If there were no such thing as health insurance, countless Americans would be unable to get the care they need to live healthy lives. Thankfully, insurance does exist to help defray the cost of medical care. But health insurance comes at a cost -- namely, your premium.

Your insurance premium is the amount you're required to pay each month for coverage under your medical plan. Insurance premium costs can vary significantly based on the plan at hand. If you're choosing your own health insurance, be sure to pay attention to not just its premium, but what that premium buys you. While you may be inclined to choose the plan with the lowest-cost premium available, that could end up hurting you in the end.

Health insurance application


Premiums and insurance plans

Anyone who has health insurance also has a premium attached to that plan, which represents the cost of coverage. Seniors who enroll in Medicare also pay a premium for Part B, which covers preventative care, and Part D, which covers prescription drugs.

When it comes to insurance premiums, you generally get what you pay for. For the most part, the lower your health insurance premium, the less comprehensive coverage you'll get, and the more you'll risk spending out of pocket.

See, your premium is really just one component of your health coverage. On top of your premium, you'll also be responsible for additional costs, like deductibles and copayments, which can add to the overall expense of taking care of your heath.

Say you're looking at two different insurance plans. The first has a $200 monthly premium but a $10,000 deductible, while the second has a $400 monthly premium but a $1,000 deductible. If you don't get sick often, and use that plan, say, once during the year to see your doctor, you'll come out ahead by opting for the plan with the cheaper premium. But if you get sick often, or get hurt and require a $12,000 procedure, you'll come out ahead by choosing the plan with the more expensive premium.

To figure out what type of plan is best for you, review your medical spending from previous years and see how often you tend to use your coverage. Of course, you can't account for unexpected accidents and the like, but if your health is good, you might come out ahead financially by opting for a lower-cost plan. On the other hand, if you've been recently diagnosed with a health condition, or feel that your health is declining, it might make sense to pay a higher premium but limit your remaining expenses.

Employer-subsidized premiums

If you work for a company that offers health insurance, you may only end up contributing a portion of your premium yourself. It's often the case that employers will pay a percentage (sometimes a large one) of employees' premiums, and deduct the remainder from their paychecks. But it's important to get a sense of how much your premium actually costs, because if you lose or leave your job, and want coverage under COBRA, you'll be on the hook for your entire bill.

For example, say you're currently paying $200 a month toward your insurance premium. It could very well be that your plan costs $500 a month, and your employer is covering the rest as part of your benefits package. If you come to leave that job, and want to retain your current plan, you'll be responsible for that $500 premium in its entirety.

When choosing a health plan, don't just look at its premium alone. While it's natural to want to keep your premium as low as possible, you'll need to consider what it buys you, and how much additional spending it might expose you to as a result.

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