Personal Finance and Healthcare Expert
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If you've decided to invest in insurance to protect you and your family, you'll likely wonder where to use your budget best. In this article, we compare health and life insurance and explain the critical differences between the two.
Health and life insurance are very different in numerous ways. Health insurance is designed to cover the cost of private medical treatment should you become unwell or injured, whereas life insurance pays a lump sum cash benefit to your loved ones if you die while having it.
Without wanting to be blunt, health insurance benefits you while you're alive, and life insurance benefits your loved ones after you're gone.
The table below highlights some core differences between life and health insurance.
Health insurance pays your private healthcare costs and lets you get quick treatment without spending time on an NHS waiting list. The treatment expenses your health insurance covers depend on your chosen policy. Most insurance providers provide a core policy and let you add optional extras for more comprehensive coverage. Depending on your circumstances, you can select an individual health insurance plan, a couples policy or family health insurance; adding more people can reduce the cost per head.
Core cover is available on even a basic health insurance policy. Here's what you can expect to find with most health insurance policies.
Health insurance typically covers medical expenses for in-patient and day-patient treatment, where you are admitted to hospital to receive care. Your health insurance policy will pay all your hospital bills, including accommodation, food, medication and surgery costs. You'll typically stay in a private room if you need to stay overnight for in-patient treatment.
Cancer cover is an essential part of health insurance, as 1 in 2 of us will get cancer in our lifetime. Policies vary, with most covering surgery, radiotherapy and chemotherapy, while others include more advanced treatments such as stem cell therapy. Most providers also offer support services such as nutrition advice.
Most core health insurance policies will include some out-patient treatment services, such as complex scans and out-patient surgery, however, to fully benefit from health insurance, it's usually wise to add some additional out-patient cover to your policy so that you can also have specialist consultations and other diagnostic testing carried out privately.
Most health insurance policies cover 8-10 counselling or CBT sessions per year. You can self-refer, meaning you don't need a referral from your GP. They're ideal for quick access to mental health support, but you'll likely need enhanced coverage for ongoing mental health problems.
A virtual GP service lets you book an appointment with a GP 24/7 to fit around your life. You can speak to a GP via telephone or video call. They can provide health advice, a treatment referral or a private prescription. They're ideal for minor health issues.
If you want general health advice or guidance on where to go for treatment, health insurance typically includes access to telephone helplines. Nurses staff most, and some insurers have specialist helplines run by midwives, pharmacists or counsellors. Many insurers also provide self-help resources online.
You can choose which consultant and hospital will treat you, whether you receive NHS or private treatment. Health insurance includes a list of hospitals your policy covers, and most let you search for consultants and treatment centres in your area online.
Optional extras let you add coverage to your health insurance policy. Additional benefits will increase your premium but let you tailor your policy to suit your needs. You can usually tailor the financial limits that apply to each type of cover.
Adding out-patient coverage as an optional extra lets you cover medical expenses for out-patient treatment that isn't included in a basic plan. This could include tests and scans and consultations with specialists as an out-patient.
Basic health insurance often covers some counselling sessions. However, if you'd like more or would like your cover to extend to other mental health specialists, such as psychiatrists and psychologists, you'll need to add mental health cover to your policy.
Out-patient coverage generally includes physiotherapy, but you can enhance the range of therapies your health insurance policy covers by adding therapies cover. Depending on your chosen insurance company, these may include osteopathy, podiatry, acupuncture or reiki. Providers vary, so always check the small print to see whether the policy covers your preferred treatment.
Every health insurance policy includes a standard hospital list setting out which hospitals and treatment centres it covers. However, hospitals in London and other major cities, where healthcare costs are higher, often aren't included. Extended lists covering these hospitals cost more but could let you access treatment closer to home.
If you don't qualify for free eye tests or NHS dental treatment, you're likely already paying for private care. Adding optical and dental treatment to your health insurance could help you reduce your costs. Optical care typically includes eye tests, glasses and contact lenses, while dental care includes check-ups and routine and emergency dental treatment.
Health insurance plans have exclusions, meaning the policy won't pay your medical expenses if an exclusion applies. Some are standard exclusions, while others depend on your medical history.
Standard policy exclusions apply to every customer and vary between insurers. Some have longer lists of exclusions than others. Sometimes, an insurance company might exclude a commonly available treatment but offer care that most other insurers don't, such as speech therapy or addiction support.
Typical health insurance exclusions include:
A chronic condition has no known cure and needs ongoing monitoring and maintenance. Common chronic illnesses include asthma, diabetes, and high blood pressure. Health insurance plans only cover acute conditions that respond to treatment, so you'll need NHS treatment if you have a chronic condition.
Pre-existing medical conditions, when a policy is written using moratorium underwriting, are any illnesses for which you sought medical advice or treatment during the five years before buying your health insurance. They're excluded for the first two years of cover, but you can add them later if you stay symptom-free. For example, if you had back pain before you took out the policy, but it got better and returned in a few years, you should be able to claim treatment.
