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Group term and voluntary term life insurance are both offered by employers and other organizations, providing convenient and low-cost baseline coverage. Depending on the employer, coverage may not be as comprehensive as some employees might require.

We’ll get into what group term life insurance is, how it’s different from voluntary term, and who should take advantage of these policies. You’ll also find out what portion of group term life insurance benefits is taxable and whether premiums are tax deductible.

Group Term Life Insurance, Defined

What is group term life insurance exactly? Term life insurance covers a policyholder for a set amount of time, hence the “term” part. (This roundup of life insurance terminology can be helpful for the uninitiated.) It pays a death benefit to beneficiaries — usually family members or other dependents — if the insured person dies within that time frame.

Group term life insurance is simply a policy offered to a group — often by an employer, trade union, or other organization — often at no cost to the employee. Group life insurance is sometimes referred to as employer-provided life insurance.

How Group Term Life Insurance Works

Group term life insurance coverage usually covers the timeframe of the member’s employment. (When it’s not purchased through an employer, terms range from 10 to 30 years.) All premium payments and death benefits tend to be fixed. If the policyholder lives past the end date on the policy, no benefit is paid and the premium payments are forfeited.

This type of policy is sometimes referred to as a “pure” life insurance product. That is, it has no cash value. Other types of life insurance do.

In group policies, many employers pay for baseline coverage for the employee, who pays nothing. Additional term life policies may be available at an affordable rate to cover a spouse, child (learn why life insurance for children might be necessary), or other dependent, with premiums deducted from payroll. Since an employer or similar entity is buying the coverage for many people at once, their savings are passed along to the members.

Recommended: Why Is Life Insurance Important?

What Group Term Life Insurance Typically Covers

Often, group policies pay out the equivalent of one year’s salary. Group term may cover fewer causes of death than other policies, but generally includes critical illness. Death by self-inflicted wounds may be excluded for the first 1 to 3 years of the policy.

Pros and Cons of Group Term Life Insurance

Group term life insurance has advantages and disadvantages.

Pros of Group Term Life Insurance:

•   Cost. Baseline policies are often free.

•   Availability. There’s usually no medical exam or other strict requirements.

•   Simple application. Often employees just check a box or sign a form.

•   Coverage when you need it. Families have some coverage in the event their main source of income is lost.

Cons of Group Term Life Insurance:

•   Low payout. Coverage is typically on the low side, equivalent to one year’s salary at most. Experts typically recommend that life insurance cover 10x your salary or more, depending on your financial obligations.

•   Lack of choice. A single policy is typically selected by your employer to cover all members, regardless of situation.

•   Non-portable. If you leave your job, you lose your coverage.

Requirements of Group Term Life Insurance

Requirements are minimal and usually involve being a permanent employee. You may need to be employed for a certain period of time (say, 90 days) before qualifying. There is typically no medical exam required. Individual workplace requirements can vary.

Voluntary Term Life Insurance, Defined

Similar to group term life insurance, voluntary policies are offered by an employer or membership group. However, voluntary policies are entirely optional (or voluntary) benefits the employee can purchase. Because your employer negotiates a group rate, it’s usually more affordable than purchasing online insurance yourself.

If you’re curious about non-employer-based policies, this is a helpful look at how to buy life insurance.

As with group term, voluntary term life insurance has no cash value nor options for investing your premiums. (Whole life insurance does have cash value. Here’s a good comparison of term vs. whole life insurance.)

How Voluntary Term Life Insurance Works

As with most life insurance, voluntary term pays out a lump sum to your beneficiaries if you die while the policy is in effect. Premiums are deducted from the policyholder’s paycheck.

Voluntary term life insurance coverage may be offered on an annual basis. The employee can choose to re-up, change, or cancel during their company’s open enrollment period. Rates go up over time, either annually or as the employee enters a new age bracket.

Recommended: How Long Do You Have to Have Life Insurance Before You Die?

What Voluntary Term Life Insurance Typically Covers

Employees may select their amount of coverage, usually in multiples of their salary. The more coverage you select, the higher your premium will be. Limitations may be set as to the level of coverage you can choose or the availability of certain riders, compared to individual life insurance. Coverage varies by employer. But your voluntary policy should have the same coverage options and exclusions as your group term policy.

