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Health Insurance vs Life Insurance: Navigating Your Coverage Options

The difference between Life Insurance and Health Insurance. How to choose the right policy and important information that you should know.

Megan Fraser

Fact Checked

Updated: 16 May 2024

While both policy types are easy to mix up, they are important in mitigating the risks of unforeseen circumstances. These policies have been designed to assist members in moments of great necessity. This blog will discuss the differences between health and life insurance, the benefits, and the factors that may affect their total cost. Choosing the right policies that match your personal needs can be a daunting process, but this guide serves to assist you in receiving all the information that you need to make a well-informed decision on your future policy.

Key facts

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Life Insurance

Life insurance is an insurance type that provides coverage in the event of an unforeseen situation in which the policyholder passes away or falls terminally ill. Life insurance greatly helps mitigate the future costs that loved ones may face after a tragedy occurs in the family. The lump sum amount paid could be used to cover funeral fees, medical expenses, debt, college funds, and retirement funds and assist with the general destabilization that occurs with the possible loss of a monthly income.

The benefit of Life Insurance is that it greatly assists loved ones after an unfortunate event. Past medical bills, debt, funeral costs, loss of monthly income, and other factors could affect a loved one long after an accident. Life insurance ensures these loved ones receive the assistance and monetary support they require to live a healthy life.

Health Insurance

Health insurance is vastly different to life insurance. Medical expenses can quickly add up to enormous amounts. Health insurance is there to assist a member and their dependents with any health-related situations that may occur. Health insurance aims to provide coverage for both in-hospital and out-of-hospital services. There are typically three main types of Health Insurance policies:

  • Hospital Cover.
  • Extras Cover.
  • Combined Cover.

Hospital cover provides the policyholder with coverage for any in-hospital services that may be required. Extras Cover provides coverage for most out-of-hospital services and a range of other benefits. Combined cover is typically a structured policy that offers both Hospital and Extras cover.

When choosing the right Health Insurance, it is essential first to weigh your personal health requirements and financial expectations against the policies offered. The right policy should directly match these personal needs and provide sufficient coverage if medical assistance is needed.

Comparing Premiums and Costs

Life insurance and Health insurance share similarities in the structure of their premiums and costs. These factors are all directly connected to the policyholder’s personal life and may cause the total cost to either increase or decrease.

The monthly cost of Life Insurance could increase or decrease based on some of these factors:

  • Personal lifestyle: Factors such as drinking, smoking, and exercise could greatly affect the total cost of a life insurance policy.
  • Occupation: If the policyholder works in a high-risk environment, the policy’s premium could increase.
  • Medical history: If the policyholder has pre-existing conditions or an extensive medical history, this may cause the monthly premium to increase.
  • Age: Age can play a big role in determining the policy premium’s cost.

For Health Insurance, these factors are slightly different. The health insurance policy could also changed based on some of the factors within the policyholder’s life. Some factors that influence the health insurance premium could include:

  • Geographic location: Based on where the member lives, the price and features of the policy could drastically vary.
  • Personal income: Depending on the member’s personal income, they may be eligible for the Australian Government Private Health Insurance Rebate.
  • Lifetime Health Cover Loading: If a member takes out a policy after their 31st birthday, and it is the first private health insurance policy in their life, they may see an increase in their premiums due to the Lifetime Health Cover Loading.
  • Chosen Policy: Health Insurance policies work according to a tiered structure. The cost and available coverage will drastically fluctuate depending on the chosen tier.

Another key note is that if the coverage is insufficient for a selected service, the member may be required to pay an out-of-pocket fee. Some Health Insurance Providers have plans and policies known as ‘no-gap’ assistance that provide coverage in these instances.

Policy Features and Limitations

Life and Health Insurance have their own rules, limitations, and benefits. Depending on the policy type and the insurance provider, these factors could drastically change. Let’s look at some of the common features and limitations that may affect policyholders.

Life Insurance
Life Insurance policies provide a lump sum payment to loved ones in case of death or permanent disability. Life Insurance provides this payout if the policyholder passes away due to natural causes, accidents, medical complications, or acts of violence. The limitation of Life Insurance is that the policy may not provide coverage for suicide. Some Life Insurance providers provide coverage in this instance, but only after a specific time. It can take up to twelve months for a life insurance payment to be made to the selected loved ones.
Health Insurance
Health Insurance covers in-hospital and out-of-hospital services, depending on the policy type. Limitations exist in Health Insurance policies in terms of waiting periods, gap payments, co-payments, coverage limits, excluded services, and limitations based on geographic location.

