Affordable Care Act
Life Insurance Basics
Updated on March 15, 2024
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Health and life insurance policies provide valuable benefits to protect you and your family from the potentially crippling financial effects of an unexpected illness, injury, or death. For those who don’t receive these benefits from their employers, or who are self-employed, health and life insurance coverage are important elements to sound financial planning. Each type of insurance has different policies, with unique features that will appeal to different people, so it is important to understand the difference.
Life insurance vs. health insurance
Life insurance and health insurance are similar in that they both cover the insured person against an unforeseen event. However, they are completely different in the type of coverage they offer. To put it simply, life insurance protects your loved ones financially if you pass away. Health insurance protects you financially if you get sick or injured. The chart below summarizes the chief differences between life and health insurance.
| Life Insurance | Health Insurance | |
| Coverage | A contract in which the insurance company agrees to pay the insured person’s nominee a fixed amount if the insured person dies. | A contract in which the insurance company agrees to pay for covered medical and hospital expenses of the insured and the insured person agrees to pay a fixed premium. Some health plans may include prescription drug coverage and/or health-related items and services. |
| Benefit Pay-Out | Benefit is only payable if the policy holder dies till the maturity of policy. | Benefit is payable when covered medical expenses occur; the policyholder may be responsible for cost-sharing payment, such as deductibles, coinsurance, or copayment amounts. |
| Term of Coverage | Usually longer terms of coverage, such as 10, 20, 30 or more years. | Usually shorter terms of coverage, such as 1 year. |
| When to buy | Varies by person but most people purchase life insurance when someone else depends on their income –e.g., a spouse, partner, and/or children. | Most people need to purchase health insurance if they are not able to participate in an employer’s group health insurance and do not qualify for a government health program. To purchase ACA health insurance from your state’s marketplace, you usually must apply during specific times of the year (usually October – December) or within 60 days of a special qualifying event, such as a divorce or loss of job. You can purchase health insurance off the marketplace anytime. |
| Where to buy | Most people purchase life insurance by selecting a life insurance company that has the policy they desire and work with an insurance agent or broker to purchase the policy and any desired riders | You can purchase individual or family health insurance online at eHealth. If you are a small business owner, eHealth can also help you find a small business health insurance plan. Using the eHealth plan finder, you will have access to health insurance plans on and off the marketplace. Our objective, licensed brokers are available to assist you. |
Different Types of Life Insurance
Once you understand how life insurance differs from health insurance, you are ready to consider policy types and which are most suitable to your goals and lifestyle. Life insurance policies fall within two broad categories.
Term Life Insurance
Term life policies are in effect for a fixed term, such as 10, 20 or 40 years. The insurance company provides financial assistance to your nominee if you within the term of the policy. There can be no claim to the money if you survive the life insurance policy terms. In some cases, insurance companies may provide the policy holder the opportunity to convert an expiring term life policy into a permanent life insurance policy and pay whatever additional premiums, if any, may be due on the permanent life insurance policy.
Term life policies are relatively inexpensive. They are a popular choice among young families where the policy holder desires to provide for children financially in the event the parent dies prematurely. As a rule, the policy holder selects a fixed term that coincides with the number of years the youngest child may need financial help.
Permanent Life Insurance
Permanent life insurance, as the name implies, provides coverage for your entire life if you continue to pay your premiums. The premium for permanent life insurance is generally more expensive than for term life, but it usually is fixed, which means it doesn’t increase as you age. Permanent life insurance if often referred to as cash-value insurance. You may consider a permanent life insurance policy a financial investment because the insurer invests part of the premium you pay. These investments can provide a tax-sheltered way to earn money.
Permanent life insurance policies have a face value and a cash value. The face value is the amount your beneficiaries receive when you die; in other words, the death benefit. The cash value is equal to the amount of premiums you have paid, plus any investment earnings. Some permanent life insurance policies guarantee growth for the cash value. Others involve more risk, which means the cash value of your policy could potentially decrease over time.
One advantage of permanent life insurance is that you don’t pay any interest on your investment earnings, and your beneficiaries don’t pay any tax on the death benefit. In some circumstances, you can even borrow money tax free from your permanent life policy. There are four types of permanent life insurance: whole life, universal life, variable life, and variable universal.
Your health and financial well-being are important to all of us at eHealth. We invite you to explore your individual and family health insurance options using eHealth’s online tools. And remember, eHealth licensed insurance agents and brokers are available to help you find the plan that best matches your needs.