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Health Insurance

A Suze Orman exclusive

Look, I know we've gotten ourselves into a horrible national crisis here, and a great many Americans are going without health insurance coverage because of the cost or are being forced to cough up more of their own money to pay for coverage previously offered as an employee benefit.

But folks, this is one area where you simply can’t afford to be underinsured if there’s any way at all you can help it. Remember, insurance is all about planning for the worst (which, of course, doesn’t prevent you from also hoping for the best). And if you or anyone in your family were to ever develop a severe illness, you would want to make sure you could afford the best care for them.

So please, if you don’t currently have any coverage, make this your main financial priority as of this moment. If you are a recent college grad who has yet to start work or are unemployed without coverage, you can buy short-term policies that will cover you for up to six months or so. (A great tip for college seniors: If you don’t have coverage or are currently covered by your parents’ insurance, buy a health plan of your own while you are still in school—one that will allow you to continue with the policy after graduation. Student policies are often a great deal, and being able to extend your coverage past your school years gives you plenty of flexibility while you job hunt.)

A key tactic for keeping your premium down is to choose a plan with a high deductible. Stick with me for a sec and you’ll see the wisdom of this. A low deductible, say one of just $500 a year, can actually end up costing you more than one with a $2,000 deductible. That’s because the lower the deductible, the higher the premium. Moreover, when you have a low deductible and make a ton of claims, your insurer might get ornery and jack up your premium when your policy comes up for renewal.

That’s why the smarter thing to do—if you are generally healthy—is to choose a policy with the highest deductible you can afford. Since your deductible is the annual out-of-pocket money you are required to kick in before your insurer covers your health costs, base your choice on what you can afford to pay out from either an emergency cash fund or a low-rate credit card with a line of credit you intend to tap only for emergencies.

If you are totally strapped for money, at least get a policy that provides you with catastrophic coverage. The annual premium can be a lot lower since these policies basically only kick in after you meet a sizeable deductible of $5,000 or more. The idea here is that you are healthy enough so that you don’t expect to need to use the policy for routine health care costs. At the same time, you’ll have the peace of mind of knowing that if you become severely ill you (or your family) will not have to pay monstrous health care bills out-of-pocket.

Disability Insurance

Quick question: Say you have an illness or an accident that prevents you from working—how long can you afford all your living costs before you start sliding into debt?

Scary thought, eh? That’s where disability insurance comes into play. Some employers offer coverage, but please take the time to make sure you have a policy that will actually give you what you need. For starters, you want coverage that replaces at least 70 percent of your income. And it is very important that your coverage is for “owner’s occupation.” This means you will be eligible for payouts if your illness prevents you from returning to your pre-accident job. What you want to avoid is a policy that kicks in only if you are unable to work in any occupation. You also want to make sure your policy is “guaranteed renewable.” This means your insurer can’t cancel the policy on you as long as you keep up with the payments. And finally, ask about the “elimination period.” This is the amount of time that must lapse after your injury or illness before your policy would start to pay you a benefit. Two months is typical.

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