Protecting your health and income isn't a luxury, it's a necessity.

26 minute read

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[Music]
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hello my friends and thanks for
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downloading another weekly episode of
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the money girl podcast my name is Lora
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Adams I’m a personal finance author
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speaker and consumer advocate who’s been
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writing and hosting this show since 2008
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if you’re interested in my most recent
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publication it’s called debt free
00:25
blueprint how to get out of debt and
00:27
build a financial life you love it’s
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available as a paperback or ebook and if
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you’re used to listening to me you might
00:35
want to pick up the audiobook the
00:37
audiobook version of debt-free blueprint
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is available at audible.com if you are
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ready for more knowledge resources and
00:45
motivation to manage your money the best
00:47
way possible and create a richer life
00:49
you are in the right place
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I love getting your questions and
00:53
comments so today I’m going to respond
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to an email from Jennifer and a
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voicemail from Megan that are both about
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creating affordable financial safeguards
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here’s Jennifer’s question she says how
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can I prepare our family for the high
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cost of health insurance when my husband
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leaves his job at the end of the year to
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become a full-time independent
01:16
contractor and here’s the voicemail from
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Megan hi Laura my name is Megan first
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off I want to thank you so much for the
01:26
work you do in the podcast I’ve been a
01:29
longtime listener and it is helped me
01:31
get out of debt and establish accounts
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and have it for my finance that has
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helped me feel in control less stress
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and even excited about my future so
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thank you so much my question for you is
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what is the best way to shop for and
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purchase disability and insurance I’ve
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heard you talk about this topic before
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and would like more information on how
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to get it my jobs are all pretty
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physical and then concerned that if I
02:03
get injured I don’t have enough
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insurance to cover my everyday expenses
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thank you so much Laura for the work you
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do again and I look forward to hearing
02:13
from you regarding this topic
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thank you so much for these crucial
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questions Jennifer and Megan if you or
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the breadwinner in your family lose your
02:24
job or your business income or you get
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sick all of a sudden what would you do
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for many people these scenarios are
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their worst nightmares because they
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don’t have financial protections in
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place statistics about getting ill or
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suffering a serious injury during your
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career are pretty sobering according to
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the Council for disability awareness
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more than one in four of today’s 20 year
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olds can expect to be out of work for at
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least a year because of a disabling
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condition before they reach the normal
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retirement age and what’s pretty
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shocking is that when a disability
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occurs the average time spent away from
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work it’s almost 2 years so you know
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that’s a lot of time not to be earning
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any money yet most people do not have a
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back-up plan for how they would pay
03:18
everyday bills like your housing
03:20
utilities your food
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many Americans don’t even have health
03:24
insurance to pay a portion of their
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medical bills so while you might think
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that protecting your health and your
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income is a luxury I’m here to tell you
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that it is not these safeguards should
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be pillars of your financial plan so in
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this podcast you’re going to learn three
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financial protections that can be
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surprisingly affordable for both
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employees and entrepreneurs this is
03:48
episode number 616 called 3 affordable
03:53
financial safeguards to protect your
03:55
health and income it’s supported by
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okay let’s get into the financial
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protections
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the first one is savings if you follow
04:43
this podcast for any length of time you
04:46
