premiums can be high, especially for permanent life insurance
  • Policy Limitations: Certain policies may have restrictive terms
  • Possible Inflexibility: Term life insurance, which is typically the cheapest type, lacks cash value if outlived

Health Insurance: Pros and Cons

Pros
  • Cost Management: Helps manage high medical costs
  • Preventive Care: Includes coverage for essential preventive services
  • Financial Protection: Shields from unexpected medical emergencies
Cons
  • Possibility of Having Limited Choice: HMOs may restrict healthcare provider options
  • Out-of-Pocket Costs: Deductibles and co-pays can accumulate
  • Coverage Scope: Some plans may have limited coverage for certain medical services or conditions
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MONEYGEEK EXPERT TIP

Life and health insurance offer two very different coverages — but both are still important. Life insurance is necessary if you have family members who are dependent on your income. This frees your family from financial worries after your passing, as it can be used to pay off a mortgage, for a college education or for other costs you would no longer be able to cover. However, health insurance is indispensable if you often face expensive medical costs or want to protect yourself against the likelihood of medical expenses.

Should You Buy Life or Health Insurance?

Life insurance takes care of your beneficiaries’ finances after your passing, while health insurance secures your finances in case of an accident or medical emergency. While both are essential, health insurance should be your priority if you are wondering which one to get first. This can let you navigate life with fewer worries, because you can get routine checkups and emergency care as needed without too much financial strain.

Generally, health insurance should come first as it can benefit you while you are still alive. Life insurance, though important, is mainly meant for the people you leave behind after your death.

Important Considerations When Choosing Between Life Insurance vs. Health Insurance

When selecting between life and health insurance, evaluate various factors that impact your specific needs and financial situation. Each factor plays a role in determining the appropriate coverage for you, ensuring both immediate and long-term protection.

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    Current Health Status

    Assess any ongoing medical conditions or potential health risks, because they directly influence your health insurance needs. MoneyGeek analyzed what states are preparing to get healthy in the new year.

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    Financial Dependents

    If others rely on your income, life insurance becomes more important to secure their future.

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    Age and Life Stage

    Different stages of life call for different insurance priorities; younger individuals might prioritize health insurance, while older individuals might focus on life insurance.

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    Budget

    Determine your premium affordability, balancing between comprehensive coverage and financial constraints.

Choosing between life insurance vs. health insurance doesn't have to be an either/or situation. You can integrate both into your financial strategy to ensure comprehensive coverage that aligns with your financial goals.

Why You Might Need Both Life and Health Insurance

Many individuals find it beneficial to carry both life insurance and health insurance due to the comprehensive protection they offer together. Here are some common reasons why having both types of insurance is advisable:

  • Holistic Financial Planning: Life insurance secures the financial future of your beneficiaries, covering long-term expenses such as education, debts and daily living costs. Concurrently, health insurance shields you from the substantial costs associated with medical care, from routine appointments to emergency treatments. Together, they provide a robust financial safety net.

  • Complementary Benefits: Each type of insurance complements the other by mitigating risks in different areas of your life. Having health insurance helps maintain your health, potentially reducing future life insurance costs and ensures that your savings or life insurance benefits are not drained by medical expenses.

  • Fulfilling Personal and Family Goals: The reason that a person buys health or life insurance is to meet specific needs—whether personal, for family protection or to comply with employer or legal requirements. Together, both insurances cover a broader spectrum of potential risks and needs.

By integrating life and health insurance into your financial strategy, you can effectively manage both immediate health care costs and long-term financial commitments.

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MONEYGEEK EXPERT TIP

Whether you’re looking for the best health insurance companies or the best life insurance providers, MoneyGeek has analyzed companies around the country to find the ones that balance cost and customer service.

Compare Life Insurance Rates

Ensure you're getting the best rate for your life insurance. Compare quotes from the top insurance companies.

FAQ About Life Insurance vs. Health Insurance

Understand the difference between life insurance and health insurance to ensure you buy what you need. A review of the most commonly asked questions about health insurance vs. life insurance may be helpful.

What is the difference between life insurance and health insurance?
Should you buy life or health insurance?
Is life insurance the same as health insurance?
Does life insurance cover medical bills?
Does health insurance cover death?

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.