Do you need disability insurance?

In the past, I’ve stated that there are 5 types of insurance that you need.

I have four of the five.

I don’t have long-term disability insurance.

This fact has bothered me for some time. I’m finally beginning the process of determining if I really need long-term disability insurance, as well as, how much and what type to get.

Long-term disability insurance or LTD insurance is insurance that is meant to replace part of your income in the event that you become disabled for an extended period.

Do I need this? Do you need this?

One of my favorite things to do when I have a complex personal finance issue come up in my life is to poll my peers and share their responses.

I asked a few other friends/bloggers these questions (I welcome your answers to these questions as well) and I follow with their answers:

Do You Have Long-Term Disability Insurance?

If so, why do you have it and what type/amount do you have? If not, why and do you plan to get any?

Kyle from Amateur Asset Allocator – No. I don’t have any dependents and as it currently stands, the standard Social Security disability payout would be sufficient to sustain my current lifestyle. If I had any children I would definitely consider purchasing LTD insurance.

Ryan from Cash Money Life – I don’t have LTDI, but my parents do (they are in their mid to late 50s). My wife still has the ability to work and earn enough to cover most of our needs, but depending on how bad the disability would be, who knows if it would be enough?

Jeremy from Gen X Finance – I personally do not have any disability insurance because of the nature of my work, but since we do have children and my wife has a job that could be lost due to a disability, she has both short and long-term disability insurance that is provided through the group plans offered by her employer. If I ever stopped being a writer and had to go back into the regular workforce to provide for my family, then I would almost certainly pick up disability insurance on myself as well.

Jeremy shares his thoughts in more detail at “Is it Smart to Buy Disability Insurance?”

Pinyo from Moolanomy – I don’t have LTD. That said, I did buy optional LTD when I was previously employed with Xerox. At that time, I didn’t even think about my ability to qualify with the side income I was generating.

Mike at Money Smarts Blog – I have LTD & STD from work and I’m in the process of getting an additional LTD plan outside of work because my group (work) plan is insufficient in my opinion. The policy I’m getting does allow you to earn income and will pay the difference. My payout is set at $5000 per month (tax free) so if I earn $2000 from a job or a business, they will still pay $3000. Not all policies are like that. One of the reasons my work insurance is insufficient is: The payment is not indexed to inflation. So for example if I became disabled tomorrow, I would get 85% of my net income tax free, which is fine. But over time inflation will reduce the purchasing power of that money so that by the time I’m in my 60s, the amount could be less than half of what it is now. My new plan does index the payment. If you are permanently disabled, there is a chance the money you get from LTD will likely be your only income, so you have to be able to live and save for retirement as well since LTD payments stop at age 65. Obviously, if you are single/married/dependents etc makes a difference in your planning. You also have to ask yourself will your spouse stick around for the next several decades if you are a basket case? In my case, I’m the only breadwinner, so getting proper LTD is more important to me than someone who has two incomes. It would be bad enough if I couldn’t earn any money, but I would still be eating etc and might need extra care and could end up being a huge burden on my family.

Robb from Boomer and Echo – I have long term disability coverage through my employer (Public Sector – University). The policy states that it will provide 65% of the first $4,500, and 45% of the balance of your pre-disability monthly earnings up to a maximum of $6,000 per month for the length of time that you are totally disabled, or until your 65th birthday. Like Mike’s policy, it’s not indexed to inflation, so I might look for an additional policy to top-up the plan.

Robb also wrote, “Understanding Disability Insurance.”

Rob at Dough Roller – I have LTDI through my employer as part of my compensation (one of the many reasons I don’t blog full-time). It’s very expensive to buy on your own, so I’d probably do without if I were self-employed.

Mike Piper at Oblivious Investor – I have long-term disability through the AICPA’s group plan. The coverage is cheap, but that’s for a reason. (That is, it’s lacking in several desirable provisions.) I shopped around last year and was almost entirely unable to obtain an individual policy due to 1) the incentive a writer has to become “disabled” and 2) not very many years of the level of income I have now. I intend to shop around again every year or so in the hope that #2 having changed will make it possible to get better coverage.