know that you’ve heard me talk about
04:47
building a cash reserve which is also
04:50
known as an emergency fund having
04:53
savings is one of the best ways to
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protect yourself from an unexpected
04:57
expense or a sudden drop in earnings the
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trick is to save diligently when times
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are good if you get a raise at work or
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you have a profitable year in your
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business I know it can be awfully
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tempting just to spend that excess money
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but before you buy a luxury item or you
05:16
booked a vacation
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make sure you’ve got plenty in the bank
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I know saving isn’t as much fun but the
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best way to make sure that you’re ready
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when bad luck strikes is to prepare for
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it today so think about your emergency
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savings as like a special bucket of
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money that should be kept completely
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safe put it in an FDIC insured savings
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account you can open one at the same
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place that you have your checking
05:43
account or you can use a different
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institution I would encourage you to
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consider some high-yield savings that
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pay a little bit more interest than a
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typical account but whatever you do
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don’t make the mistake of investing your
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emergency money this is something a lot
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of people ask me about I know it seems
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like you should want that money to grow
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but remember the purpose of your
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emergency fund is not to make money and
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you know what it’s not even to keep up
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with inflation the purpose is to save
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you from a financial hardship if you
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invested that money the value could drop
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significantly like the moment that you
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desperately need it so don’t make that
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mistake what you want to do is build up
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your savings to a minimum of three
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months worth of your living expenses for
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example if you spend $3,000 a month on
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your rent your utilities food
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transportation debt and any other
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expenses that you truly can’t live
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without
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you would want to have at least three
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times that amount or $9,000 in your cash
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reserve but depending on your family and
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your work situation you might need less
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or you might need more so if you have
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not even started thinking about this
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concept of having an emergency fund and
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you haven’t started saving don’t get
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upset about it a lot of people really
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feel like they’re behind the 8-ball and
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and you know they just kind of feel very
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negative about saving this money don’t
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get upset
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don’t make it into a big thing just get
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started make a goal to accumulate a
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small amount maybe for you that’s $100
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maybe you can get up to 500 maybe $1,000
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build it up as quickly as you can
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yes this might require some sacrifices
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to reduce your spending or maybe even
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earn a little bit more money when
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possible a tip that always helps me is
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putting my savings goals on autopilot
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what I mean by that is setting up
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systems so that your savings is kind of
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happening in the background of your life
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and you really don’t have to you know
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remember it you don’t have to try so
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hard that’s a smart way to stay on track
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and never get tempted to spend the money
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so maybe you’ve got an employer that can
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put some amount of your paycheck into a
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separate savings account or if you’re
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self-employed you can set up a recurring
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transfer from your checking into your
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savings account on a regular basis it
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may take a little while to juggle your
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expenses but eventually you won’t even
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miss the money once you’ve got it going
