Health Insurance

The second leading cause of bankruptcy is due to medical bills. In the U.S. doctors, hospitals, and drug companies have free reign over what they may charge patients. The government does not negotiate or set limits such as in other countries. There is a large amount of people without insurance due to its skyrocketing costs. The average cost of one night's stay in a NYC hospital is about $1,000.

The four basic designs are:
HMO (Health Maintenance Organization) – In-network benefits only, need referrals from your main doctor to see specialist. One of the lower cost options and the carrier has more control of your care via referrals from your main doctor (primary care physician, gatekeeper).

EPO (Exclusive Provider Organizations) – In-network benefits only, no referrals necessary. One of the lower cost options with more flexibility. Some carriers allows you to see the specialist without a referral from your main doctor.

POS (Point of Service) – In and out of network benefits, need referral from your main doctor while in-network. More flexible and one of the higher cost options. When you do go out of network you face deductibles and coinsurance.

PPO (Preferred Provider Organization) – In and out of network benefits, similar to POS. More flexible and one of the higher cost options. When you do go out of network you face deductibles and coinsurance.

Pros: Cons:
There are many plans and different designs to "suit" someone's budget. Companies usually pay for 75% of the costs as an employee benefit.

Very expensive if not subsidized by the employer. The cost of not having coverage can be in the form of financial distress.


Permanent Life Insurance

Permanent Life Insurance typically lasts until age 100 and sometimes longer, there are many different types to suit your needs, each with different premiums and payoff structures.

The three main permanent ones are:

Whole Life (WL) -builds cash value, guaranteed cash value, consistent premiums, and dependent upon the returns of the company portfolio and expenses, therefore dividends are not guaranteed.

Universal Life (UL) - builds cash value, cost of insurance changes with time, flexible premium, and returns are affected by interest rates.

Variable Universal Life (VUL) - builds cash value, cost of insurance changes with time, flexible premium, returns affected by the investment choices of policy owner.

Pros: Cons:
In the beginning there is very little cash value but as time goes by and given the right conditions the policy's cash value grows and may eventually pay or offset the premiums. Cash values can be used for any purpose and may be accessed in the form of a loan, surrender or partial surrender. It is similar in concept to a home equity loan but without having to qualify. Loan interest will be charged.
Usually it is expensive, the older you are the more unaffordable it may become due to higher insurance costs, greater risk statistically of death, and decreasing health factors, make it harder to qualify.

Temporary Life (Term Insurance)

Has time limit. Usually 5, 10, 15, 20 and 30 year periods. Different types are beginning to be created. Some even have return of premium options. On the return of premium option, if you out live the term, your premiums paid is refunded.

Pros: Cons:
You get a great deal of coverage for a minimal amount. It's good to use when there is a specific need with a known time frame such as a mortgage.

You don't know when you will die. No cash value. All the premiums paid are foregone (unless there is a return of premium option). The longer the time of coverage the higher the cost will be. There is an age limit to purchase. Cost increases with age and health.

Disability Insurance

One out of three people over the age of 30 may become disabled for a period longer than 3 months. The problem with being disabled is that financially it is worse than being dead. Expenses increase drastically, income disappears and then eventually savings. All your money is being spent on basic necessities.

Pros: Cons:
It provides a cushion for you in the event that you become physically unable to do your current duties at work or any duties at any job, depending on the definition of “disabled”. There is a limit of 60% income replacement.

Does not build cash value, if you never become disabled the money you paid for protection is gone. The price increases with age and certain health factors, unless purchased through a group plan.

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