Understanding Health, Disability and Long Term Care Insurance

medical equipment

Insurance is essentially a tool to manage risks. It’s a balance to determine which kinds of insurance you need and which you don’t need. You need to think about how much you can afford to lose, how likely it is that what you’re insuring will happen to you (you probably don’t need flood insurance if you live in the desert), and what it would cost to protect against even unlikely events. When it comes to your health, it may not be as clear which insurance policies you need. Let’s break down the main health related types of insurance you may want to consider.

Health insurance is probably the most important kind of insurance to have.

Health insurance helps protect you from the high costs of healthcare by covering all, or a portion, of the costs of doctor visits, hospital stays, prescription drugs, and important preventive care. You may be able to get health insurance through your employer, your spouse’s employer or may have bought a plan from the open market. Different plans have different costs; high deductible plans have lower upfront costs, but you’ll have to pay more before the insurance kicks in, and more traditional plans have higher premiums, but require less out of pocket spending on your part. Young, healthy individuals won’t need as much coverage as those with young families, older individuals, and those with chronic health conditions. If you need a lot of health care, opt for plans with low deductibles and co-pays, but understand that these do come with a higher premium. If you don’t get sick very often, you could choose a high deductible plan, which has lower premiums. But if you do get sick, you’ll have to cover that deductible. You could pay from an FSA, HSA or other personal savings account such as your rainy day or emergency fund.

If you are a healthy person who rarely gets sick and are thinking about going without insurance, you should reconsider. You never know when you could get injured, sick,  or receive an unexpected diagnosis that could cost thousands of dollars(or a lot more). You’d be fully responsible for the cost of your medical treatment. If you can’t pay your bills, they will be sent to collections and it will hurt your credit score for years. In fact, medical debt is one of the leading causes of personal bankruptcy.

Disability insurance is another important type of insurance to consider for wage earners. Many people insure things such as their home and autos but neglect to protect a more valuable asset; their ability to earn an income.

Think about what would happen if you were unable to work due to an illness or injury. With no income coming in, how would you pay your rent or mortgage, utilities and other bills, and buy groceries?Maybe you have a spouse’s income or savings to fall back on. Maybe you think you could adjust your lifestyle. That may work for a while, but what if it’s long term? If you’re the sole or main income provider for your family, you may want to consider disability insurance. A disability can eliminate your income altogether and bring significant medical costs. Disability insurance typically provides you with a percentage (average of 60%) of replacement income if you’re unable to work due to a permanent, temporary, partial, or total disability. It doesn’t pay for the medical costs associated with your disability (remember, that’s supposed to be covered by health insurance). It usually kicks in several weeks after your disability begin so you may need some savings (a rainy day or emergency fund) set aside to get you by for a while. The replacement income ends after a period of time defined in your policy. You may be offered disability coverage by your employer (short term and/or long term disability), or you can buy it individually. Social security disability may be available but it is very difficult to qualify for that insurance to pay out. It basically requires that you’re unable to engage in any substantial, gainful employment (meaning you basically cannot do any job) and that your disability is expected to last at least a year or result in death. Social Security Disability Income (SSDI) can also take months or even years to get approved, with fewer than 40% of initial applications receiving approval.

Long Term Care insurance covers a variety of services that meet personal care needs due to chronic (ongoing) health conditions, mental, or physical disabilities that are expected to last a long period of time.

These long term care services help you live as independently as possible when you can no longer perform normal daily living activities (bathing, dressing, eating, toileting and moving around your home) on your own. It can also help cover the cost of institutional care, assisted living, and home care. All of these are typically services not covered, or only partially covered, by private health insurance or Medicare. For most people, the burden of long term care usually falls on unpaid family members and friends. If you’re in your 40’s or 50’s, it’s a good time to think ahead and consider your own plan for care in the decades ahead. You know more about your own personal health situation and family history than anyone else.

If you decide you need coverage and wait too late to purchase long term care insurance, the cost may be too high or you may not be approved at any cost.

If you purchase a policy, you’ll generally be eligible to receive benefits after you’ve been unable to do two “normal daily activities” independently and have waited a certain amount of time (30, 60, or 90 days, depending on your policy). Most policies will have a daily limit on the cost of care and a lifetime maximum, so be sure to read the fine print.