Beyond Health Insurance: Protect Against The Unexpected
What are the options when health insurance just doesn't cut it?
Everyone knows what health insurance is, and now that the law requires it, more people than ever have it. But what happens when you run into a situation your health insurance won’t cover?
Depending on the situation, there are additional insurance policies you can buy to fill in the gaps. Like with health insurance, as long as the payments are related to illness or injury, the portion attributable to premiums not paid for by an employer or paid using pre-tax money, can usually be excluded from taxation.
The three most common types of supplemental coverage are critical illness coverage, disability insurance and long-term care insurance. Oftentimes, these coverages can be added as riders to a life insurance policy, driving down the cost and increasing flexibility.
Each type of policy covers a specific set of events, though they can be used in conjunction with each other if necessary.
- Must have a covered critical illness such as cancer or stroke
- Assists with out of pocket costs related to medical or non-medical expenses
- Must have a covered disability as defined by plan
- Replaces income lost due to illness or injury
- Long or short term coverage available, typically up to 5 years
Long Term Care
- Must not be able to perform 2 of 6 ADLs1
- Covers in-home or facility care
- Premiums can be paid from HSA or qualify for tax deduction
Critical illness coverage provides funds to a person facing a life-threatening health event such as a heart attack, stroke, cancer or kidney failure. While health insurance covers a portion of medical costs, the insured must typically meet a deductible or provide a co-payment for the balance.
In addition, daily living expenses do not cease simply because a person is severely ill or incapacitated. Critical illness coverage provides a lump sum benefit for the insured to use any way he or she sees fit.
Disability insurance replaces income lost due to the inability to work. The criteria for coverage to kick in is defined by the policy. On the less expensive end of the spectrum is coverage that defines disability as being unable to work in any occupation. On the more expensive end of the spectrum is coverage that defines disability as being unable to work in your current occupation.
Coverage is usually broken into two separate categories:
Short-term coverage usually commences 1-30 days after the start of the disability and lasts between a few weeks up to 2 years.
Long-term coverage usually commences between 3 months to 1 year after the start of the disability and coverage can extend anywhere from 5 years up to lifetime benefits.
Some disability polices may be converted to long-term care insurance policies at the age of 65.
Long-term care coverage pays for assistance not related to hospitalization that is required over an extended period of time. This coverage is typically reserved for those not being able to perform two of the six activities of daily living1. The funds can be used for broad needs such as skilled nursing care in an assisted living facility or nursing home, or in-home care by a family member or home health aid.
The length of the coverage determines the expense of the policy. On average, men need 3 years of care and women need 4, but individual needs will vary depending on family history and other risk factors.
Supplemental insurance coverage can overlap and purchasing multiple policies may be unnecessary or overly expensive. For many people, having sufficient savings to cover a short-term emergency and investments to cover a longer-term emergency may be all that is required, but coverage needs will depend on individual circumstances.