Life or Health Insurance: What Should You Prioritize?
When life demands actions, we prioritize. An undeniable indicator of adulthood is the ability to prioritize needs over wants in order to stabilize and improve one’s personal finances. But cognizance of maturity is just entry-level adulthood. Comedian Chris Rock once said that life is not short, it is very long, especially when you’ve made all the wrong choices early in life. Actions have consequences. And sometimes adults don’t have choices to make, they have to choose from competing priorities. If you had to choose between life or health insurance, which would you choose?
Which one should you prioritize?
As grown adults, you should have both life insurance and health insurance. But even before the economy got slapped by the pandemic and inflation started shooting for the stars, having both life and health insurance is something easier said than done.
Many Americans don’t get life insurance until they desperately need it and has minimal impact on their lives. And the problem is almost as bad with health insurance. Many people get it through their employment and deal with coverage gaps. Or they get the barest and minimum coverage through Health.gov without considering all of their options.
You should have both life and health insurance, especially if you are young and have a family. However, real life usually gets in the way whenever adults must prioritize needs over wants in their households. (Or choose amongst priorities.)
If you must choose, you should prioritize life insurance first. But that does not mean you should never get health insurance. It just means that it is a temporarily deferred priority that must become a top priority when your personal circumstances allow it.
Let’s discuss your options between choosing life or health insurance and how you can defer one without excluding it.
Life or Health Insurance: Easier Said Than Done?
Before we list the pros and cons of life or health insurance, let’s discuss the struggles that most American endure trying to attain either.
What is Life Insurance?
Life insurance is a death benefit contract between a life insurance company and the policyholder. Upon the death of the policyholder, any beneficiaries named by the policyholder in the coverage policy before death will receive death payments. The amount and length of payments are determined by the policy and length of ownership.
Life insurance is most optimal to get the younger you are. It’s cheaper and easier to get on your terms when you are younger. The older you are, the more financial risk life insurance companies incur to cover you since older people are more likely to get sick or suffer from diseases.
However, over a third of Americans don’t have life insurance. About 50% of Americans owned a life insurance policy in 2022. But over 52% of Americans owned a life insurance policy in 2021.
Most Americans overestimate how much life insurance will cost them. If you have car insurance and home insurance, you really need life insurance.
Life insurance can cost well under $100 a month if you are in your 20s. It can be much cheaper than that if you are healthy. Life insurance can become prohibitively expensive the older you become.
Getting life insurance for the first time in your 60s can cost hundreds of dollars per month.
We can’t discuss life or health insurance without explaining health insurance next.
What is Health Insurance?
Health insurance is a contract between a health insurer and a policyholder. The health insurance company promises to pay for all of the qualifiable medical services incurred by the policyholder based on the contract and premium.
Almost 29 million Americans live without medical insurance. Most people get their health insurance through employment. However, it’s no secret that many Americans became involuntarily unemployed during the pandemic.
Millions of Americans are quitting their jobs every month in a phenomenon called the Great Resignation. Over 15.9% of Americans quit their jobs in September 2022. However, every American who quit a job with health benefits is exposing themselves to financial peril if they suffer a medical emergency.
The average cost of a doctor’s visit can be as much as $600 for an uninsured person. But the more severe your medical problem, the more expensive it will be to treat.
We take our health for granted for as long as possible because it is cheaper to do so when we have no health problems.
So, which should you prioritize, life or health insurance? We think you should prioritize life insurance, and here is why.
Life or Health Insurance? (Choose Life)
We are not telling to go without health insurance. What we are saying is that life insurance should be a priority. Health insurance should be a close second in terms of priority. And you have options.
Check out Health.gov to get federally-financed health insurance based on your state of residence. You may be able to secure coverage for free based on your personal circumstance.
About 49% of Americans get health insurance from their job. The average employer-sponsored health insurance policy deducts about $7,700 from your annual salary to pay for coverage. Employees with family coverage usually have $22,000 deducted from their annual salary.
If you have a job that offers health benefits, hold onto it for as long as possible. Or at least take full advantage of any available benefits before quitting or transitioning to new work.
You could start a health savings account, which is like a bank account strictly for medical payments. As long as you only withdraw from an HSA to pay for medical treatments, you will never be taxed. Here is what you can buy with an HSA account.
Even if your life is in financial disarray, you have options when it comes to health insurance, even if they are not perfect. Always consider your options. But if choosing between life or health insurance, prioritize life insurance.
Why You Should Prioritize Life Insurance
If you don’t have life insurance, you may find yourself out of options when you need them the most.
Death Isn’t Cheap
Death is just another bill for your surviving relatives. The average funeral costs anywhere between $6,000 to $12,000. If you live in Hawaii, it could cost as much as $15,000 to pay for your burial expenses.
Owning a good life insurance policy can take away the worry about your death expenses. Barely half of Americans have life insurance. If you died right now, who would pay for your funeral?
Easing Family Debt
After death, the beneficiaries of a policyholder can receive death benefits. Many life insurance policies have clauses where payments are customizable.
Depending on the company issuing benefits and the policy, death benefits can be converted into monthly payments, a pension, tuition payments, or used to pay off debts.
Some life insurance policies can be used for investments that could become profits or dividends that can be paid to death beneficiaries later.
Get life insurance as early as possible and vet the companies issuing them. You may have more options than you realize to convert your policy on your terms.
You can buy life insurance in many varieties. Full-life insurance insures you until the end of your life but tends to be more expensive the older you are.
Term life insurance is life insurance coverage that can be bought in increments. So, you can buy life insurance for one year, three years, five years, 20 years, and so on.
You can buy a life insurance policy called burial insurance which is very very cheap and designed to pay for your burial expenses only.
Alternative Retirement Plan
The earlier you get life insurance, the more you can provide your spouse with a secure retirement.
Depending on the size of your policy, you can bequeath your spouse a pension or monthly payment in their retirement after your death.
If you own a family business, your life insurance policy can be converted to provide a financial buffer to a business after your death.
The benefits of having life insurance are almost endless. Talk to a life insurance advisor or compare your options. And only get life insurance coverage that suits your needs.
The longer you wait to get life insurance, the more you will have to pay to enjoy such a privilege.
Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.