My last two columns have explored the first two areas of what I call your Personal Financial Security Formula. The third area of you P.F.S.F. is health insurance. A number of years ago, health insurance used to break down into three areas: basic hospitalization, major medical and excess major medical. In recent years, with the advent of the PPOs and HMOs, all three types of insurance have merged into one type of plan.
In addition, with the advent of Obamacare, the questions of what type of insurance you should buy are much more complex. This is compounded by the fact that many areas in the U.S. have only one Obamacare carrier in their market, and some have none. This will only get worse year by year until lawmakers either repeal, modify, or replace Obamacare. Below is a map showing the number of carriers projected to be available on a county by county basis in 2018.
Obamacare offers four basic plans for those not covered through an employer-based policy or other government program. These plans are named after metals, and quality and coverage under the plan improves based on the value of the metal after which they are named. The four are called Bronze Plans, Silver Plans, Gold Plans, Platinum Plans, and descriptions of each are detailed on healthcare.gov.
In my opinion, you should design your health insurance to protect you against catastrophic medical expenses. The broken arm or a $500 hospital visit is uncomfortable financially, but certainly should not spell financial doom for anyone. Remember that an insurance company’s premiums will be contingent on the number of claims it expects to pay. There are far more people who will break an arm or go to the hospital for a $500 visit than there are who will suffer major health problems. Therefore, keep this in mind as you determine what type of plan and deductible you buy.
You can also check the Internet in your state to see which companies there still offer individual coverage. Depending on your health and past medical conditions, this might be a better option for you than an Obamacare plan.
Your health insurance is designed to prevent financial disaster during times of unusual medical problems. Just remember to insure against the things that could mean total financial disaster, and self-insure against the smaller problems.
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Although I have pointed out the disadvantages of a group disability program, group major medical can be the best coverage you can buy if you work for a company that offers this type of coverage. A group usually can obtain a far better program than you can buy through an individual policy.
Liability and casualty protection
To complete your P.F.S.F., you have to acquire the proper amounts of liability and casualty insurance. Possible casualty losses lie in your automobile, home, boat, or airplane. Comprehensive insurance should protect against fire, theft, collision, or anything else that could harm or destroy your personal property. When it comes to your home, select a deductible you can afford to pay. The higher the deductible, the cheaper the insurance. Evaluate the value of the building structure of your home as if it had just been destroyed by fire and you intend to replace it. (Do not include the value of your lot, but do account for the rapid increase in the cost of building that has occurred over the last couple of years.) This value should be the amount of basic coverage of your homeowner’s policy. You should review your policy at least once every two years and continually update and increase the amount of basic coverage.
One of the smartest ways to record all of the contents in your home is to lay everything out and take photographs; or better still, make a video. This helps you remember what you had after a disaster that destroys your belongings.
Put a value on your belongings and make sure you have adequate coverage in your homeowner’s policy. Include a “floater” in your policy for items of intrinsic value. Obtain original invoices if you do not have a professional appraisal, which, incidentally, is an inexpensive luxury you should consider. If you keep the supporting information in your home, store it in a fireproof box; better yet, put it in your safe deposit box off the premises.
For automobile insurance, as for other types of insurance, the higher the deductible, the cheaper the premium. Determine the cost of insurance for a $100 deductible, $250 deductible, and $500 deductible, then determine what it would cost you in your tax bracket to keep $100, $250, or $500 available in the bank as self-insurance. If the cost of liquidity is less than the cost of insurance, buy the higher deductible. If the cost of insurance is less than keeping the money liquid, buy the lower deductible.
Be sure that you have adequate liability coverage on your automobile, as well as your residence and other items of personal property that could be liabilities for you. Your financial status should determine your coverage. If you are a doctor and have the initials M.D. after your name, or you have a high-profile business, you are more susceptible to a large liability suit than someone else is. If you are obviously financially well off, you suffer from the same problem. It is important to protect your assets with adequate amounts of liability insurance.
Now that you have covered yourself against death, disability, illness or injury, property loss, and liability, you have a sound P.F.S.F.. You will enjoy peace of mind, knowing that you are prepared to deal with any threat to your financial security. You will actually have more financial security from any pending disaster than if you had maintained $1,000,000 in the bank. With your mind at ease, you can turn your efforts to a more productive development of your estate.