While most everybody knows a little bit about auto and homeowner’s insurance, many are confused by life and health insurance. Advertisements for low-cost term life insurance abound, and most news about health insurance seems to be negative. Nevertheless, protecting your life and health are important. Unlike cars and houses, life and health are irreplaceable.
Most people buy life insurance to cover the financial effects on the surviving family members when other family members die. Of course, most people think of death as something far off into the future – something that can be planned for well ahead of time and without major financial impact. However, the unexpected and early death of someone who is in his or her prime income-earning years can be most disruptive. Regardless, some form of life insurance can be purchased to cover the event of death.
Health insurance covers medical expenses, which, right now, just seem to be getting higher and higher. If health insurance is one of your employee benefits, you are fortunate, and you probably don’t think too much about the cost of health insurance. For those who must pay for their own health insurance, finding affordable and suitable coverage can be a chore.
Frequently asked questions about life Insurance
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How much life insurance should I buy?
That depends on a number of factors. Certainly, the amount of income you provide for your family is a major consideration. Some suggest that the amount of life insurance needed is equal to ten times your annual income. Another obvious consideration is the amount of financial liability or debt your family will be responsible for should you die prematurely or unexpectedly. Many people consider their children’s education when deciding how much life insurance to buy. Then, too, you may wish to leave money to family members or organizations. Potential inflation, estate taxes, and other financial considerations are also factors.
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What are the different types of life insurance?
There are two basic kinds of life insurance: term and cash value life.
Term life insurance covers you for a specified number of years, and pays out a death benefit only if you die within the specified term. This kind of insurance usually offers the highest degree of protection per dollar and is comparatively lower in cost. However, it does not build up cash value.
Cash value life insurance costs more than term life, but the part of the premium that is over and above the actual cost of insurance is invested by the insurance company and, over time, builds up cash value. This kind of insurance is, in effect, a type of savings plan.
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I’ve also heard something about whole life, universal life, and variable life. What are they?
There are three general kinds of cash value life insurance: whole life, universal life, and variable life. The essential element of these policies is that cash value is built up over a period of time. Depending on the policy’s structure, you can even borrow money from your policy.
Whole life covers you for as long as you live. Generally, whole life policies are paid with premiums that stay the same throughout the length of the payment period.
Universal life typically offers a greater degree of flexibility, allowing you to vary your premiums and adjust the face amount throughout the length of the policy. Premiums paid (minus policy expenses) are put into a policy account that earns interest.
Variable life is funded by other kinds of investments, such as mutual funds and other investment vehicles. Thus, the amount of the death benefit paid and the amount of cash value accumulated depends on how well the investments performed over the life of the policy.
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With different kinds of life insurance, which one is right for me?
Which type of insurance is right for you depends on a number of factors including: your budget and ability to pay; your overall financial and insurance objectives; and your age, health, and family situation, to name a few. Depending on certain circumstances (e.g., health risk factors), however, you may be excluded from buying certain types of insurance or be forced to pay higher than normal premiums.
Your decision to buy life insurance should begin with a review of your needs and circumstances, what you can afford to pay, and for how long. You should also consider whether you only want simple coverage or have longer-term financial goals in mind. Because there are so many factors to consider, seeking the advice of an insurance agent could prove quite helpful.
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What else should I be aware of when considering life insurance?
There are a number of things that you should be aware of. Right now, many companies are competing in the low-cost term life insurance market, and good rates are available. In some cases, you can even purchase such insurance over the Internet with a credit card — but exercise caution.
When purchasing life insurance, plan to keep your coverage for an extended period of time. Quitting your policy in the early years can be costly. Also, if you want to change life insurance coverage, don’t drop your present coverage until your new policy is in effect.
Remember that life insurance is often tied to your personal financial situation. Since things change over time, it may be helpful to devise a flexible strategy and make adjustments as needed. Your insurance agent can offer advice and suggestions for developing a good life insurance plan
Frequently asked questions about health insurance
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What are the different kinds of health insurance?