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and it’s a regular habit once you have a
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safety net of savings in place you’ll
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have an amazing sense of security and
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peace of mind that no matter what
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happens with your health or your income
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you have options all right so that is
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the first pillar of your protection is
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to have some savings
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the second financial protection that you
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need is health insurance so while having
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emergency savings is critical it
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probably would not be enough to pay for
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ongoing medical care if you had a severe
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illness or a severe injury I mean think
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about it even a quick trip to the
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emergency room could set you back
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thousands of dollars
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that’s why health insurance exists
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starting in 2019 the quote shared
09:02
responsibility payment which is the fee
09:05
for not having health insurance it no
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longer applies here’s the deal
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technically it is still illegal not to
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have health insurance but the federal
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government will not penalize you for it
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starting with the 2019 plan year however
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I will say that some states have their
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own insurance mandate which does require
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you to have a qualifying health plan or
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to pay a fee with your state taxes so
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don’t forget about the state side of
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this you might want to do a little
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research to figure out if health
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insurance is required where you live now
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if your employer offers coverage through
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a group health plan that’s definitely
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the most affordable option but what if
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you’re like Jennifer’s husband who’s
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about to become self-employed Jennifer
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there’s no denying that individual
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health coverage is more expensive than a
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group plan in a previous podcast it’s
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episode 596 called how to manage health
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benefits when you leave a job I cover
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your rights and options for getting the
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most out of your health benefits from an
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old job one of them is using COBRA
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continuation coverage Cobra is a law
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that gives you the option to continue
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your employer sponsored health insurance
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even after you’re no longer employed so
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instead of having your plan cancel the
10:28
month you leave a job you can use Cobra
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to continue getting the exact same
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benefits and choices that you had before
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you left your company Cobra protects
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everyone affected by the loss of group
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health insurance including the former
10:42
employee his or her spouse former
10:45
spouses and dependent children when
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certain events occur in most cases you
10:50
can use Cobra to continue your group
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health coverage for up to 18 months and
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it also applies to any dental and vision
10:57
insurance that you may have had through
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your employer as I previously mentioned
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it must be identical to the coverage you
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were offered at your company before you
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left you or your family are entitled to
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have the same coverage limits
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co-payments and deductibles after you
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leave an employer you should receive
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information about your rights to apply
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for Cobra you have to notify your Human
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Resources department within 30 days
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after a qualifying event such as a
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termination or a cut in work hours
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that’s when you have to let them know
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that you want COBRA continuation
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Jennifer I recommend shopping and
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comparing the cost of Cobra to a private
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policy typically your Cobra cost will be
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higher compared to what you previously
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paid as an employee because your
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employer is no longer subsidizing it
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depending on your household income and
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the number of people in your family you
