Life Insurance vs. health insurance: How to choose what to buy

It’s comforting to know that your family and you have financial security in case of an emergency. It can be difficult to pay for both a lifestyle insurance policy as well as healthcare coverage every month when money is tight. It can be tempting to cut one or both of these expenses to save money.

However, each type of insurance serves a different purpose and provides different coverage.

Insurance: Life or Health?

In the event of your premature death, life insurance will pay a lump sum to your beneficiaries. The death benefit should provide enough income to cover future income loss as well as cover expenses such as funeral costs and medical expenses. It can also be used to pay for college savings or retirement years. The family has financial continuity so that they don’t have to struggle despite their loss of income.

On the other hand, health insurance pays for medical expenses like doctor’s visits and hospital stays. This insurance helps people stay healthy and afford medical care.

There are many people who need both types of insurance, particularly if they have dependents. It’s best to limit your coverage to what you really need so that you can afford both kinds of insurance.

Insurance needs can change drastically over time. For a parent who has teen children, what might be important might not apply to a retired person or recent college graduate.

The “Young Invincibles”,

1 Before the 2014 rollout Affordable Health Care Act (ACA), many 20- to 30-year-olds had forgone health insurance. Some people felt it was unnecessary to pay a premium every month for their health insurance.

The Tax Cuts and Jobs Act was repealed (or the noncompliance penalty), and took effect in 2019. 4 But, considering the benefits of health insurance coverage, it might be worth having.

Recent grads have some good news: the ACA allows them to remain on their parent’s policy until they turn 26. This may give you time before you take out your own policy.

A catastrophic policy is a good option if you don’t want to rely on your parent’s policy and are under 30. While you won’t get reimbursed for doctor visits or other daily health care needs, you will have a safety net in case of major medical issues. This minimal amount of insurance is sufficient for people who have a good health record.

You might consider a boost in your coverage by purchasing a Silver, Gold, or Platinum plan through your state’s Healthcare Exchange. You may be eligible for government assistance. To be eligible for the tax credit, you must have a household income of between 100 and 400% of federal poverty. To be eligible for a subsidy for 2021, you must earn below $51,040 as an individual, $68,960 as a couple, or $104,800 for four members of a family. In each case, that amount is four times the federal poverty level for 2020.

Life insurance for under-30s

You may not be able to choose whether you want health insurance or life insurance. You may not be eligible if you do not have children yet.

There are some exceptions. You should consider taking out a policy large enough to cover the needs of your grandparents or parents if you are financially supporting them. You might also want to cover funeral expenses in case of an emergency. This type of coverage is usually affordable for people in their 20s and 30s, as long as it’s a simple term policy.

Raising a family

Health insurance becomes more important when there are children or spouses. Your employer may offer a health plan. This is usually cheaper than buying on an exchange. The company usually subsists a large portion of your health premium. In the “individual” market, you pay the entire bill, less any tax credits and subsidies that may be available.

You may not be able to afford the most expensive policy offered by your employer. Take a look at each plan’s premium during your employer’s open enrollment period. Next, estimate how much you would have to spend out-of-pocket on things such as prescription drugs, lab work, emergency services, and lab work under each plan. The premium for the top-tier plan may not be worth it.

This principle also applies to families that are not covered by their employer and opt to buy individual insurance. A “Silver” policy can provide enough coverage for you to be covered if you don’t expect to have major medical expenses.

You need life insurance

After having a family, life insurance is something that most people need. It doesn’t have to cost a lot of money to provide financial security for your family. Consider a term policy that only lasts for a set amount of time. These policies are generally cheaper than permanent policies such as whole life or universal life.

You can also keep your costs down by only purchasing the life insurance you actually need. This can be done in a number of ways. There are a few ways to figure this out. One is to multiply your salary by 10 times your annual wage. Another is to use that rule of thumb to calculate the face value of your policy.

Another, and possibly more practical approach is to add up all the expenses that your spouse would have to incur if you were to die. Consider childcare costs, groceries, mortgage, and car payments as well as tuition. Add to that savings or investment accounts. The difference should be covered by your policy.

If you have dependents, insurance is always better than none. If you feel financially strapped, get as much insurance as you can afford.

Empty Nesters

It’s one of the unfortunate facts of life. The more you age, the more likely it is that you will experience health problems. Therefore, middle age is not the right time to stop paying for your medical insurance.

There is at least one financial advantage to growing older. You might be able to reduce your life insurance if your children reach adulthood. This doesn’t mean you have to stop having coverage. You will still need protection if you have a mortgage to repay or if your pension doesn’t provide a survivor benefit.

You have the option to get a smaller policy to provide a safety net for your empty nest period if your current term policy is ending. You could also convert a portion of your existing term coverage into a permanent policy if it has a conversion function.

Convertibility has the advantage that you don’t have to go through Medical Underwriting again. This becomes more difficult as you age and have more health problems. You only have a limited number of years to take advantage of this feature. It’s worth looking at your carrier’s terms.

What is the difference between life and health insurance?

Your health insurance covers you and your family for preventive and medical care. If you are unable to work, life insurance will pay a cash lump sum to your family members.

Are You a Retiree and Do You Still Need Life Insurance?

There is no single solution. You won’t likely need life insurance if you have no problems paying your bills after retirement and your family is financially independent.

Life insurance is good if you have outstanding debts (like a mortgage), or have dependent children or a spouse. Life insurance in an irrevocable trust may be an option if you have substantial assets that could trigger estate taxes.

Am I a young person entitled to health insurance?

It’s a good idea to have health insurance, even if your age is young and healthy. At the minimum, you should be covered for any catastrophic events. Even a short emergency room visit or outpatient surgery can cost hundreds to thousands of dollars. You are responsible for all expenses incurred if you don’t have health insurance. Although it is becoming less common, some providers and emergency rooms will refuse to accept you if you aren’t insured.

The bottom line

It’s much easier to pay for life and health insurance when you only purchase the coverage that you really need. For those aged 30 or younger, who aren’t suffering from chronic illness, you may be able without the latter. These are two things you can’t do without for those with dependents.

Updated: December 25, 2022 — 6:54 am

Leave a Reply

Your email address will not be published. Required fields are marked *