For lower coverage amounts, no medical information may be required. Higher coverage amounts often require a health questionnaire or medical exam.

Pros and Cons of Voluntary Life Insurance

As you might guess, the advantages and disadvantages of voluntary term insurance are similar to those of group term insurance. However, they’re not identical.

Pros of Voluntary Term Life Insurance:

•   Low cost. While not free, premiums are normally more affordable than for individual policies due to the employer’s group discount. You can learn about typical premium costs in this look at how much life insurance is.

•   No medical exam. No medical exam is required for less coverage. Older employees and those with health issues usually get a better deal through voluntary term plans than on their own.

•   Simplicity. Employees just need to select the level of coverage they want.

•   More-complete coverage. Because you can choose your level of coverage, payout benefits could cover loved ones completely in case of the policyholder’s death.

•   Portability. If you leave your job, you might be able to keep your coverage, but your premiums may rise significantly.

Cons of Voluntary Term Life Insurance:

•   Limitations. Employees are limited to a single insurance company. There may also be limits to the level of coverage and available policy riders.

•   Short-term solution. Employees who don’t plan on staying with their company long-term may be better served by an individual policy.

Main Difference Between Voluntary and Group Term Life Insurance

Group term life insurance is typically free through your employer, while voluntary term is an optional benefit the employee can purchase at a reduced rate. Also, voluntary term insurance usually offers different levels of coverage, while group is provided at one level for all employees.

If you’re still not clear on the differences, this high-level introduction to what is life insurance may be useful.

Requirements for Voluntary Term Life Insurance

Like basic group insurance, requirements are minimal aside from a potential waiting period for new employees. There is typically no medical exam required. Individual workplace requirements can vary.

Is Group Term Life Insurance Taxable?

There are two components to group term life insurance that pertain to taxes: premiums and payouts.

Are Group Term Life Premiums Tax Deductible?

Life insurance premiums are usually not tax deductible. The IRS considers such premiums a “personal expense.” There may be exceptions for beneficiaries that are charitable organizations. (SoFi does not provide tax advice. Please consult with a tax professional prior to making any decision.)

Are Group Term Life Payouts Taxable?

The first $50,000 of payouts from group term life insurance carried by an employer is excluded from taxes. After that, the benefit is counted as income and subject to income tax as well as social security and Medicare taxes.

The Takeaway

Term life insurance typically pays out a lump sum equal to a multiple of the policyholder’s salary upon their death. It has no cash value or investment options. Employers, unions and other organizations may offer group term life insurance as a free benefit. Employees may upgrade their coverage with voluntary term life insurance at a low cost, deducted from their paycheck.

Voluntary term policies can be valuable to older employees and those with health problems because premiums are low and a medical exam is usually not required. However, group policies can have limitations that make them less comprehensive than individual policies.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Explore your life insurance options with SoFi Protect.

FAQ

What are the disadvantages of group term insurance?

Coverage amounts tend to be much smaller than what experts recommend. You’ll need to use the insurance carrier chosen by your employer and, if you leave your job, you’ll lose the policy.

What happens to my group life insurance when I retire?

Retirees may have the opportunity to continue paying for their life insurance. Before you retire, explore your options, comparing cost and benefits.

Is group term life insurance the same as life insurance?

Group term life insurance is one type of life insurance that pays out a lump sum upon the policyholder’s death. It has no cash value, unlike whole life policies, which are another type of life insurance.

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Photo credit: iStock/akinbostanci

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q324-009

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When something goes wrong with your car out on the road, most people have two options: Call an emergency towing service, or contact your roadside assistance program. Those two choices may sound like the same thing, but there are important differences.

Read on for a breakdown of what you can expect from each of these services, including pros and cons, and average costs.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car

What Is Roadside Assistance?

Roadside assistance comes to your aid when your car breaks down or some other mishap keeps you from using your car. If you find yourself stranded, roadside assistance will send help (think a mechanic, locksmith, tow truck) to get your car back on the road, to a repair shop, or back home.