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may qualify for assistance that would
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reduce your monthly premiums for a
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private policy that could make the cost
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of a marketplace plan less expensive
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than Cobra but if you’ve got high income
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and you don’t qualify for any reduced
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premiums Cobra may cost about the same
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or even give you better benefits for the
12:16
price there are several ways that you
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can shop for coverage one is going to
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healthcare.gov that’s the federal health
12:24
care marketplace there are also lots of
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insurance aggregator sites such as
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bankrate.com and a health com you can go
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through an insurance broker or you can
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go to your state’s online health care
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marketplace there are 13 states with
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their own health exchanges they are
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California Colorado Connecticut DC Idaho
12:48
Maryland Massachusetts Minnesota Nevada
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New York Rhode Island Vermont and
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Washington so all of those states have
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their own online health insurance
12:57
website but you can also get there from
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healthcare.gov if you just want to go
13:02
there first you can get through to your
13:04
state’s site from that site the best
13:07
type of coverage for you and your family
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depends on what you can afford
13:11
whether you need frequent visits to a
13:13
specialist and if the doctor’s you
13:15
prefer are covered I’m going to cover
13:17
some common types of health plans that
13:19
may be
13:20
available for you and the benefits they
13:22
provide but first I want to take a short
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all right back to health insurance let’s
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talk about some of the different types
15:26
of plans that may be available the first
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is an HMO that stands for health
15:32
maintenance organization and an HMO is
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simply a network of doctors providers
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and hospitals that you can choose from
15:42
for healthcare what happens is you have
15:44
to select a primary care physician that
15:47
is like your kind of central contact
15:50
they have to refer you to a specialist
15:53
when needed such as a dermatologist or
15:55
an allergist now if you get treatment
15:58
outside of an HMO Network it may not be
16:01
covered so this is like the downside of
16:03
an HMO you know there are exceptions
16:05
maybe being transferred to an
16:07
out-of-network hospital in an emergency
16:09
with an HMO you pay monthly premiums and
16:13
the benefits begin once you meet an
16:15
annual deductible you’re responsible for
16:17
coinsurance which is a percentage of
16:20
healthcare costs and you also have fixed
16:23
co-pays for visits to a doctor’s office
16:25
and prescription drugs because an HMO
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gives you less freedom of choice than
16:31
other plans
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they typically cost less that’s the
16:34
upside so it is a good option when you
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want to maintain low health care costs
16:39
and you’re in relatively good health all
16:41
right another plan that you’ve probably
16:43
seen is a PPO that stands for preferred
16:47
provider organization a PPO is similar
16:51
to an HMO in that you choose healthcare
16:55
providers from a recommended network
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however you’re allowed to get care
17:00
outside your network and you don’t have
17:03
to select a primary care physician or
17:05
even get a referral to see a specialist
17:07
so you have a lot more freedom while a
17:09
PPO gives you more flexibility it is
17:12
typically a more expensive plan compared
17:15
to other options if you go out of a PPO
17:18
Network you usually get less coverage
17:21
and therefore have higher out-of-pocket
17:23
costs like an HMO you also pay monthly
17:26
premiums a deductible co-pays and
17:28
insurance a PPO is typically a good
17:31
option when you can afford higher
17:34
premiums and healthcare costs
17:36
and it also gives you the most
17:37
flexibility if you travel frequently or
17:40
you just prefer to see out-of-network
17:42
doctor so think about that you know
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where will you be when you need medical
17:47
attention
17:47
all right the next type is called a
17:50
catastrophic health plan we don’t hear a
17:52
lot about these but a catastrophic plan
17:55
is designed to provide benefits only
17:57
when you suffer a major medical event
18:00
such as a car accident a heart attack or
18:02
cancer it protects your finances if
18:05
you’re diagnosed with a serious illness
18:07
or you need emergency treatment these
18:09
plans give limited coverage and they do
18:12
come with a high deductible and in some
18:14
cases they may only be offered to those
18:15
under age 30 they may require
18:18
policyholders to use in-network
18:21
providers and they may not cover
18:23
prescription drugs so these are gonna
18:25
offer you the least benefits compared to
18:27
other plans and they should definitely
18:28
only be used as a last resort when you
18:32
need the lowest premium possible and the
18:34
last plan will review is called an hdhp
18:38
that’s high deductible health plan these
18:41
can really be any plan it could be an
18:43
HMO or a PPO but it comes with a higher
18:47
than normal deductible and lower monthly
18:50
premiums plus many high deductible plans
18:53
qualify you to use an HSA or health
18:56
savings account you’ve probably heard me
18:58
talk about these in previous shows with
19:01
an HSA you make pre-tax contributions to
19:04
a special savings account up to an
19:07
annual limit and then you can spend that
19:09
money on a variety of qualified health
19:11
care like medical expenses dental
19:14
hearing vision a lot of different things
19:16
and it gives you several tax advantages
19:19
the contributions you make to an HSA are
19:22
never taxed as long as you spend them on
19:24
qualified expenses also you can invest
19:27
the funds that you contribute and that
19:30
interest or investment earnings is never
19:33
ever taxed and then when you take
19:35
withdrawals to pay for your qualified
19:38
medical expenses again they’re never
19:41
