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Health insurance isn't as complex as it sounds. Just like auto or life insurance, you purchase health insurance to help cover potentially large expenses by paying an affordable monthly premiumYour premium is the regularly scheduled amount of money you must pay to keep your insurance in effect. You might pay it monthly, quarterly or annually.. The insurance company pools all the plan premiums together to pay for care that members need. Although you may not need expensive medical care immediately, health insurance can help give you peace-of-mind knowing you're protected if you do.

Health Plan in Action

A health insurance plan can save you money on services like doctor visits, medical procedures, medicines, and much more. There are many plans to choose from, each offering different benefits, premiums, and cost-sharing options.

But how does an insurance plan work when you need it?

Say you suddenly take ill and incur $75,000 in covered medical expenses, and you have health insurance that looks like this:

• DeductibleThe amount you must pay for covered health care expenses before insurance begins to pay. Typically, insurance plans have annual deductibles that can be different for different benefits, like maternity or prescription drug coverage.: $3,000
• CoinsuranceThe percentage you pay for covered services. Also referred to as cost sharing, it's part of the total cost of medical or hospital services you receive. If your plan has a deductible, you pay your coinsurance for covered services once the deductible is met.: 20%
• Out-of-Pocket MaximumRefers to the maximum amount of money you will pay for health care during a benefit period. This often includes your deductibles, copayments and coinsurance.: $8,000
• Lifetime MaximumThe maximum amount a health plan will pay for covered services during a member's lifetime.: $3 million

In this case, you are responsible for paying your $3,000 deductible first, then you'll pay 20% of the covered charges up to your $8,000 out-of-pocket maximum. Once you reach your maximum, you're done. Your plan picks up 100% of your covered medical expenses for the rest of the year.

That means you paid $8,000 for $75,000 worth of covered medical costs for this incident.

Your lifetime maximum is how much your plan pays for covered care during your lifetime, which means your protection continues.