Roadside assistance packages vary from one provider to the next, but most include the following:

•   Flat tire change

•   Battery jump-starts

•   Fuel delivery

•   Lockout assistance

•   Winching/extrication

•   Quick-fix services

Any benefits you receive on top of these basics are determined by the roadside assistance plan you have. For example, some plans include trip interruption coverage or a guaranteed arrest bond if you’re charged with a traffic violation. Plans may also offer savings on car maintenance costs, car rentals, hotels, and other perks. Extra benefits may come at an extra cost, however, so it’s important to compare plans carefully.

There are a few different ways you can get a roadside assistance plan:

•   Many insurance companies offer some type of roadside assistance coverage, usually as an add-on to your auto insurance policy. If you’re concerned about cost, there are other ways to lower car insurance premiums.

•   Another option is to pay for an auto club membership that’s separate from your auto insurance.

•   Your car manufacturer may include a roadside assistance package as part of your warranty or as a limited free trial for a service you can later purchase.

•   Some credit card companies offer access to roadside assistance as a perk to cardholders.

Recommended: Why Personal Insurance Planning Is Important

What Can You Expect When Calling Roadside Assistance?

One of the benefits of participating in a roadside assistance program is that you’ll know exactly who to contact if you need help with your car. You can program the customer assistance number into your phone or download the program’s app, or you can tuck your membership card into your wallet or glove compartment.

Here’s what to expect when you call roadside assistance:

Calling for Help

First things first: If your child is locked in the car or you’re in a situation where you feel unsafe, you may want to make your first call to 911. The 911 dispatcher will determine whether to send an officer to help.

If you feel safe, you can go straight to calling roadside assistance. You may be asked to verify that you have an account or that the car is yours. It can help to be ready with your license and registration, proof of insurance, and your roadside assistance plan’s membership card.

Your roadside assistance dispatcher will send the appropriate help from a network of service providers to your location. A technician may try to fix your car on site. But if that isn’t possible, you can have your vehicle towed to a repair shop or your home, if that’s your choice and it’s within your plan’s mileage limit.

Getting Home

If your car needs to be towed to a repair shop, you probably will be able to ride with the tow truck driver. Once you’re finished there, it’s up to the tow truck driver (or company policy) if you can get a ride home. During busy times, you may be responsible for getting home on your own.

If you’re out of town when your car breaks down, roadside assistance coverage will sometimes pay for an overnight stay in a hotel. (If you travel a lot, you may want to see if this benefit is available when you’re comparing plans.)

Wait Times

Many roadside assistance programs work with a network of providers, so when you call, there may be someone nearby who can get to you quickly and offer the services you need. Generally, you can expect help to arrive in less than an hour.

Several factors can impact your wait time, however. If there’s heavy rain, wind, or a snowstorm, for example, you may have a longer wait. It can also take a while to get help if you’re in a rural location that’s far from a locksmith, mechanic, or towing service — or if you’re in a busy city at rush hour.

Some plans provide updates through texts or an app so callers can track their current wait time.

Payment

How the service provider who comes to your aid is paid depends on the plan you’re enrolled in. With some programs, if you use the toll-free number or an app, and the dispatcher sends a technician to help, you may not have to pay anything upfront for covered services. But if you contact a tow service, mechanic, or locksmith directly, you will likely pay out of pocket, then submit receipts to your plan for reimbursement.

Some plans don’t have a central dispatcher. In that case, you’d call a provider directly, pay for the services, and then file a reimbursement claim. No matter how your plan handles payments, it’s a good idea to keep a credit card on you when driving.

There is no deductible for roadside assistance. Most programs have very specific limits on what they will cover. For example, if a service technician delivers fuel to your car because you’ve run out of gas, the delivery may be free, but you may have to pay for the gas.

Recommended: How to Get Car Insurance

What Is the Average Cost of Roadside Assistance?