Mike also suggested the Bogleheads Wiki on Disability Insurance.

Jeff from Good Financial Cents – I do have it. I got a really sweet deal offered by my previous broker/dealer that would pay me $4000/mo in the event I was unable to run my practice and would continue to do so from day 91 to [age] 65. Right now it only costs me $1022 per year. Very similar to an online business, there is a lot of gray area on me to continue to receive revenue since I wouldn’t be servicing my clients. Definitely shop around. I did a quote with another carrier and they offered a $3k maximum benefit and was only good for a certain number of years – maybe 5 or so? And the premium was almost 2 1/2 times what I’m paying.

Bonus Question: Disability Insurance for the Self-Employed

I’m a self-employed blogger in a single income household. Since my blog income is somewhat passive and will continue even if I stop writing, do I even need long-term disability insurance?

Would LTDI even cover you in that case? I was under the impression that the inability to earn an income would be required to cash in. But if the income keeps coming anyway, would that really qualify? I have no idea, but I can see an insurance company making that claim. – Kyle

I’m not sure you would even be able to receive a disability claim if you own an online business and receive income from it, even if you aren’t actively participating. I would be interested in seeing the legal opinion on this type of situation, and if it’s true that most insurers wouldn’t pay on this type of claim, it would make perfect sense to stay away from disability insurance in cases like that. – Jeremy

Regarding your bonus question – in my case, I pay most of the blog earnings to my wife so hopefully that wouldn’t count against my LTD payment. Of course, there are no guarantees. I’m not sure if you can say you don’t need LTD because a blog is ‘passive’. Think about what kind of disabilities you could have – you could have severe mental and/or physical problems – you might be in a coma for the next 30 years. Worst case scenario you won’t be able to run the blog and the best course of action would be for your spouse/caretakers to sell it and then you will live off the LTD assuming you have it and still need it. – Mike

Summary of Information

Okay, I know I just threw a lot of information at you there. I’ll try to sum it all up in a few bullets below:

• A good place to start your search for LTD insurance is through your employer or trade association, as it’s considerably more difficult and expensive to get coverage elsewhere. Additionally, if your spouse works and has access to a decent LTD insurance plan, see if you can simply rely on that.
• The devil is in the details. It seems coverage can vary greatly from plan to plan, so make sure you understand what’s in your policy and work with an agent who will explain things to you.
• Some factors that affect your policy: when coverage begins once you’re disabled, how long the benefits last, what percentage of your current income the insurance will replace, whether it contains an “own occupation” rider (meaning, you will get benefits if you can’t perform your current occupation, not “any” occupation).

This gives me some good information to start my search for a good policy. I’m going to speak with an insurance agent today about my bonus question (regarding my business’ continual income) and provide him with some information to gather some quotes. Stay tuned for a part two.

Image by The U.S. Army

Do You Need LT Disability Insurance? is a post from: PT Money: Personal Finance by PT.
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Are you maxing out your tax savings on medicine?

This brought our HSA contributions for 2011 and 2012 up to the maximum limits for each of those years.

The process was pretty painless (good people at that credit union), and I left with a good feeling about how much I’d be saving in taxes.

If you’ll remember, I opened our HSA (health savings account) with a local credit union back in 2010.

I did this since I’d become self-employed and become eligible for an HSA because my high deductible health insurance plan was compatible.

Now, each year before I file my taxes, I make sure my HSAs have been maxed out for the previous tax year. That’s right, you have until April 17th or when you file your taxes (which ever comes first) to make a contribution to you HSA for the previous tax year.

Before I move on to the HSA contribution limits, I think I better explain how they work. A Health Savings Account is a tax-advantaged savings account for health care expenses. From a tax perspective, it act very similar to a Roth IRA, except you get to use the money in the account now (vs in retirement) for qualifying health care expenses.

