Insurance Coverage:
How to Keep Your Finances Healthy
Even When You’re Not

Being ill or disabled can severely damage the best-laid financial plan. The cost of health care can be outrageous, and if you can’t work, your income will be impacted – as will your ability to keep the bills paid. There is a way to prevent the worst from happening, however. You can protect yourself with the right insurance coverage.

Health insurance
Because of the extremely high costs associated with medical treatment, health insurance is very important to have. Be sure to buy a policy before having an accident, a serious illness, or becoming pregnant, since insurance often doesn't cover health care for preexisting medical problems or conditions.

Many people have group health insurance plans through their employer or union. If you do, you may be required to pay a portion of the premium, particularly if you work part-time. Still, since the costs and risks associated with health care are spread among many, the cost to you is usually low. Individual health insurance, on the other hand, can be costly and once you purchase a health plan, the premiums may increase.

There are several different types of health insurance plans:

  • Fee for Service (FFS). You choose your own doctors and hospitals, pay for services up front, then get reimbursed by the insurance company. In exchange for the flexibility, though, they also come with higher out-of-pocket expenses, a lot of paperwork, and high premiums than other plans.

  • Health Maintenance Organization (HMO). These are typically the most affordable plans. You must select a primary care physician (a PCP) who then refers you to specialists. Instead of flexibility, policyholders have low co-payments, minimal paperwork, and extensive coverage.

  • Point of Service (POS). More flexible than an HMO, but does not require you to select a PCP. If you see a doctor outside the network, the amount covered will be substantially less than if you went to a physician within your network.

  • Preferred Provider Organization (PPO). A PPO is a network of physicians who have agreed in advance to charge certain fees for procedures. Co-payments are reasonable, and you may go to any specialist without the permission of a PCP, as long as the doctor participates in the network.

Disability insurance
If you can’t work because you are ill or injured, disability insurance will keep the money flowing in so you can continue to pay your bills.

  • Short-term disability (STD). Most people have a STD policy through their employer. It pays a percentage of your salary if you become temporarily disabled due to sickness or injury (excluding on-the-job injuries, since they are covered by workers compensation insurance paid by the employer). Most policies provide a portion of your weekly income – usually 50, 60, or 66 2/3 percent for 13 to 26 weeks, with a cap of how much you can actually receive. Benefits generally begin within 14 days after you become sick or disabled. They are paid immediately for injuries, but are slower to kick in with illnesses, because it takes longer to determine that the illness is disabling. Employers may require you to use accumulated sick days before you begin to receive STD payments.

  • Long-term Disability (LTD). These policies provide an income stream for a long period of time. LTD insurance is often available through employers, and generally picks up where STD leaves off. Once STD benefits expire, the LTD policy pays 50, 60, or 66 2/3 percent of your salary. Benefits are tax-free if you pay your own premiums and do so with after-tax dollars. If your employer pays for the policy, most likely with pre-tax dollars, your disability benefits will be taxable. Before buying income protection insurance, evaluate the income you could be receiving from Social Security, Worker’s Compensation, or State Disability Insurance.

Long-term care insurance
Long-term care insurance is for seniors and the permanently disabled who can no longer perform aspects of daily living, such as eating, dressing or getting around on their own.

Many people buy long-term care insurance for a loved one. It gives them the peace of mind that they will be properly cared for while protecting their finances against the high cost of assisted living facilities, nursing homes and extended home care.

When exploring a long-term care insurance policy, whether for you or someone else, be aware of several key factors:

  • Coverage can be denied. Insurers can deny coverage to people with serious health problems. 25 percent of people aged 65 and older have pre-existing health conditions that would prevent them from receiving private long-term care insurance.

  • High cost. This insurance coverage tends to be expensive. The cost of the policy depends your age and health when you sign on and the type of coverage you select.

  • Some expenses not covered. Even the most comprehensive and pricey long-term care policy will not cover all long-term care needs.

When evaluating any policy, research the company and plan thoroughly, and buy just what you need – never more. Your financial health depends on it.