A life insurance policy pays a lump sum to your loved ones after you die. Some life insurance policies also pay a monthly income if you prefer. When you buy a life insurance policy, you nominate your chosen beneficiaries. The payment typically goes into a trust, so your loved ones don't have to pay inheritance tax when your life insurance pays out.
There are different types of life insurance policies. We'll summarise here, but you can find out more in this article.
Term insurance provides life insurance for a specified period and pays out if you die during that period. There are three types of term insurance, and you can choose the one that best suits your needs.
When you choose a level-term insurance policy, the amount the policy pays remains constant throughout the life insurance term. You'll benefit from a fixed premium, meaning it's predictable and straightforward. It's ideal if you have any fixed costs, but inflation means the buying power of your payout will drop over the years.
Increasing term life insurance means the payout and premiums increase during the policy's life, making it harder to budget for premiums. However, the payout increases with inflation, so it should keep up with increases in the cost of living.
Decreasing term life insurance pays a decreasing sum over the years, so it's usually cheaper than other term insurance policies. It's ideal for expenses that decrease with time, such as a mortgage, where your payments reduce the total amount you owe. This can give your family peace of mind, knowing a significant expense will be paid off when you're gone.
A whole life insurance policy (sometimes called permanent life insurance) pays out whenever you die rather than covering a fixed term. It offers financial security to your family whenever you pass away and is typically more expensive than other types of life insurance.
Over-50s life insurance cover is a specialist type of whole life insurance policy that provides a guaranteed payment. It's often used to pay for funeral expenses to give peace of mind to loved ones at a stressful time. An over-50s policy is ideal for anyone struggling to get other health insurance because of pre-existing health conditions, as acceptance is guaranteed. However, payouts are typically lower than with other life insurance policies.
You can buy an individual life insurance policy, but a joint life insurance plan can help you save money on your premiums like a joint health insurance plan. The premiums and final payment work the same way as an individual life insurance plan, but the policy covers you and your partner. However, the policy only pays out once, after the first death. If the surviving partner wants to leave something behind for your children, they'll need a separate policy.
The leading insurers typically offer high payout rates in the region of 95%-99.5%. If you have a term insurance policy, your life insurance will only pay during the fixed term. People with complex health needs can struggle to get life insurance or find it prohibitively expensive, as insurance companies view them as high-risk.
However, there are circumstances where your insurance company may refuse to pay. Here are a few reasons your life insurance policy may not pay when you die.
Some life insurance exclusions relate to the cause of death, usually if your death arose from reckless or dangerous behaviour. Typical exclusions include:
Some policies don't cover deaths abroad, so it's worth checking if this applies, particularly if you travel frequently.
As mentioned, a complex medical history can mean getting approved for life insurance is more challenging or that premiums will be significantly higher. However, you must disclose any pre-existing conditions when seeking life insurance quotes. If you die as a result of an illness you should have disclosed when you bought your policy, your loved ones' claim will likely be denied.
Your life insurance is only valid if you keep paying your premiums, and your insurer can decide to cancel your policy if you skip payments. If you're struggling, contact your insurer or insurance broker to let them know and ask if they can help.
Some life insurance plans have a waiting period, meaning your beneficiaries can't claim when you first buy the policy. A waiting period can apply to any life insurance plan but is most common with over-50s life insurance. The waiting period is typically 12-24 months, which means your family can't claim if you die of an illness, although accidental death is still covered.
It's an unpleasant subject, but, unfortunately, some people buy life cover when they plan to take their own lives so they can leave something behind for their loved ones. Some policies exclude deaths by suicide completely, while others have a specified exclusion period of up to two years.
The most significant difference between life and health insurance is that a life insurance plan doesn't provide access to private medical care, while health insurance does.
A life policy will typically pay part of your payout if you're diagnosed with a serious illness and expected to live less than 12 months. Many health insurance plans include end-of-life care, such as home nursing or palliative treatment. However, if your chosen policy doesn't, you can use the funds to pay for care. Alternatively, you can use the payment to adapt your home, have a final family holiday, or cover funeral expenses.
Most insurers have a member reward scheme providing perks and discounts when you buy an eligible policy. Many providers offer rewards for both life and health insurance customers. Some providers offer the same rewards to all customers, while others let you earn perks through healthy living.
Health insurance and life cover provide very different benefits, so it's worth investing in both if you can afford to. Many employers provide life insurance and private medical insurance as employee benefits. However, it can still be worth investing in your own policy so you're covered if you change jobs or want to supplement what your employer provides.
MyTribe guides aim to help you learn more about your insurance options and make an informed choice. If you'd like to discover how health or life insurance can benefit you, contact us for a comparison quote. We'll introduce you to a regulated broker for tailored advice.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Kirsty is a personal finance and healthcare expert who enjoys demystifying legal and insurance topics for a wider audience. She’s a former solicitor with a personal injury and insurance background.
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