The money you place into the HSA can be deducted from your income (line 25 of your Form 1040). The money can also be invested, and any growth you experience will not be taxed. You can see why this is a popular savings tool.

HSA Contribution Limits

For tax year 2011, the annual HSA contributions limit remained the same as they were the previous year: $3,050 for individuals and $6,150 for families that own an HSA. If more than one person is on your health insurance plan, then it’s a family plan.

For 2012, the HSA contribution limits were raised to $3,100 for individuals and $6,250 for families. Don’t forget, in each year there is a “catch-up” limit. Therefore if you happen to be 55 or older you can contribute an additional $1000 to your HSA. Lucky you.

What if I wasn’t on the HSA eligible plan all year? If, for example, you became self-employed in June of last year and enrolled in an HSA eligible plan in July, then you will have six months’ worth of contributions to make. Therefore, your limit will be cut in half. The limit is essentially prorated. See IRS Pub 969 for more.

What if my employer manages my plan? If you are HSA eligible, but your employer manages everything, check with human resources to see how much was contributed on your behalf last year. You can make additional contributions directly to bring your contributions up to the maximums.

Lastly, remember that contributions to an HSA, unlike those contributed to a Flexible Spending Account, can be rolled over to subsequent years. There is no use-it-or-lose-it rule.

Have you contributed to your HSA for last year yet? How quickly do you make this year’s contribution?

Image by klynslis

This post was featured in the latest edition of the Cavalcade of Risk at RiskManagementMonitor.com.

HSA Contribution Limits 2011 and 2012 is a post from: PT Money: Personal Finance by PT.
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The Costa Concordia

We’ve all been glued to the news as the heartbreaking and bizarre story continues to unfold.

Vacationing via cruise ship has always seemed to be one of the safest modes of travel, but it’s clear from the news of the Costa Concordia that a catastrophe can strike anytime and anywhere.

The Christian Science Monitor reports that Carnival Cruise lines has announced that the passengers of the Costa Concordia will be provided with refunds, lodging, transportation home, and replacement value of possessions lost on board.

Not every company can necessarily afford to be so generous, however. If you are traveling sometime this year, you might want to consider how to protect yourself financially in case of vacation disaster:

1. Travel insurance through your credit card. If you purchase your travel using a credit card, you will often be offered some sort of travel insurance as a perk of using the card. Credit cards offer insurance on anything from rental car collision to trip cancellation to fatal travel accidents to lost luggage.

However, the insurance offered by credit cards should be considered a secondary form of travel insurance, since there are many rules, exclusions, and coverage holes in the average credit card travel insurance package. And the most common need for travel insurance—covering a cancellation due to illness or family emergency—is only covered by 15% of credit cards.

In addition, credit cards generally do not offer medical or evacuation coverage. For those traveling abroad or on a cruise, this is an important exclusion to note. If you were to fall ill or be injured outside of the United States, you could potentially be on the hook for your medical care and emergency flight back home.

If the passengers of the Costa Concordia were not being reimbursed by the company and only had their credit card travel insurance to rely on, they could be facing some hefty bills between them and getting home.

2. Cancellation insurance. This offers you a refund for the price of the trip should you be unable to take it. Generally, cancellation insurance costs 5%-7% of the price of the trip. For travelers taking a structured vacation—like a cruise or a tour—the company will often offer a cancellation waiver for about $40-$60.

The waiver is similar to cancellation insurance, but it has a number of restrictions, including a prohibition on canceling your trip at the last minute. Unfortunately, that is when most vacations need to be cancelled.

The news of the Costa Concordia has understandably made travelers with 2012 cruise plans skittish about their vacation. If you have not purchased cancellation insurance or a cancellation waiver, it is still possible to back out of your cruise, although it may cost you.

The typical time frame for canceling a cruise for a full refund is more than 75 days before the ship sails. After that point, you could lose up to 75% of your purchase price—or the entire purchase price if you cancel within two weeks of the sail date.

