Understanding Health, Disability and Long Term Care Insurance

Insurance is a tool to manage different risks and it’s a balance to determine which kinds you need and don’t need. You don’t want to risk more than you can afford to lose, you want to consider the odds of the event happening and you shouldn’t risk a lot to save a little. You need to think about how much you can afford to lose, the odds of what you’re insuring happening 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 as to which policies you may need. Let’s break down the main health related types of insurance you may want to consider. After all, your health is something you definitely don’t want to risk.

Health insurance is probably the most important kind of insurance to have.  It 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. There are different types of plans from high deductibles (these cost less up front but you must pay more before the insurance kicks in) to more traditional plans that have higher premiums but require less out of pocket spending on your part.  Young and 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, which you could pay from an FSA, HSA or other personal savings account such as your rainy day or emergency fund.  If you are that healthy person who rarely gets sick and are thinking about having no 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 more. You’d be fully responsible for the cost of your medical treatment and it could severely impact your finances for a long time (it’s currently the leading cause of personal bankruptcy). If you can’t pay your bills, they will be sent to collection and it will impact your credit score for years. Most medical providers may negotiate medical bill payments unlike some other debts collectors. As long as you pay something and set up a payment plan you can probably get by making smaller payments for a while. Avoid using credit cards at all costs, the high interest will make those big medical bills even larger if you can’t pay them off by the end of the month.

Another important type of insurance to consider if you are a wage earner is disability insurance. 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, 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. Disability is a double-edged sword, it can stop your income from coming in and it brings significant medical costs. Disability insurance typically provides you with a percentage (average 60%) of replacement income if you’re unable to work due to a permanent, temporary, partial, or total disability that lasts for a period of time as defined in your policy. This way you can continue to pay your non-medical obligations. It doesn’t pay for the medical costs associated with your disability (remember, that’s covered by health insurance). It usually kicks in several weeks after your disability begins (defined in your policy) so you may need some savings set aside to get you by for a while (a rainy day or emergency fund). You may be offered disability coverage by your employer (short term and/or long term disability) or you can buy it externally. 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 the 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 a less than 40% of initial applications receiving approval. One final thing to think about is how would receiving only part of your salary (say 60% or less or even 0%) impact you? Make sure to have enough savings put away to cover you for a while.

Long Term Care is insurance that covers a variety of services that meet personal care needs. These needs may be due to chronic (ongoing) health conditions that are expected to last a long period of time and/or for mental or physical disabilities. These 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 all at any cost. If you do purchase a policy, you’re usually eligible to receive benefits when you can no longer independently do two “normal daily activities” and after a waiting period (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.