taxed as long as you’re spending them on
19:43
qualified healthcare expenses I also
19:45
really love HSAs because the balance is
19:48
just roll
19:49
from year to year you don’t have a
19:51
spending deadline you don’t have to
19:52
empty it every year like you do with
19:54
other types of medical spending plans
19:56
the only downside to an HSA is that if
20:00
you’re under age 65 and you spend it on
20:03
non qualified expenses you will be
20:06
subject to income tax plus an additional
20:08
20% penalty on the withdrawn amounts
20:12
however if you still have money in the
20:15
account after age 65 you can actually
20:19
use it for non-medical expenses without
20:22
penalty so it kind of works more like a
20:24
retirement account after age 65 you
20:27
would have to pay income taxes on those
20:29
withdrawals but no penalties would apply
20:32
having a high deductible health plan can
20:34
be a really good option if you want
20:36
lower premiums and you’re in relatively
20:39
good health so you’re not likely to bump
20:41
up against that deductible every year
20:43
and if you’re likely to take advantage
20:45
of an HSA I would say that if you’re
20:48
managing a chronic illness or you take
20:51
expensive prescription drugs you
20:53
probably need a more comprehensive plan
20:55
than a high deductible health plan
20:57
you’ll probably want a PPO but if you’re
21:00
on a budget and you’re in relatively
21:02
good health you may come out ahead
21:04
choosing an HMO or a high deductible
21:06
health plan but what’s important to
21:08
remember is that even when you have
21:10
health insurance you still have
21:13
out-of-pocket expenses you still have to
21:15
pay a deductible co-payments coinsurance
21:18
you know a health plan rarely covers
21:22
100% of your medical costs it’s a
21:25
fantastic safety net that helps limit
21:28
your total potential medical debt but it
21:31
doesn’t mean that you’re not going to
21:32
have any out-of-pocket medical expenses
21:35
and it seems like every year the maximum
21:37
out-of-pocket limit goes up for 2020 a
21:41
high deductible health plan can require
21:44
you to pay a maximum of sixty nine
21:46
hundred dollars out-of-pocket as an
21:48
individual or twice that much 13800 as a
21:52
family every calendar year so these
21:56
annual limits don’t even apply to
21:57
services that you might receive outside
22:00
of your plans network of
22:02
doctors so having savings in the bank or
22:04
having money in an HSA is how you’re
22:07
going to pay medical bills until you
22:10
meet your annual deductible or pay bills
22:12
that your insurance doesn’t cover all
22:15
right the third financial protection
22:17
that we’ll talk about is disability
22:20
insurance once you’ve got savings in the
22:23
bank and you’ve got health insurance
22:25
there is still a significant risk you
22:28
face that is not being able to earn an
22:31
income while you recover from an
22:34
accident or illness health insurance
22:36
only pays a portion of your medical
22:37
bills not your everyday living expenses
22:40
and Megan is very wise to be thinking
22:43
about the fact that she is vulnerable if
22:46
she gets injured but the reality is that
22:48
you don’t need a quote physical job like
22:51
Megan’s to be a risk anyone could be
22:53
injured in a car accident or come down
22:55
with a serious illness that leaves you
22:58
unable to work you may have the option
23:01
to enroll in a short or long term
23:03
disability policy through work it’s
23:05
typically more affordable than a private
23:07
policy and it definitely comes with less
23:10
underwriting requirements when you get
23:13
it at work such as not having to undergo
23:15
a physical exam but what you get at work
23:18
may not be enough insurance depending on
23:22
your income and your family situation so
23:24
I would encourage you to really take a
23:26
look at what you’ve got no matter if
23:28
you’re underinsured at work or you’re
23:30
self-employed you can purchase a
23:32
disability policy on your own and the
23:35
cost depends on various factors such as
23:37
the amount of replacement income that
23:40
you get it could be 50% 60% 70% it
23:44
depends on the waiting period for when
23:46
your benefits would begin after a
23:48
disability depends on your age and your
23:51
health status but I would say if you’re
23:53
in relatively good health and you’re
23:55
young a good disability policy might
23:58
cost in the range of 25 maybe up to $50
24:02
per month there are several ways that
24:04
you can shop for disability coverage
24:06
there are lots of insurance companies
24:10
that you can go to directly such as
24:11
MetLife State Farm and Northwestern
24:15
Mutual the
24:16
are also lots of insurance aggregator
24:18
sites such as policy genius.com and
24:22
bankrate.com you can also go through and
24:24
insurance broker and many people will
24:27
say well Lara what about the disability
24:29
that you get from the government
24:31
well if you think that you don’t need
24:34
private disability insurance because you
24:37
know you’re just gonna get something
24:38
from the government make sure you
24:40
understand what the government is
24:42
providing yes it’s true that if you
24:45
qualify for Social Security disability
24:47
insurance it’s called SSDI you can
24:51
receive it until you reach retirement
24:53
age and then your benefit would switch
24:55
over to Social Security retirement
24:58
benefits however there are very strict
25:02
requirements to qualify for SSDI
25:05
according to the Social Security
25:07
Administration to qualify you must be
25:09
unable to work because you have a
25:11
medical condition that is expected to
25:13
last at least one year or result in
25:16
death you cannot have a partial
25:18
disability or a short term disability
25:20
and you’ve got to meet the Social
25:23
Security Administration’s definition of
25:25
a disability I’ll put a link to the
25:27
listing of impairments that can qualify
25:29
for disability according to the Social
25:32
Security Administration and that’ll be
25:34
in the notes for this show which is in
25:36
the money girls section at
25:37
quick-and-dirty tips.com
25:40
the types of health and disability
25:42
insurance policies that are best for you
25:45
depend on a variety of factors it
25:47
depends on your finances your health
25:49
care needs in your family situation I
25:52
would encourage you to compare several
25:54
options and always speak with a licensed
25:57
insurance professional when you need
26:00
help thanks again to Jennifer and Megan
26:03
for inspiring this show if you have a
26:06
money question or an idea for a future
26:09
show topic I would love to hear it we’ve
26:11
got a voicemail line if you want to call
26:13
in just like megan did call three zero
26:15
two three six four zero three zero eight
26:19
money girl is produced by the audio
26:21
wizard Steve Ricky Berg with editorial
26:24
support from Karen Hertzberg if you’ve
26:27
been enjoying the podcast your ratings
26:29
and reviews on Apple podcasts mean the
26:31
world to us it’s an easy free way to
26:33
give back and show your support you
26:36
might also like the backlist
26:37
episodes and show notes that are always
26:39
available at quick and dirty tips com
26:42
that’s all for now I’ll talk to you next
26:44
week have a wonderful Thanksgiving if
26:46
you’re celebrating in the United States
26:48
until then here’s to living a richer
26:51
life
26:54
[Music]

