The world of insurance is complicated and full of acronyms and jargon. But it also offers great opportunity to create value for employees and consumers.
Economists call it job lock, the fact that many workers stay in jobs they don’t want solely to keep their health benefits. But liberating workers from this trap could boost entrepreneurship by allowing would-be entrepreneurs to start businesses without fear of financial ruin.
Health Insurance
Health insurance protects individuals from financial risk by paying some or all of their medical bills. Generally, people pay monthly payments (premiums) in exchange for coverage of certain health care services. Many individuals obtain health insurance through their employers. Others buy individual policies through private insurance marketplaces. Individuals with low incomes may also qualify to receive state help by enrolling in Medicaid or the Children’s Health Insurance Program.
The Affordable Care Act requires most Americans to have health insurance or pay a penalty on their tax return. Those without health coverage are less likely to visit the doctor or get necessary healthcare services and can be at risk of losing jobs and being subjected to debt collectors.
Some individuals choose to purchase high-deductible health plans that feature lower monthly premiums and higher out-of-pocket costs. These plans allow the policyholder to open a Health Savings Account that provides substantial federal tax benefits. Other types of health insurance include employer-sponsored coverage, Medicare and the Children’s Health Insurance Program.
Disability Insurance
Disability insurance replaces a portion of your income via monthly payments if an injury or illness prevents you from working. These benefits can help you cover bills and expenses like childcare, groceries and tuition fees.
Most people obtain this coverage through their employer. This type of plan is called group disability coverage. Some employers may subsidize part or all of the premium cost, which helps lower the cost for employees. However, these plans can be difficult to keep if you change jobs.
Other options for disability coverage include individual policies that can be purchased directly from the insurer, often through a financial professional. These are typically considered long term disability insurance policies, and they can cover up to 80% of your salary for an extended period of time.
Some disability insurance policies also come with a mental and nervous provision (sometimes called M&N). This add-on feature can exclude or limit coverage if your disability is caused by a mental illness or substance abuse.
Long-Term Care Insurance
The odds are strong that you’ll need some long-term care at some point, and the costs can be high. It’s a decision that shouldn’t be left to chance or to family members, and making it smartly can help preserve your retirement savings.
Unlike short-term health insurance, a comprehensive long-term care policy pays benefits for the long term, and usually starts paying once you can’t perform two or more of the activities of daily living or are cognitively impaired. It may pay for home care, residential care or assisted living and can even protect your assets from the impact of Medicaid when you become eligible.
Consider your age, life expectancy, family history, lifestyle and financial situation when choosing a policy, especially if you want a shorter elimination period or an inflation protection rider (which increases your premium). Many states offer Medicaid partnership programs with private long-term care insurance companies to encourage people to plan for the future.