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?
The three most common types of supplemental coverage are critical illness coverage, disability insurance and long-term care insurance. Often, they can be added as riders to a life insurance policy, driving down the cost and increasing flexibility. Like with health insurance, as long as the payments cover expenses related to illness or injury, you typically don’t pay taxes on any portion of coverage you’ve paid for yourself.
Each type of policy covers a specific set of events, but they can be combined to create a customized coverage plan.
- 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
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 to a person facing a life-threatening health event such as a heart attack, stroke, cancer or kidney failure. The insured may use the funds any way he or she sees fit.
Disability insurance replaces income lost due to the inability to work. 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.
In addition, coverage is usually broken into two separate categories based on length:
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 companies may allow you to convert your life insurance to a long-term care insurance policy at 65.
Long-term care coverage pays for extended non-hospital assistance. This coverage is typically reserved for those who are unable to perform two of the six activities of daily living1. The funds may cover 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 cost 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 policies can offer overlapping coverage. Therefore, purchasing multiple policies may be unnecessary or overly expensive. For many people, having savings to cover a short-term emergency and investments to cover a longer-term emergency may be sufficient, but coverage needs will depend on individual circumstances.
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