The price of a roadside assistance plan varies based on several factors, including:

•   how many vehicles or drivers you want to cover

•   where you live

•   whether coverage is through your auto insurance or another source

•   the level of coverage you choose

Some plans charge less for annual coverage and more for services received or vice-versa. It can be useful to compare online insurance benefits and quotes to get a sense of what’s available and at what cost.

Generally, you’ll pay less for a plan that’s an add-on to your auto policy versus a stand-alone membership. Allstate, for example, offers a roadside assistance insurance add-on for as little as $25 per year for one vehicle. Without an Allstate policy, the cost of a roadside assistance membership starts at $73 for the first year.

If your insurer doesn’t offer 24-hour roadside assistance, or you don’t like your insurer’s plan, you may want to check out what other insurance companies are offering.

Recommended: How Much Does Insurance Go Up After an Accident?

Pros and Cons of Roadside Assistance

One of the biggest pros of roadside assistance coverage is that you know you’ll have someone to contact any time you’re in need. You can call for advice or hands-on assistance, and someone will be there to help.

As noted above, some plans will post a bond if you’re charged with a traffic violation or reimburse you (within limits) if you need to stay in a hotel overnight. Plans may also include benefits that go beyond roadside breakdowns, such as discounts on travel and entertainment.

If you have to call roadside assistance even once, you may save enough on the services rendered to cover your cost for the year.

Still, no one likes the idea of paying for something they may never use. If you have a newish car that’s well-maintained or you seldom drive far from home, you may decide roadside assistance isn’t for you.

Coverage limits can also be disappointing. Enrolling in a roadside assistance plan doesn’t mean you’ve got a blank check that will cover any cost you incur. You may have to pay something for a tow if you go beyond the mileage limit, for example, or you may have to pay for a new battery or tire if yours needs replacing. There also may be an annual limit on the number of calls for service you can make.

Also, not all costs are covered upfront. Your plan may require you to submit receipts for reimbursement in some or all instances. If you’re averse to paperwork, that may be something to consider.

What Is an Emergency Towing Service?

The main purpose of emergency towing services is to move a vehicle when the driver can’t get back on the road without help. There are several circumstances that might require calling for an emergency tow, including:

•   When you’re in an accident, and either your car can’t be driven or you’re in no shape to drive

•   If your car isn’t running, and it’s blocking traffic or putting you and other drivers in danger

•   If you’re pulled over by law enforcement, and the officer determines you can’t drive

There are a couple of circumstances in which your car insurance may pay for a tow, even if you don’t have roadside assistance coverage:

•   After an accident and you have collision coverage

•   If your car is damaged in a flood, fire, etc. and you have comprehensive coverage

But in most cases, if you don’t have roadside assistance or “towing and labor” coverage through your auto insurance policy, an auto club membership, or a car warranty, you may be on your own when it comes to paying for your vehicle to be towed away.

What Can You Expect When Calling an Emergency Towing Service?

If your car breaks down close to home, you may be able to directly call a reliable repair shop or towing service you’ve worked with in the past. Having that connection can be a benefit if you want to choose the company that will come to your aid quickly.

But if you’re far from home and unfamiliar with the service providers available, you may have to cross your fingers and hope for the best when you call for a tow.

Here’s what you can expect when you call for emergency towing without a roadside assistance plan:

Calling for Help

If your regular mechanic or garage has the right equipment for your needs (a tow truck, a flatbed truck, a winch, etc.), you may be good to go. They can come pick up your car and get you the help you need.

But if you can’t call your favorite repair shop — because you’re out of town or it’s after hours — you may have to make a few calls before you find the appropriate help.

Some companies don’t require a subscription to use their towing and roadside assistance network, so you can try contacting them for help. But if their network doesn’t include services where you are, you may have to try your luck dialing local tow truck companies.

When a tow truck comes to your location, the driver may be able to offer on-site assistance with a flat tire, dead battery, or other problem. But you can’t necessarily count on getting the same help you’d get with a roadside assistance plan. The driver may be equipped only to tow your car back to your house or to a repair shop. And you can expect to pay in full for every service you receive if you don’t have roadside assistance coverage.

No matter who you call, it’s important to be clear about what you need. And of course, if you’re in an accident or feel as though you’re in danger, you should call 911 first.