And Megan left a voicemail saying, “My jobs are all pretty physical, and I’m concerned that if I get injured, I won’t have enough insurance to cover my everyday expenses. I’ve heard you talk about disability insurance and would like more information on how to get it. What’s the best way to shop for and purchase disability insurance?”

Thanks for these crucial questions, Jordan and Megan! If you, or the breadwinner in your family, lose your job or business income, or you get sick all of a sudden, what would you do? For many people who don’t have financial protections in place, these scenarios are their worst nightmares.

Statistics about getting ill or suffering a serious injury during your career are pretty sobering. According to the Council for Disability Awareness, more than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age.

And when a disability occurs, the average time spent away from work is close to two years. Yet, most people don’t have a back-up plan for how they would pay everyday bills, such as housing, utilities, and food. Many Americans don’t even have health insurance to pay a portion of their medical bills.

While you might think that protecting your health and income is a luxury, it isn’t. These safeguards should be pillars of your financial plan. Let’s have a look at three financial protections that can be surprisingly affordable for both employees and entrepreneurs.

Woman With money and orange background1. Savings

If you follow the Money Girl blog or podcast, you’ve heard me talk about building a cash reserve, which is known as an emergency fund. Having savings is one of the best ways to protect yourself from unexpected expenses or a sudden drop in earnings.

The trick is to save diligently when times are good. If you get a raise at work or have a profitable year in your business, it can be awfully tempting to spend the excess. But before you buy a luxury item or book a vacation, make sure you have plenty in the bank. I know saving isn’t as much fun. But the best way to make sure you’re ready when bad luck strikes, is to prepare for it today.

Think about your emergency savings as a special bucket of money that should be kept completely safe in an FDIC-insured savings account. You can open one at the same place as your checking account or use a different institution. Consider a high-yield savings that pays more interest than a typical account.

Free Resource: Use the free Online Bank Comparison Chart (PDF) to compare some of the best places to park your emergency money.

Don’t make the mistake of investing your emergency money. The purpose of emergency savings isn’t to make money or even keep up with inflation, but to save you from a financial hardship. If you invested it, the value could drop significantly the moment you desperately need it.

Build up your savings to a minimum of three months’ worth of living expenses. For example, if you spend $3,000 a month on your rent, utilities, food, transportation, debt, and other expenses you can’t live without, aim to have at least $9,000 in your cash reserve. But depending on your family and work situation, you might prefer to have more or less.

If you haven’t started saving for an emergency fund, don’t get upset about it, just get started. Make a goal to accumulate $100, then $500, and $1,000 as quickly as you can. Yes, this might require you to make some sacrifices to reduce spending or to find a way to earn more money.

A tip that helps me is putting my savings goals on autopilot. That’s a smart way to stay on track and never get tempted to spend the money. It may take a little juggling with your expenses, but eventually, you won’t even miss the money.

Once you have a safety net in place, you’ll have an amazing sense of security and peace of mind that no matter what happens with your health or income, you have options.

Health insurance2. Health insurance

While having emergency savings is critical, it probably wouldn’t be enough to pay for ongoing medical care in the event of a severe injury or illness. Even a quick trip to the emergency room could set you back thousands of dollars. That’s why health insurance exists.

