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Planning ahead

Financial health begins with solid insurance options

These days there is an insurance plan for just about everything. Travel insurance, health insurance for your pet, insurance for your insurance. While these are luxury items, others are more essential. Insurance plans for life, for health, and for disability. Here are five insurance plans that everyone should know about and consider purchasing:

Health insurance: We all know what it is. And we all know that most of us can’t do without health insurance. But how do you find the right policy? Whether you are shopping for a plan on your own or selecting a group plan at work, you need to know the basic differences between the two major types of health insurance coverage.

A health maintenance organization (HMO) is one of the most economical plans. The HMO has a network of medical providers and you must always use a provider within the network to be covered. The only time an HMO will cover you outside this approved list is in case of an emergency, or if you receive prior approval because there isn’t a provider within the network. With an HMO, you can’t seek a specialist, such as a dermatologist, on your own. You need your primary care physician to allow you to see one and then refer you to one.

A preferred provider organization (PPO) also uses a network, but is less restrictive. If you don’t use a doctor within the network, you are still covered but at a higher deductible. You can also make appointments to see a specialist on your own and without approval of your primary care physician. Like HMOs, in case of an emergency, you will still be covered under the PPO rate even if you use a non-network provider in most cases.

If you are shopping for a health insurance plan on your own, be prepared to pay more for the policy and to receive less coverage. For help finding an individual plan, visit Arizona’s state insurance department Web site at www.id.state.az.us/consumer.html, which lists area insurance providers. Also, eHealthInsurance.com and MyInsuranceExpert.com provide free quotes.

Catastrophic illness insurance: A recent study published in The American Journal of Medicine reports that 62 percent of all bankruptcies in 2007 were due to medical debt and income loss due to illness.

Most medical debtors in the study were well educated and middle class; three quarters had health insurance. What went wrong? While many take comfort in knowing they have good health insurance, there are instances when basic coverage is not enough. Consider that most health insurance policies have caps and do not cover or reimburse the expenses associated with providing proper care for a terminally ill patient or one suffering from a catastrophic illness.

If the breadwinner in a family falls ill, and if s/he has disability insurance, s/he may recieve a portion of his/her salary. But how do you pay for in-home nursing, or experimental treatment options? Here’s where having a catastrophic illness insurance policy helps out greatly and even serves as a means to protect your assets, retirement savings and your family’s financial stability.

Many catastrophic illness policies are specific to a particular illness, such as cancer or stroke. Some policies pay benefits upon a diagnosis, others a specific amount for every night spent at a hospital and some even pay to make a home wheelchair accessible.

In some instances, the insurance agency rewards policy holders with $50 per year for getting mamograms or colonoscopies to screen for and detect cancer.

These policies do not cover pre-existing conditions; pricing varies from insurer to insurer.

Long term disability: Did you know that one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days? What’s more, according to the American Council of Life Insurers, one in seven workers will be disabled for more than five years. Most people think, “This won’t happen to me. I won’t get in an accident.” The truth of the matter is that most disabilities are not caused by accidents. The majority of          long-term disabilities are due to illnesses.

It is important to be covered for possible disabilities in order to avoid severe financial hardship from a loss of income. Disability insurance replaces lost income due to an injury or illness. Generally, disability insurance covers about 60 to 70 percent of lost income for a set number of years. Most plans will pay benefits for about five years or until you reach retirement.

Most employers pay for disability insurance for their workers or at least provide group rate policies that employees can buy into. The first step is to check and see if you are covered for possible disabilities by your employer. The next step is to find out how long benefits last. If your employer’s plan is too skimpy, know that you can purchase disability insurance on your own. It will cost a bit more, but it can’t be terminated if you leave the company.

If you decide to buy a disability policy on your own, research the plans. These policies can be very complicated, with many caveats and restrictions, such as what qualifies as a disability. What’s more, costs for these plans can vary based on your income and type of coverage. Beware that the cheaper plans have very strict definitions of disability, making it difficult at times to claim benefits.

Many companies also provide short-term disability insurance, more commonly known as sick leave. This insurance kicks in when you’re unable to work due to an illness, minor injury or the birth of a child. Coverage ranges from a few days to as much as one year. Some companies base your sick leave on the number of years you’ve worked at the company.

Long-term care: Long-term health care provides coverage for people who suffer from a chronic illness and need assistance with basic tasks such as bathing and eating. Most long-term care insurance will cover the costs of nursing homes, assisted-living facilities, adult day care and even in-house care.

The first thing to realize about long-term health care is that it is expensive. The average cost for one year in an assisted-living facility is $35,62, and it is expected to rise to $175,000 by 2020. Home health care runs an average of $19 per hour, according to MetLife’s Mature Market Institute, the company’s research and policy resource center for aging issues.

If you have assets of less than $200,000, experts contend that you can’t afford long-term care on your own.

The right time to buy long-term care insurance is around age 60, though agents encourage people to sign up at around 40 because as one grows older, premiums increase.

For those who can afford long-term health care, note that the plans vary dramatically in options. Some plans cover the cost of having a person for errands and household chores, while others just pay a licensed aide or nurse. There are also several options for paying for the policy. Some insurers want you to pay the premium in full over a set period of time, such as 10 years. Others require that you pay indefinitely.

Term or whole life insurance: Ask a person to explain the difference between term and whole life insurance and bets are that they won’t be able to do it. Yet, a life insurance policy is essential to the financial stability of any family.

A term policy is for life coverage only. When the insured person dies, the policy pays the face amount of the policy to the named beneficiary. Term life can be purchased for periods of one year to 30 years and the monthly premium can be locked in over the life of the policy. Generally, the younger you are when you buy the policy, the lower the monthly payments.

Whole life insurance, on the other hand, combines a term policy with an investment component. The investment could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against. The three most common types of whole life insurance are traditional whole life policies, universal and variable. You can also lock in the same monthly payment over the life of the policy.

There also is a difference in costs. Whole life insurance is more expensive than term. You’re paying not only for insurance but also for the investment portion. Whole life policies also come with steep fees and commissions, which sometimes lop off as much as three percentage points from the annual return. What’s more, there are commissions that are typically 100 percent of your first year’s premium.

On the other hand, premiums for term insurance are downright cheap for people in good health up to about age 50. After that age, premiums start to get progressively more expensive. The same happens with whole life policies. People who need coverage starting in their 60s have no alternative but to buy whole life. Most companies won’t sell term policies to people over age 65.