Getting Home

You may be able to get a ride home from the tow truck driver after they take your car to the garage. But just as with a roadside assistance plan, it will likely be up to the individual driver’s discretion or company rules. If you aren’t sure if there will be a cost for the ride, you may want to ask before you get in the truck. And if you’re far from home, you also may want to ask for hotel recommendations.

Wait Times

Response times for tow trucks generally are determined by availability. If you call a tow company directly and there’s a truck close to your location, you may be able to get faster service than you would calling a roadside assistance plan because you’re eliminating the middleman.

But the same things that can hold up a truck coming through a roadside assistance dispatcher can slow down a company you call directly, including inclement weather, rush hour traffic, and distance.

Payment

If you call a tow truck directly, you can expect to pay the bill out of pocket. Depending on why you’re calling and the type of insurance coverage you have, you might be reimbursed for some costs. But if you’re calling about an overheated engine, dead battery, or flat tire, and you don’t have roadside assistance coverage, your insurance company typically won’t reimburse you for your costs.

What Is the Average Cost of Emergency Towing Services?

According to J.D. Power, towing rates in the U.S. can range between $2.50 and $7 per mile, and the average cost of a tow is about $109. But besides distance, several factors can affect the overall cost of a tow.

It may cost less to have your car towed after a breakdown than if you’ve been in an accident. And if the tow company needs to use special equipment — because your car is stuck in mud, snow, or a deep ditch, for example — that can also increase the price.

Many tow companies also include a base charge or “hook-up” fee that can range from $35 to $100. Some tow companies have a list of basic charges on their website, but if you can’t find pricing, you may want to ask so there aren’t any surprises.

Pros and Cons of Emergency Towing Services

One of the biggest upsides to using emergency towing service may be that you’re eliminating the middleman. You don’t have to wait for the dispatcher to find a network-approved provider to come and get you; you can call any company you like.

Of course, this can also be a drawback if you’re far from your favorite mechanic or repair shop. You may have to make multiple calls to find a tow truck that can come to your rescue.

Another plus to consider is that you won’t have to worry about paying for roadside assistance coverage every year whether you use it or not. You’ll only pay for services you actually use.

But if you do end up calling a tow truck even once and you don’t have coverage, it can mean a whack to the wallet. You can end up paying more for that one tow than you would for a year of roadside assistance coverage — and you won’t be getting the perks.

How To Decide Between Roadside Assistance and Emergency Towing Services

Because there are pros and cons to both roadside assistance coverage and emergency towing services, here are some things you may want to look at when you’re trying to decide between the two:

Your Comfort Level

Are you someone who likes having a plan when things go wrong, or are you OK with winging it? If you like the security of knowing you’ll have just one call to make if you need help on the road, you may prefer roadside assistance coverage.

Your Car

If your car is new or it’s well-maintained and the chances of a breakdown are slim, you may decide you don’t need to pay for roadside assistance coverage.

The cost of some roadside fixes may be covered if your car is still under warranty. And if you have collision or comprehensive coverage through your auto insurance policy, towing costs may be paid in some circumstances.

Your Family’s Needs

Maybe your car is an older model that isn’t exactly reliable. Or maybe you have some first-time drivers in the family, and you want to feel confident they’ll know who to call (besides you) if they run into trouble on the road. You might want to look into what it would take to get new drivers roadside assistance coverage for the whole family.

Value

You may want to list side-by-side the costs of having a roadside assistance plan versus what you might end up paying for a tow or other services out of pocket. Can you afford a plan that fits your needs and budget? Can you afford to not have coverage? (Keep in mind that if you use your plan just once, it may pay for itself for the year.)

Recommended: Auto Insurance Terms, Explained

The Takeaway

When the unexpected happens on the road, you can wing it and call for a tow truck. Or you can contact roadside assistance and feel confident that someone will come help you out ASAP. What’s more, some or all of the cost of getting your car back on the road could be covered under your plan.

