Navigating insurance and medical costs can be a pain, especially when many different kinds of insurance plans are available. To start with the basics, life insurance helps provide loved ones with money upon the policyholder’s death.

Life Insurance vs. Health Insurance

Life insurance and health insurance are two very similar yet different things. Health insurance policies are made to take care of the living-- policyholders pay a premium for aid with doctor’s bills, hospital fees, and other in-network services. Life insurance takes care of the dead by providing a policyholder’s listed beneficiaries a sum of money upon the policyholder’s death. Unlike health insurance, policyholders cannot use life insurance to pay for medical expenses in most situations.

 

The point of life insurance is to provide loved ones a bit more financial security after death. Policyholders pay premiums each month to accumulate a specific sum of money. This money goes to the policyholder’s beneficiary upon their death. The money, also known as an estate, can go towards funeral expenses, potential debts, or other extraneous costs. Once a beneficiary receives the estate, it is theirs to use for living expenses as well.

Types of Life Insurance

Life insurance comes in two main types, ‘as shown below:

Term Life

Term life insurance is the most common and most affordable type of life insurance available. Under a term life plan, beneficiaries will receive a death benefit upon the policyholder’s death within a specific period. Some types of term life insurance, known as decreasing term policies, will reduce death benefit as time passes. The more common type of term life insurance, however, level term, does not feature this estate decrease at all. Level term life insurance policies tend to be far more common (and more popular) than decreasing term policies.

Whole Life

Unlike term life insurance, whole life insurance provides beneficiaries with a policyholder’s death benefit whenever they die. Most whole life policies also don’t depreciate over time and stay the same just as level term policies do. Whole life insurance policies can be quite expensive, especially for people who want to pay their premiums in a few lump-sum payments.

Life Insurance and Long-Term Care

Some life insurance policies allow policyholders to pull from their death benefit to pay for long-term care, medical treatments, or other expenses associated with old age and illness. By adding policy riders to the initial insurance policy, policyholders can use their death benefit to pay for treatments. There are three types of policy riders:

  • Long-Term Care Riders accelerate a portion of the insured’s death benefit to pay for care expenses. These riders typically ask the policyholder to pay out-of-pocket for certain services, then provide reimbursement.
  • Chronic Illness Riders use a portion of the insured’s death benefit to pay for treatments regarding a chronic illness, like Alzheimer’s or late-stage osteoporosis. These funds are set aside from the death benefit, but any excess funds from the treatment account are paid as an addition to the death benefit.
  • Terminal Illness Riders allow policyholders to pull directly from their death benefit to pay for medical costs associated with a terminal condition. Policyholders can use a percentage of the death benefit to pay for extra care, treatment, or medications to make things easier. This money comes directly out of the policyholder’s death benefit.
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