Starting in 2019, the “shared responsibility payment,” which is the fee for not having health insurance, no longer applies. Technically, it’s still illegal to be uninsured, but the federal government won’t penalize you for it. However, some states have their own insurance mandate, requiring you to have a qualifying health plan or pay a fee with your state taxes.

If your employer offers coverage through a group health plan, that’s usually the most affordable option. But what if you’re like Jennifer’s husband who’s about to become self-employed?

COBRA continuation coverage

Jennifer, there’s no denying that individual health coverage is more expensive than a group plan. In How to Manage Health Benefits When You Leave a Job, I cover your rights and options for getting the most out of your health benefits from an old job. One of them is using COBRA continuation coverage.

COBRA is a law that gives you the option to continue your employer-sponsored health insurance after you’re no longer employed. So, instead of having your plan canceled the month you leave a job, you can use COBRA to continue getting the exact same benefits and choices that you had before you left your company.

COBRA protects everyone affected by the loss of group health insurance, including the former employee, his or her spouse, former spouses, and dependent children – when certain events occur.

In most cases, you can use COBRA to continue your group health coverage for up to 18 months. It also applies to any dental and vision insurance you have through an employer.

As I previously mentioned, it must be identical to the coverage you were offered at your company before you left. You or your family are entitled to have the same coverage limits, co-payments, and deductibles.

After you leave an employer, you should receive information about your rights to apply for COBRA. You must notify your human resources department within 30 days after a qualifying event (such as a termination or cut in work hours) that you want to elect COBRA continuation.

I recommend shopping and comparing the cost of COBRA to a private policy. Typically, your COBRA cost will be higher compared to what you previously paid as an employee because your employer isn’t subsidizing it.

Depending on your household income and the number of people in your family, you may qualify for assistance that reduces your monthly premiums for a private policy. That could make the cost of a marketplace plan much less expensive than COBRA.

But if you have high income and don’t qualify for reduced premiums, COBRA may cost about the same or even give you better benefits for the price. There are several ways you can shop for coverage:

  • Healthcare.gov, which is the federal healthcare marketplace
  • Insurance aggregator sites, such as Bankrate.com and eHealth.com
  • Through an insurance broker
  • Your state’s online healthcare marketplace

There are 13 states with their own health exchanges: California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New York, Rhode Island, Vermont, and Washington.

The best type of coverage for you and your family depends on what you can afford, whether you need frequent visits to a specialist, and if the doctors you prefer are covered. Here are some types of health plans that may be available and the benefits they provide.

HMO (Health Maintenance Organization) plan

An HMO is a network of doctors, service providers, and hospitals you can choose from for health care. You select a primary care physician (PCP) who must refer you to a specialist when needed, such as a dermatologist or an allergist.

If you get treatment outside of an HMO network, it may not be covered. However, there are exceptions, such as being transferred to an out-of-network hospital in an emergency.

With an HMO, you pay monthly premiums, and benefits begin once you meet an annual deductible. You’re responsible for coinsurance, which is a percentage of health care costs. You also have fixed copays for visits to a doctor’s office and prescription drugs.

Because an HMO gives you less freedom of choice than other plans, they typically cost less. So, it’s a good option when you want to maintain low healthcare costs, and you’re in relatively good health.

PPO (Preferred Provider Organization) plan

A PPO is similar to an HMO in that you choose health care providers from a recommended network. However, you’re allowed to get care outside your network, and you don’t have to select a primary care physician or get a referral to see a specialist.

While a PPO gives you more freedom to seek the care you want, it’s typically a more expensive plan compared to other options. If you go out of a PPO network, you usually get less coverage and therefore have higher out-of-pocket costs. Like an HMO, you also pay monthly premiums, a deductible, copays, and coinsurance.

A PPO is a good option when you can afford higher premiums and healthcare costs. But it gives you the most flexibility when you travel frequently or prefer to see out-of-network doctors.

Catastrophic health plan

A catastrophic plan is designed to provide benefits only when you suffer a major medical event, such as a car accident, heart attack, or cancer. It protects your finances if you’re diagnosed with a serious illness or need emergency treatment.