Many drivers consider roadside assistance a good deal for the money: The cost of just one tow is often more than the annual cost of roadside assistance. If you travel a lot, or have young children or new drivers in the family, roadside assistance may be what you need.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

FAQ

What is emergency roadside assistance good for?

Roadside assistance coverage can help you deal with and pay for a range of unexpected costs you might run into while on the road — from fixing a flat tire on site to towing you to a repair shop for major repairs.

Is emergency roadside assistance worth it?

No one likes paying for something they may never use. But if your car breaks down just once, the convenience and savings you get through your roadside assistance plan may make it worth paying the annual cost.

What is the difference between emergency towing and roadside assistance?

Roadside assistance coverage is meant to help you get the service you need when you have car trouble — on the road or at a repair shop. Depending on the problem, roadside assistance may cover all or a portion of the costs. On the other hand, emergency towing is meant to get your car off the road and to a repair shop where it can be fixed. Generally, you can expect to pay for all the costs related to this service.

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Photo credit: iStock/sefa ozel

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPRO-Q324-006

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A health savings account (HSA) and a flexible savings account (FSA) are both tax-advantaged savings accounts that help you pay for out-of-pocket medical expenses. To contribute to an HSA, you must be enrolled in a high-deductible health plan. To contribute to an FSA, you can have any type of health plan but your employer must offer an FSA as a benefit. Here’s a closer look at the similarities and differences between FSAs and HSAs and how to choose between them.

HSA and FSA, Explained

A health savings account (HSA) is designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Contributions to an HSA are tax-deductible (or deducted from your paycheck pretax), and the funds can be used for a wide range of qualified medical expenses. HSAs also offer investment options and grow tax-free. In addition, withdrawals for qualified expenses are tax-free.

In 2024, a health plan is considered an HDHP if it has a minimum deductible of $1,600 for individual plans and $3,200 for family coverage.

A flexible spending account (FSA) is a benefit offered by employers that allows employees to set aside pretax dollars for eligible healthcare expenses. Unlike HSAs, FSAs do not require an HDHP. However, FSAs typically have a “use-it-or-lose-it” rule, meaning that any unused funds at the end of the plan year are forfeited unless your employer offers a grace period or a certain amount to roll over.

If you leave your job, you lose your FSA unless you’re eligible for FSA continuation through COBRA.

Differences Between HSA and FSA

Even when you have health insurance, you may run into medical expenses that your plan doesn’t cover, such as copays, eyeglasses, dental expenses, medications, diagnostic tests, and hospital fees. Both HSAs and FSAs allow you to set aside pretax money to cover these costs. But there are some key differences between them. Here’s how these two types of savings accounts compare at a glance.

Feature	HSA	FSA
Eligibility	Must have a high-deductible health plan	No specific health plan requirement
Ownership	Account owned by the individual	Account owned by the employer
Contribution Limits	$4,150 for individuals, $8,300 for families (2024)	$3,200 per year (2024)
Funds Rollover	Unused funds roll over year to year	Generally, “use-it-or-lose-it” policy
Portability	Remains with the individual if they change jobs	Typically not portable
Investment Options	Can be invested in stocks, bonds, and mutual funds	No investment options
Tax Advantages	Contributions and earnings aren’t taxed; distributions are tax-free if used for eligible medical expenses.	Contributions are pretax; distributions are tax-free and can only be used for eligible medical expenses.
Contribution Changes	Can change contribution amounts anytime	Contribution amount is typically set at the beginning of the year
Access to Funds	Funds are available as they are deposited	Full annual election amount available from the start of the year

Similarities Between HSA and FSA

Despite their differences, HSAs and FSAs share several similarities:

•   Funds from either type of account can be used for qualified medical expenses.

•   With both accounts, you can save significantly on medical expenses due to tax advantages.

•   Employers are allowed to contribute to both HSAs and FSAs (though this is not common with FSAs).

•   You can access funds immediately with either type of account. With an FSA, however, you’ll have access to full elected contribution at the start of the year.

Recommended: HSA vs HRA: Main Differences and Which Is Right for You

Can You Have an HSA and FSA at the Same Time?

