Section I -  Planning for Yourself and Your Beneficiaries, Continued.

(2) Get Life and Health Insurance
​
Life Insurance​

It is your responsibility to have Life Insurance to protect against life's worst case scenarios.  You need enough life insurance to pay for burial costs, as well as enough to replace the future wages of a working spouse/partner.  Go- Fund-Me is not life insurance.  Not an option.  #TUNA 

General
How much life insurance you need depends on how old you and your spouse/partner are, the ages of your children, and any other factors that could determine what you have to financially protect.  Everyone's situation is unique, and there are benchmarks out there on how much you should have (usually very high (10-12 times  annual income, e.g.), but  I suggest that  you have at least a few hundred thousand as a minimum, but higher if you have dependent children, and can afford it.  If this is an issue, have at least enough life insurance to cover burial costs for every member of your family.   Consult an insurance agent you feel comfortable with regarding your coverage.

Ideally, when you have reached middle age, and your children (if any) are grown up and are independent, you can lower the amount of life insurance you carry, and "self insure", meaning that you do not have/need  life insurance other than your own cash/investments that can pay for final expenses and future incomes.   Also, life insurance is expensive when you get older.   ​Hmmmm, I wonder why?

Supplemental Information
Often, your employer may offer excellent rates for supplemental (employee paid (you)) life insurance for you and/or your beneficiaries.  Take advantage of these opportunities as you may be able to purchase insurance that does not have to be underwritten (a determination on the risk of insuring you), and the premiums are conveniently deducted from your pay checks.  Another thing,  Buy Term Life insurance, in 10-20 year "terms" if you can, as this protects the amount of the premium, and your insurability.   Your rate stays the same for the duration of the term, and if you become unhealthy, your coverage amount and duration will not change.   Term Life premiums that are annual and not in 10-20 year increments go up in price fairly considerably every year, so get these (10-20 year term) policies when you are young and healthy!  Also, to underwrite some larger policies, the insurance carrier may send a nurse/rep over to your house to take your vitals, e.g.  weight and blood pressure, as well as  taking blood/urine samples.  Who said insurance isn't fun?

We had life insurance through the same company/agent that we insure our house, vehicles, etc., as well as some employer paid and supplemental life insurance self-paid through our employers.  OK, we liked convenience!

My recommendation is to avoid life insurance products that mix-in investments and stick with Term Life.  Although, we had to buy one of these products for our children's $15,000 policies, as term life was not an option offered for them by our insurance company.  These insurance/investment options I recommend avoiding include Whole Life or  Universal Life policies.  When our children became independent and obtained their own life insurance, we cashed in our $15,000 policies, and got a fairly modest payment back.

Health Insurance. 

General
You and your family also need health insurance, whether it is through your employer, private, or through a federal or state program.  ​Regarding what your health insurance will cost you, the deductible amount is probably the biggest decision you have to make, as it is the main driver on how much your monthly premiums will be.

What Kind of Health Insurance Should you Get?

PPO's & HMO's
There are also many types of health insurance.  Many employers and organizations offer private insurance such as a Preferred Provider Organization (PPO), or a Health Maintenance Organization (HMO).  PPO's cover more of your medical costs if you get care within the network of care providers, but still pay some of the costs for care outside of the network.  HMO's are plans that usually pay only for medical care within their network of health care providers.  HMO's generally cost less than plans that offer a greater choice of providers.  There are other plans out there, but in my experience these two are the most common ones.

Similar to the decision on what deductible to take, the PPO vs the HMO decision is different for everyone.  PPO's are more lenient on where you can receive care, and when you need a referral.  There are typically more Primary Care Physicians (PCP) to choose from.  HMO's require you to have one main PCP, and all/most care must be routed through them and visits to other doctors, labs, clinics, etc. must be preceded with a referral.  Perhaps most importantly, if you have a PCP that you like, make sure to select a insurance carrier who covers them.

Medicare, Medicaid, and Medigap Insurance
There is also Public Insurance such as Medicare and Medicaid which cover individuals over the age of 65, or do not meet certain income requirements, or may be disabled.   If you are in one of these situations, then you can find information here at Medicare.gov.  You may also need a supplemental insurance to Medicare called "Medigap".  Original Medicare pays for much, but not all, of the cost for covered health care services and supplies.  More information can be found here.  My parent's went through AARP for Medigap insurance, which was about $250 per month, and about the only out of pocket costs they incurred were for prescriptions. 