Impact on Tax and Superannuation

Health and Life Insurance have interesting effects on tax and superannuation funds. Health insurance surprisingly lowers the amount that one pays in extra tax. The Australian Government has done this to encourage its citizens to invest in their personal well-being and take out a Private Health Insurance policy. By acquiring a Private Health Insurance policy, Australians will notice that the tax surcharge required from the Government is significantly lowered.

Life Insurance through a superannuation fund can lower the tax that is owed. This is because Life Insurance cannot be directly claimed as a tax-deductible by individuals but can be claimed as a tax-deductible through superannuation funds. This is because the fund is a third party that initiates the policy on behalf of the policyholder and, as such, can claim it as tax-deductible.

Choosing the Right Provider

There are many different insurance providers with vastly different policies. Choosing the right provider should be a decision that is carefully made and well-informed. Some tools an applicant could use in their process include:

Financial Planning with Insurance

As mentioned before, health and life insurance complement one another perfectly. These two insurance types aim to provide financial assistance in the event of unforeseen and unfortunate situations. While there are monthly costs associated with both, the financial safety net that it provides can truly assist policyholders and members when they need it.

The financial burden that occurs when a surgery, medical procedure, or death occurs can often be too high for one person to handle. These two insurance types lower that risk greatly and attempt to ensure that the dependents, loved ones, and policyholders are taken care of in one of these events.

Common Mistakes to Avoid

When choosing the right Health and Life Insurance policy, it is crucial to ensure that you make a well-informed decision that directly matches any personal requirements that you may have. Taking a look at your personal life, needs, health requirements, and position will assist you in finding the right insurance that matches these needs.

Choosing Life Insurance

To select the right Life Insurance, consider the policies as a whole. Some of the questions you can ask yourself could be: 

Choosing Health Insurance

When choosing your Health Insurance, you may have to look at a few personal factors that need to be met and understood. Some of these factors could include:

Frequently Asked Questions and Answers

The main difference between health and life insurance is the type of coverage that they provide. Life Insurance provides financial assistance after the death of a loved one. This insurance type can protect personal assets and the financial stability of loved ones. Health Insurance provides coverage for members and dependants if health-related services are needed. Health Insurance attempts to lower the total cost a policyholder faces when seeking professional medical assistance.

Life Insurance provides a safety net for the future of a policyholder’s family. After one passes away, it can often become financially difficult for their loved ones to cope. Life Insurance attempts to provide financial assistance in their time of need so that their lives can continue. A Life Insurance policy aims to provide loved ones with peace of mind and financial stability to continue living a comfortable and uninterrupted life.

Depending on the chosen policy, Health Insurance will typically cover health-related services such as hospital stays, surgeries, specialist consultations, necessary medication, and emergency ambulance fees. These are only a few of the services that health insurance covers. Extras cover can cover additional out-of-hospital services such as dental, optical, and physio.

When looking at health and life insurance, it is important always to choose a policy that directly matches your personal needs. Life insurance and health insurance, although different, complement one another. A good health insurance policy should directly match your personal health requirements. In contrast, the perfect life insurance policy should attempt to solve any risks that may occur after the passing of a loved one.

Health and Life insurance are integral in a well-rounded financial plan. These two policy types ensure that risks are managed and that there is sufficient assistance for you and your loved ones in the event of an unforeseen accident. Life insurance assists in the safeguarding of assets and financial resilience, while Health Insurance assists in maintaining the policyholder and their dependent’s well-being. Both insurance types are there to minimize the risk of massive out-of-pocket costs and financial burdens.



Megan has extensive experience writing about health and life insurance in Australia. Megan has a special interest in health and wellness. She relies on her background in counselling psychology to convey the latest findings in a manner that is most beneficial to ComparingExperts readers. In every article she writes, Megan aims to uphold the standards of the Private Health Insurance Intermediaries Association (PHIAA) which ComparingExpert is part of.

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