Insurance is shifting the risk to someone or something that is more likely to be able to handle the catastrophic event. People often insure their life through life insurance, their income through disability insurance, their business through business overhead insurance, etc.
Selecting the right insurance model is crucial for individuals looking to create a sound personal finance plan for years to come. Unfortunately, even capable people may be frustrated when trying to determine the best insurance coverage for their needs. Indeed, it can be difficult to simply tell the difference between basic forms of insurance. Today, we aim to clear up some of the confusion and explain in clear terms what the difference is between health, disability, and life insurance.
Most people receive health insurance through their employer. In general, health insurance acts to cover costs associated with medical bills or hospital visits. As such, things like prescription drugs and emergency services are covered under most health insurance plans. (For a full list of what marketplace health insurance plans cover, click here.) Note that not all medical costs may not be covered under basic plans. So individuals may have to pay out of pocket to visit STD testing centers or to receive certain preventative treatments for conditions they don’t have.
Disability insurance may seem similar to health insurance coverage at first blush, but they vary in several key ways. In brief, disability insurance provides coverage to individuals who are unable to work because of an injury or illness. It does not, however, cover medical expenses or conditions that don’t relate to someone’s specific ability to perform their job. Conversely, if a surgeon were to develop arthritis in their hands, they would be able to use disability insurance claims to gain some or all of their wages lost as a result. There are also two types of disability insurance: short and long-term coverage. Remember, not all businesses offer disability insurance to their employees.
The bad news is that life insurance only really becomes a factor after you die. Depending on the policy, life insurance guarantees the spouse and/or children of the deceased a payout that reflects their former income or salary. While some people who are single may not feel as if they need life insurance, the reality is that securing life insurance at a young age will allow you to achieve a lower payment rate than waiting until later in life to apply for it.
The Bottom Line
Unfortunately, there is no “uniform” answer as to what insurance plan an individual should pursue. However, getting a dependable insurance program in place now could allow you to make savvy financial plans for the future without fear of substantial or unexpected medical costs. For more information on the subject, consider speaking to a professional financial advisor in your area.