These plans give limited coverage, come with a high deductible, and are typically only offered to those under age 30. They may require policyholders to use in-network providers and may not cover prescription drugs.

Since catastrophic plans offer the least benefits compared to other health plans, they should be used as a last resort when you need the lowest premium possible.

HDHP (High-Deductible Health Plan)

An HDHP can be any health plan, such as an HMO or PPO, but it has a higher-than-normal deductible and lower monthly premiums. Plus, many HDHPs qualify policyholders to use an HSA, or health savings account.

With an HSA, you make pre-tax contributions up to an annual limit, which you can spend on a variety of qualified health care, including medical, dental, hearing, and vision expenses. It gives you several tax advantages:

  • Contributions are never taxed
  • Interest or investment earnings are never taxed
  • Withdrawals to pay qualified medical expenses are never taxed
  • Balances roll over from year to year with no spending deadline

If you’re under age 65 and spend HSA funds on non-qualified expenses, you’ll be subject to income tax plus an additional 20% penalty on withdrawn amounts. However, withdrawals after age 65 can be used for non-medical expenses without penalty (but income taxes would apply).

An HDHP can be a good option if you want lower premiums, you’re in relatively good health, and you’re likely to take advantage of an HSA.

If you’re managing a chronic illness or take expensive prescription drugs, you need a more comprehensive plan, such as a PPO. But if you’re on a budget and in relatively good health, you may come out ahead choosing an HMO or an HDHP.

But what’s important to remember is that even when you have health insurance, you still have to pay a deductible, co-payments, and co-insurance out-of-pocket. A health plan rarely covers 100% of your medical costs. It’s a safety net that helps limit your total potential medical debt.

For 2020, a high-deductible health plan can require you to fork over a maximum of $6,900 as an individual, or $13,800 as a family, every calendar year. These annual limits don’t even apply to services you might receive outside of your plan’s network of doctors.

Having savings in the bank or a tax-advantaged health savings account (HSA) is how you’ll pay medical bills until you meet your annual deductible or that your insurance doesn’t cover.

Disability insurance3. Disability insurance

Once you have savings and health insurance, there’s still a significant risk you face: Not being able to earn an income while you recover from an accident or illness. Health insurance only pays a portion of your medical bills, not your everyday living expenses.

Megan is very wise to consider the fact that she’s vulnerable if she gets injured. But the reality is that you don’t need a “physical” job to be at risk. Anyone could be injured in a car accident or come down with a serious illness that leaves you unable to work. Yup, there’s insurance for that, too!

You may have the option to enroll in a short- or long-term disability policy through work. It’s typically more affordable than a private policy and comes with less underwriting requirements, such as not having to undergo a physical exam. But it may not give you enough coverage, depending on your income and family situation.

No matter if you’re underinsured at work or are self-employed, you can purchase a disability policy on your own. The cost depends on various factors such as the amount of replacement income (such as 50% or 70%), the waiting period for when benefits begin, your age, and your health status. But if you’re relatively young and in good health, a good disability policy might cost in the range of $25 to $50 per month.

There are several ways you can shop for disability coverage:

  • Disability insurers, such as MetLife, State Farm, and Northwestern Mutual
  • Insurance aggregator sites, such as Policygenius.com and Bankrate.com
  • Through an insurance broker

If you think that you don’t need private disability insurance because the government offers Social Security Disability Insurance (SSDI), make sure you understand it. Yes, it’s true that if you qualify for SSDI, you can receive it until you reach retirement age and then switch to Social Security retirement benefits.

However, there are very strict requirements for SSDI. According to the Social Security Administration, to qualify, you must:

  • Be unable to work because you have a medical condition that is expected to last at least one year or result in death
  • Not have a partial or short-term disability
  • Meet the SSA’s definition of a disability

To see the listing of impairments that can qualify for disability, see the Adult Listing of Impairments page at SSA.gov.

The types of health and disability insurance policies that are best for you depend on your finances, health care needs, and family situation. Compare several options and always speak with a licensed insurance professional when you need help.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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