Health Insurance

 While shopping for health insurance can be a daunting process, it is important to understand the options available to you. Keep in mind, both over-insuring and under-insuring can negatively impact your financial, mental and physical well-being. Selecting an expensive plan can cost a lot in unnecessary premiums. Conversely, young, healthy people are more likely to under-insure without realizing the impact that a medical emergency or bad diagnosis will have on their finances.

 Broadly, there are two types of health plans - those with High Deductibles and those with Low Deductibles. The former come with low premiums but in the event of a claim, there will be higher deductibles and out-of-pocket expenses. These are suitable for people who do not expect to have significant medical expenses and would therefore like to keep their premiums low. The Low Deductible plans are associated with high premiums but have lower deductibles and out-of-pocket maximums - these are appropriate for people who expect significant medical expenses and cannot afford to pay the higher deductibles when medical expenses arise.

Making the Most Out of Your HSA

In today’s economy, one of the best savings vehicles available is the Health Savings Account. If you qualify for an HSA there are many tax advantages that apply to any contributions made to your account. The contributions are tax free, which include the FICA taxes for pre-tax contributions made through your employer and most states offer a state tax deduction. Also, tax free earnings and tax free distributions if used for qualified medical expenses. Once you turn 65, any funds in your HSA are no longer subject to the 20% penalty when used for non-health related costs. It is usually advantageous to max out your HSA contributions before contributing to an IRA or 401(k) beyond the employer match.

 

Life Insurance

Whole life insurance is the most common type of life insurance policy. Premiums are fixed throughout the lifetime of the policy and do not vary. As long as premiums are paid in a timely manner, the policy comes with a guaranteed death benefit. A cash reserve is built up till the maturity of the policy (typically till age 100 or 120 of the insured) and this is paid out at maturity in the event that the insured continues to be alive at that time.

A term life insurance policy is one that requires a fixed premium payment for a specified term - if the beneficiary dies during the term, the death benefit will be paid out by the insurance company. The policy is valid for the predetermined term (which may be 5, 10, 20 or 30 years typically), with both premium payments and death benefits restricted to the policy term.

Like term insurance, permanent life insurances policies give a cash payout upon death of the insured. The difference is that a permanent policy guarantees payout, because the term of the insurance is your whole life - "entire life" insurance. These types of policies accumulate cash reserves by using part of your premiums payments each month for investments. The interest, returns, and dividends of the invested portion are returned to you. You can temporarily borrow against the cash reserves.