Generally, no. However, there is one exception: If you have a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to both an HSA and an LPFSA. This allows you to put more pretax dollars aside for your healthcare expenses than you could with an HSA alone.

Just keep in mind that you can’t “double dip,” meaning you cannot get reimbursed twice for the same expense — you must decide which account you want to use for reimbursement.

Recommended: HSA vs. HMO: What’s the Difference?

How Do You Choose Between an HSA and FSA?

Choosing between an HSA and FSA depends on your healthcare needs, financial situation, and employment status.

Scenarios When You Should Consider an HSA

•   You have a high-deductible health plan. If you have an HDHP, you are eligible for an HSA. The tax advantages and ability to save for future healthcare expenses can make opening an HSA a smart choice.

•   You’re interested in long-term savings. HSAs allow you to roll over unused funds year to year, making them ideal for long-term healthcare savings. And at age 65, you can treat an HSA like a traditional 401(k) or IRA — you can withdraw funds for any reason, though you will pay taxes on any funds not used for qualified medical expenses.

•   You want to grow your healthcare savings. HSAs offer investment options like stocks, bonds, and mutual funds.

•   You want to be able to take your healthcare savings with you if you leave your job. HSAs are portable and remain with you even if you change jobs, providing consistent coverage regardless of employment status.

Recommended: 15 Easy Ways to Save Money

Scenarios When You Should Consider an FSA

•   You don’t have (or want to enroll in) an HDHP. FSAs do not require a high-deductible health plan, making them accessible regardless of current health insurance.

•   You have fairly predictable healthcare costs. If you’re able to anticipate regular healthcare expenses each year, an FSA can help you save money by using pretax dollars for these predictable costs. If you over-contribute, however, you forfeit any unused balance (unless your employer allows a grade period or a certain amount to roll over).

•   Your employer offers FSA contributions. Some employers offer contributions to FSAs, providing additional savings and making FSAs a valuable benefit.

•   You want to have immediate access to your healthcare savings. FSAs provide immediate access to the full annual contribution amount at the beginning of the year, which can be beneficial for upfront medical expenses.

The Takeaway

Both HSAs and FSAs offer valuable tax advantages and can help you manage healthcare costs, but they cater to different needs and situations.

If you have a high-deductible health plan and want long-term savings with investment opportunities, an HSA can be a great choice. On the other hand, if you don’t have a high-deductible health plan and your employer offers an FSA, you’ll likely want to take advantage of this benefit. An FSA can help you save for (and save money on) healthcare expenses in the coming year.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is it better to have an HSA or FSA?

It depends on your healthcare plan and employment situation. A health savings account (HSA) can be a good fit if you have a high-deductible health plan (HDHP), since it offers higher contribution limits and allows you to carry funds forward. An FSA can work well if your employer offers this benefit, you do not have an HDHP, and you have predictable healthcare expenses (since these plans are often “use-it-or-lose-it”).

Is it good to have both an HSA and FSA?

Generally, you cannot contribute to or spend from a health savings account (HSA) and a flexible spending account (FSA) simultaneously, as both accounts are designed for medical expenses and have overlapping benefits.

However, there is one exception: You can have an HSA and a limited-purpose FSA (LPFSA) at the same time. An LPFSA specifically covers dental and vision expenses. This combination can be beneficial if you have significant dental and vision expenses in addition to regular medical costs, providing comprehensive coverage and enhanced tax advantages.

What happens if I switch from an HSA to an FSA?

If you switch from a health savings account (HSA) to a flexible savings account (FSA), you can no longer contribute to your HSA once your FSA becomes active. However, you still own the HSA and can use the remaining HSA funds for qualified medical expenses. In addition, the funds in your HSA will continue to grow tax-free.

Can I have an HSA if my wife has an FSA?

If your wife’s flexible savings account (FSA) is a general-purpose FSA, which covers a range of medical expenses, you cannot contribute to a health savings account (HSA). However, if her FSA is a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to your HSA.

It’s important to review the specific rules and eligibility criteria for both accounts and coordinate with your spouse to optimize your tax savings and healthcare benefits.

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Photo credit: iStock/zimmytws

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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