Adding 5%-7% to the price of your trip could help you rest easy that your vacation won’t be an expensive empty room on a cruise ship.

3. Personal effects coverage. This is one type of travel insurance that most vacationers probably don’t need. Often, your renter’s or homeowner’s insurance will cover the loss of your possessions, no matter where those possessions happen to be in the world.

However, if you’re traveling with a great deal of expensive photography equipment, sports gear, or your heirloom jewelry, it might be worth your while to purchase an endorsement to your existing homeowner’s policy to cover those items while you are traveling.

The endorsement will cost you less than a travel-specific personal effects insurance policy, and it will protect your valuables just as well.

4. Travel medical insurance. In many cases, your medical insurance will cover some or even all of any medical emergency you have while away from home. However, each policy is different, and it’s a good idea to go over your policy and figure out what is and is not covered.

For instance, you may be covered for an extended stay in a foreign hospital, but you might have to pay upfront and be reimbursed.

It’s generally a good idea to purchase travel medical insurance any time you are traveling abroad or are planning an active vacation.

The Bottom Line

The Costa Concordia tragedy has made it clear that thinking “It won’t happen to me!” can be risky. Before your next vacation, spend a little time thinking through your insurance options. The peace of mind is worth the money.

Image by Aah-Yeah

This post was featured in the sesquicentennial edition of the cavalcade of risk.

The Costa Concordia Tragedy and the Need for Travel Insurance is a post from: PT Money: Personal Finance by PT.
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In light of past health care discussions on my blog and the fact that it’s soon to be benefit re-enrollment period at your work, I thought I’d address a couple of tax-advantaged medical savings accounts: the Health Savings Account and the Flexible Spending Account.

I used a Flexible Spending Account for some time when I was employed and had a nice group health insurance plan. Over the past couple of years, since becoming self-employed, I’ve learned a great deal about Health Savings Accounts. Let’s look at what they are and how they can help you.

Health Savings Account (HSA)

The Health Savings Account is like an IRA. You get to fund it with pre-tax dollars and it’s typically administered by a financial institution. But unlike an IRA, you get to use the funds when you need them (not just in retirement) towards qualifying medical costs.

You also get to decide where the funds are invested. You get a lot of control with this account. Tax savings and growth.

Only certain people qualify. You must be enrolled in an HSA-eligible high-deductible health insurance plan.

Your annual contributions are limited. Check out this chart or visit my post on HSA contribution limits for more information.

Flexible Spending Account (FSA)

The Flexible Spending Account is a pre-tax dollars savings account your company administers where you’re allowed to save up a year’s worth of health care costs. Most people use it to pay for deductibles, co-pays, and household health care items. It works like this:

At the beginning of the year (or during your benefit open enrollment) you must elect to open the account and save a specific dollar amount.

This account is funded automatically from your earnings at work. Your company will deduct the funds before taxes are calculated (pre-tax).

Throughout the year you’re allowed to spend the dollars you’ve accumulated in the account. The spending must be for qualifying health care costs.

Important: it’s a use-it-or-lose-it type plan. You must spend all the funds in the account or you lose them. Thus, people are normally very conservative with the amount they elect to fund the account.

The effect of using the account is big tax savings. If you normally spend $1,000 on “above coverage” health care costs in a year, you could save around $250 a year by using one of these accounts.

Things you might not have known were qualifying health care expenses (every plan is different, but these oddities are likely qualifying): Hand sanitizer, cold remedies (and other over the counter meds), sunscreen (like Coppertone®), and band aids.

What We Use: FSA vs HSA

Like I said above, we used to use an FSA, which we heavily funded each year for things like baby medical costs and prescription drugs. But we no longer qualify for an FSA because I’m now self-employed, Mrs PT is a stay at home Mom, and we can’t get on a low-deductible group health insurance plan. So now we have an HSA through a local credit union.

Do you use these accounts? How have they worked out for you?

Save Money on Health Care: Health Savings Account vs Flexible Spending Account is a post from: PT Money: Personal Finance by PT.
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What's the catch?