​Deductibles, and Costs to You
The deductible amount is basically the amount that you have to pay yourself before your insurance starts helping out.  Nowadays, you can find plans where your prescription costs are not included in the deductible.  I don't believe that co-payments (co-pays) are generally used to satisfy your deductible either.  Co-pays are the amount that you will pay your provider for each visit, and they generally run $20-$40 per occurrence.

If you choose a plan that has a lower deductible ($200-$750), your rates will be higher than if you choose a high deductible plan ($1000-$2,500+ is common).  A helpful tool for your decision making is taking the dollar difference per month that you will have to pay for your premium, and multiply it by 12 months.  This is the guaranteed amount that you will have to pay extra for a lower deductible plan.  Compare that to your estimated out of pocket costs for care during the year, and it should reveal which direction to go.

It is common for the insurance carrier to pay 80% of costs once you have satisfied your out of pocket deductible.  Then they will pay 100% of the costs after you have met your maximum out of pocket costs for that year.  Typically, the maximum out of pocket amounts act in a similar way to the cost of deductibles.  Lower premiums equal higher maximum out of pocket costs.  Maximum out of pocket expense for the year varies widely, but I have seen them in the $3,000-$12,000 range (Which may be the grand total for the whole family too).

Everybody's situation is different, so if you or your family have known issues that will require more medical care, then it may pay off to choose a lower deductible plan.  If you and your family are young and healthy, then it may make  more sense for you to choose a less expensive plan, but still having "catastrophic" insurance, which have lower premiums, but could be relatively expensive if you need an unexpected surgery or hospitalization.

In the event you are fortunate enough for your employer to cover the total cost of your premiums, then by all means choose a plan with the lowest deductibles.

Other Miscellaneous Health Insurance Information and Advice (#TUNA)

HSA's, HRA's and MSA's
Some employers offer Health Savings Accounts, HSA's or Health Reimbursement Arrangements (HRA's).  Health Savings Accounts are a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.  I am not personally very knowledgeable on these plans, but you can find some information here.

Our employers both offered a Health Reimbursement Arrangement (HRA) plan through VEBA (Voluntary Employees' Beneficiary Association) Trust.  This plan is authorized under Internal Revenue Code 501(c)(g), for certain public employees.  In a nutshell, this HRA is a tax-free investable savings account that can be funded by the employer or employee and lets you get reimbursed for out of pocket medical expenses.  Reimbursement involves online submission of receipts, or in many cases, a credit-type of card can be used at the health care provider.  We were fortunate that monies set aside into our HRA was portable, and will help out substantially with health care insurance costs (primarily insurance premiums) incurred during the first few/several years of retirement (before the magic 65 year old/Medicare eligibility date).

There is also a Medical Savings Account, generally associated with self-employed individuals, in which tax deferred deposits can be made for medical expenses.  Withdrawals from the MSA are tax-free if used to pay for qualified medical expenses, and must be coupled with a high deductible health plan (HDHP).  I am not that familiar with this plan, so I gathered this information from Wikipedia, and so can you.  You can also access IRS Publication 969 for all you would ever want to know on the subject.

A Final Word On Life and Health Insurance (and Long-Term Care Insurance)
As long as we are on the subject of insurance, #TUNA dictates that if you or your family members are healthy, then do not to go crazy with all of the other supplemental insurances out there (cancer,  air medical transport, AD&D (accidental death and dismemberment), disability, pet, etc.).  Take what the employer gives you, and move on.  Again, your individual health circumstances (family history, e.g.) could render these suggestions here useless. 

Also, at some time in your life, there may be a the decision to make on purchasing Long Term Care insurance for restorative care (formerly known as nursing home care).   Generally this insurance is expensive depending on your age, but, I'm sure in some circumstances it would a good thing to have depending on your situation.  When I looked into it some years back, it was prohibitively expensive, but if you are over 60, I recommend talking to your insurance professional about it.

PS:  Make sure to have adequate vehicle insurance, renters insurance, and other policies such as for boats and expensive items like jewelry.  Talk to your insurance agent for advice on this.  I have not had any claims on the house or boats, but I did use the policy for a lost diamond once...............and I was glad it was insured.​​​

<< Back to Section I. Planning for Yourself and for your Beneficiaries

<<< Back to Financial Readiness & Executorship - Home

<<<<<Back to Home Page