Health insurance basics

 
It's a fact of life — you need health insurance — and the time to get it is before you have an accident, suffer a serious illness, or discover you're pregnant. Insurance doesn't cover health care for medical problems or conditions that start before the moment you have your policy. Finding adequate coverage might seem overwhelming, but knowing the basics can help make your search less stressful.

Your boss doesn’t have to provide health insurance

The first reality of health insurance is you do not have a right to it. There are no state or federal laws requiring private employers to offer health benefits to their workers.

“For a number of valid reasons employers are not mandated to offer or provide health insurance for their employees,” explains Peter Bigelow, CLU, employee benefits specialist with The Foresight Group.  “It is common knowledge; however, that most employers though not mandated to do so offer insurance to their employees for a variety of reasons related to competition and smart business practice.”

If you have benefits through your employer, and you quit or lose your job, don't assume you will be able to pick up the identical coverage for the same price.

Similarly, don't expect your former employer to extend your benefits beyond your last day at work. There is no "grace period" during which you're still covered.

If you do lose your employer-sponsored benefits, there is a federal plan called COBRA (Consolidated Omnibus Reconciliation Act) that could provide you with a short-term safety net. For more information, see Know your COBRA rights.

Another federal law that offers some protection to workers experiencing a short-term lapse in their coverage is HIPAA (Health Insurance Portability and Accountability Act). Your rights under this act are explained in The HIPAA law: Your rights to health insurance portability.

Individual health insurance can be costly

If you need to purchase individual health insurance, it can be expensive. Unlike group plans, in which the costs and risks associated with health care are spread among many people; individual health policies are "medically underwritten" to take into account your personal health history. Any "pre-existing" condition such as heart disease, diabetes, and even pregnancy, can nix your chances of acceptance or boost your premiums. Some states require individual health insurers to offer everyone a plan, a mandate known as "guaranteed issue."

Expect to pay more and more

Once you have a health plan, don’t expect your premiums to remain the same. Health insurance companies often seek permission to raise premiums. Additionally, some states allow health insurers to "file and use" rate increases, which means the insurers only have to submit their increases in writing and then they may immediately begin charging customers more money. Unless insurance regulators determine the rates are excessive, the insurers are allowed to keep charging the higher premiums.

HMO

HMOs are the least expensive, but also the least flexible of all the health insurance plans. They are geared more toward members of a group seeking health insurance.

HMO advantages

• They offer their customers low co-payments, minimal paperwork, and coverage for many preventive-care and health-improvement programs.

HMO disadvantages

• You must choose a primary care physician, also known as a PCP.
• HMOs require you to see only network doctors, or they won't pay.
• You must get a referral from your PCP to see a specialist.

POS

POS plans are more flexible than HMOs, but they also require you to select a primary care physician (PCP).

POS advantages

• Depending on your insurance company's rules, you may choose to visit a doctor outside the network and still receive coverage — but the amount covered will be substantially less than if you went to a physician within your network.
• These plans tend to offer more preventive care and well-being services, such as workshops on smoking cessation and discounts to health clubs.

POS disadvantages

• You must choose a PCP.
• While you may choose to see a physician outside the network, if you don't receive permission from your PCP, you're likely to wind up submitting the bills yourself and receiving only a nominal reimbursement — if any.

PPO

PPOs give policyholders a financial incentive — reasonable co-payments (also called co-pays) — to stay within the group's network of practitioners.

PPO advantages

• The standard co-payment is $10 for a routine office visit during regular hours.
• You may go to any specialist without permission, as long as the doctor participates in the network.

PPO disadvantages

• If you see an out-of-network doctor, you might have to pay the entire bill yourself, and then submit it for reimbursement.
• You might have to pay a deductible if you choose to go outside the network, or pay the difference between what network doctors and out-of-network doctors charge.

How to find an individual health plan

Your first step in getting health coverage is to contact an insurance agent in your area, or an insurance company. An agent should be familiar with the insurance companies that do business in your state, especially those able to provide the coverage you need.

You might do business with either a "captive" agent who works for one insurance company, or an independent agent or broker who sells policies for a variety of companies. A list of agents can be found in your phone book or by contacting your state department of insurance.