In general, health insurance is divided into the two broad categories: traditional and managed care.
Traditional health insurance usually involves what are called “fee-for-service plans.” You pay a certain amount of your medical expenses (your deductible) when you require medical attention. Once your deductible is met, your health insurance pays the remainder (typically the majority) of the bill. Fee-for-service plans generally offer a higher degree of flexibility than managed care plans, but have higher premiums, higher out-of-pocket expenses, and more paperwork.
Managed care health insurance is what is making most of the insurance industry headlines lately. With managed care, an arrangement between the insurance company and a pre-selected network of health care providers guides the medical treatment you are entitled to receive under the terms of your health insurance policy. Generally, managed care plans cost less than traditional plans, but impose certain limitations and are less flexible.
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Aren’t there different kinds of managed care programs?
Yes, there are three types of managed care programs: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point-of-Service (POS) plans.
HMOs are the least expensive, but also the least flexible of the managed care health plans. HMOs may be comprised of a series of medical clinics (e.g., Kaiser Permanente) or consist of a network of individual medical practices and hospitals (e.g., Centura Health, Health South, HealthOne, Exempla, etc.). HMOs require small (or no) co-pays and minimal paperwork, but require patients to receive medical services and treatment from health care providers within their network. Specialists may be consulted only after getting a referral from a Primary Care Physician (the doctor the patient chooses).
PPOs are similar to HMOs, but offer more choices and flexibility. Patients pay small co-pays ($10-$15) every time they see a health care provider. When patients receive medical services outside their prescribed network, they pay a higher percentage of the costs out-of-pocket and the health insurance coverage pays the remainder. Plans vary and sometimes deductibles are required.
POS plans are similar to PPOs, but also include a Primary Care Physician, who is chosen from a list of doctors who are part of the network. The PCP makes referrals to other providers who are part of the plan. When receiving medical services outside the plan, deductibles and out-of-pocket expenses are generally similar to those included in PPO plans.
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What’s the difference between group and individual health insurance coverage?
The essential difference between group and individual health insurance plans is whether or not the plan is connected with a business.
Group plans insure the members of the group without regard to the health status of its members. Group plans typically cost less and offer broad coverage. People who receive health insurance as part of their employee benefits are covered by group plans. Self-employed people and other individuals who qualify for membership benefits in a particular organization or association may also be able to get health insurance under a group plan.
Individual plans, by comparison, take into account the individual’s health status. Individual plans are medically underwritten, which means that an individual’s medical records and history are evaluated for certain risk factors. Depending on the findings of the evaluation, coverage may be denied or certain exclusions can be attached to the individual policy. Individual health insurance typically costs more than group insurance, and in some cases (major health risk factors) may be extremely costly, if available at all.
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What happens to my health insurance when I leave my job?
Assuming your employer offered health insurance as an employee benefit, you can, at your option, continue to receive health insurance under a program called COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). This optional plan will allow you to continue your health insurance for up to 18 months at your expense. You have up to 60 days from the time you leave your job to decide, and during that period it may be wise to shop around for alternative coverage. Of course, if you find another job (within 60 days) where you will again receive health insurance as part of your employee benefits, COBRA will be unnecessary.
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What can I do if my employer doesn’t offer health insurance benefits?
In addition to the individual option (which may not be attractive), you can try to find a group policy through some other means. If group health insurance benefits are available, you may wish to join a professional organization or trade association that offers them.
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What should I think about when shopping for health insurance?
Your first thoughts should focus on your needs. If you are a healthy, younger, single person, your needs may be relatively small compared to an older person with a family. For women of child-bearing age, the costs associated with pregnancy should be a consideration. Your family’s medical history and possible medical predispositions are other factors. Even if you are covered by a group plan, there are issues associated with the type of plan to choose: co-pays, choice of doctors, flexibility, paperwork, etc. Your insurance agent can provide information and answers that will enable you to choose the right plan for you.