<p>Previous studies have shown that subjective well-being (SWB) is positively associated with health insurance and negatively associated with serious illness. However, few studies have examined how health insurance is associated with SWB at the onset of critical illness (CI). Using two-way fixed-effects models and nationally representative balanced panel data from the Korean Longitudinal Study of Aging (2006–2020), we examined how the SWB of insured and uninsured individuals changed upon diagnosis with a life-threatening illness. The empirical results show that, upon diagnosis with a critical illness, health insurance increased SWB by 1.09 points. Additionally, at the onset of critical illness, the decline in SWB was 3.46 points smaller for the insured than for the uninsured. These findings suggest that the positive effect of health insurance on SWB is substantially greater during critical illness than in periods of good health. These findings thus imply that public policies or tax incentives promoting health insurance coverage may serve as effective tools to enhance individual well-being.</p>