You should discuss with your agent your own particular health insurance needs. Think carefully about what coverage you must have. Do you need health insurance for your whole family, or just yourself? Do you want to choose your providers? If you're over 65, do you need insurance to fill the gaps in Medicare? Do you need — and can you afford — long-term disability and/or long term care coverage?

When you've found the right coverage, you need to fill out an application or give information to your agent to complete the necessary forms. Be honest. It's important to disclose your medical history thoroughly and accurately. Report all of your health problems to your agent. If any of your health information is misstated or incomplete, the company might refuse to pay your claims and could cancel your policy.

Life Insurance Basics

The main reason for life insurance is to provide income replacement to your beneficiaries if you die. But if you are interested in estate planning, cash accumulation, wealth transfer, and estate tax liquidity, life insurance can also help you achieve these goals.

Put simply, term life insurance provides death-benefit protection for a specified period of time (for instance, you might buy a policy that has to be renewed in two years). Generally speaking, if you're looking for coverage for a short period of time, term life makes more sense.

But if you are looking to have a policy for the rest of your life, or have investment goals, permanent insurance is a better fit. All life insurance policies will require that you meet certain medical criteria.

Term Life Insurance 
Non-Guaranteed Term Life 
Non-Guaranteed term life provides coverage only for a short time (usually a year) and is pure death-benefit protection. The risk with term life is that your health might deteriorate and you could be unable to get another policy once the term is up. Premiums can also increase dramatically as you age, but term life insurance is usually a good choice for young people who can't afford the higher expense of permanent insurance, or for people covering specific needs that will disappear in time, such as a car loan or a mortgage.

Yearly Renewable and Convertible Term 
Yearly renewable term insurance offers a longer term, usually for five, 10, or 20 years. By buying a longer term policy, your costs can be stretched out to avoid the annual increases found in non-guaranteed term life.

Convertible term is like yearly renewable term but it also offers conversion to a permanent policy in the future — when regular term premiums might become cost-prohibitive or if your health declines. Convertible term policies usually provide the maximum protection with the smallest amount of cash outlay required. This is a good choice especially for young people who are unable to afford the higher cost of permanent insurance right now but need maximum life insurance and also want to have the option of converting to permanent coverage in the future.

Permanent Life Insurance 
Whole Life or Ordinary Life 
Similar to yearly renewable term and convertible term, whole life policies stretch the cost of insurance out over a longer period of time in order to level out the otherwise increasing cost of insurance. In this case, however, it is spread not over a few years but over your entire life. Your excess premium dollars are invested in the company's general portfolio. Because you aren't personally managing that investment, your selection of an insurance company is vitally important.

With this type of policy, however, the inflexibility of premium payments could become a burden if your expenses increase or if you lose your job.

Universal Life 
This option offers greater flexibility than whole or term life. After your initial payment, you can reduce or increase the amount of your death benefit (although to increase the amount, you'll probably have to give the insurance company medical proof that you are still in good health). Also, after your initial payment, you can pay premiums any time, in almost any amount within the policy's required minimums and maximums.

You will need to actively manage these policies to maintain sufficient funding, especially because the insurance company can increase charges (like mortality and expenses). Plus, part of your premium is invested by your insurance company, so you'll need to be careful when choosing a company.

Variable Life 
There are both Universal and Whole Life versions of Variable Life. This option provides death benefits and cash values that fluctuate with the performance of the insurance company's portfolio of investments (you'll receive a prospectus along with your policy). The cash value is not guaranteed, but you get to choose where your premium dollars go among the variety of investments in the portfolio. Thus, while there is no guaranteed cash value, you have control over your money and can invest it according to your own tolerance for risk. If your investments perform well, you'll have a higher cash value and death benefit. If they don't, you'll have a lower cash value and death benefit, although some policies guarantee a minimum death benefit.

You can also take loans against the cash value of your policy, but if you don't pay them back with interest, your beneficiaries will receive a reduced death benefit. You can also surrender your policy for cash or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

Look closely at the underlying funds a company offers: Are they well-balanced? Do they give you a range of choices to satisfy all risk tolerances?