According to the distinguished, gravel-voiced man who assures you that you’re in good hands, and the perky lady who wants you to compare prices with her company, being a good driver means that you can save a lot of money on your car insurance bill.

See: 20 Tips for Affordable Auto Insurance

I tend to be somewhat skeptical about any advertised “bargains,” so I’ve often wondered what the fine print would be on a safe driver discount.

Luckily, I know a friendly neighborhood insurance agent who was able to answer several of my questions. Here are some of the safe driver “catches” that the commercials don’t tell you about:

All Insured Need to be a Safe Driver

Many companies will require that every single driver on the policy have a clean record in order for the safe driver discount to apply. Though this changes from insurer to insurer, it’s possible that your teen driver or your live-in mother-in-law might keep you from being able to take advantage of the discount.

Some companies will provide a discount on an individual basis within a family policy, but it depends on the insurer and the policy. Even with individual discounts, you can see a lot less savings than you might anticipate since it’s only affecting one driver in the policy.

Only Premium Policies Eligible

Some companies will only offer the safe driver discount to those individuals who sign up for the highest level of coverage. If you’ve paid off your car note, you may not need full coverage auto insurance.

So for several companies, be aware that you have to pay for the top of the line coverage in order to be eligible for a discount. That might mean you’re breaking even.

The 3 Year Rule

Most drivers know that insurers are looking for a minimum of three years of good driving history, but what does that exactly mean? It’s not enough to have accumulated no points on your license—most insurers are only interested in traffic violations and at-fault accidents.

Also, three years of good driving history is not a hard and fast rule. Some companies will go back as far as five years. What if you’ve been a good driver for a long time, but you’re changing insurance companies?

Many insurers will make you wait a year before offering you the safe driver discount, as they’d like to have some history with you prior to handing you discounts.

Line Item Discount Only

Though your insurer might tell you that you get some percentage off for good driving, it might not be as simple as that. The percentage is not necessarily taken off the entire premium—instead it will be deducted from one line of coverage, such as your liability premium.

There is no industry-wide standard for safe driver discounts, so each of these articles of fine print may or may not be true with your insurance company.

The bottom line is that it is important to know that signing up for a safe driver discount does not necessarily mean a huge difference in your bill. Be sure to review your auto insurance policy periodically to ensure you are getting the best discount.

Brag a little. What kind of discount are you getting for being a safe driver?

Photo by Scott McLeod

Safe Driver Discount: What’s the Catch? is a post from: PT Money: Personal Finance by PT.
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Austin, who occasionally writes here at PT Money, is in his 2nd year of teaching English in western Japan. With the Japan Tsunami fresh on his mind, he generously offered to write a couple of pieces on preparing for major disasters. You can check out his personal finance site for 20-somethings at Foreigner’s Finances.

This is part 2 of a short series about insurance for your living area. Part 1 covered renter’s insurance for condos and apartments.

Do you know the different types of homeowners insurance policies?

The idea of home-owning has been romanticized because it’s good for the country if many people own homes. But if you talk to someone going through the process of buying a house, they’ll tell you it’s not so fun because of the huge amount of decisions you have to make (e.g. how much house you can afford).

One of these decisions is also the type of homeowners insurance you want for your new home.

When you purchase a home and have a mortgage, the mortgage lender will require a certain amount of insurance to be purchased. You have some choices when it comes to the extent of coverage you want to buy.

The Different Types of Homeowners Insurance Policies

Like I said in the insurance for renter’s post last month, insurance is not an area of your life where you want to try to save a few bucks by cutting some corners. With that said, here’s some of the most popular homeowners insurance packages available to you.

HO-1 Basic Form Homeowner Policy: This package has limited capabilities and only covers a short list of perils (serious or immediate damages) like fire, vandalism, explosion, smoke, and personal liability. Most notably missing from this coverage is flood and earthquake coverage.

HO-2 Broad Form Homeowner Policy: This package includes 16 perils including all from HO-1 as well as perils like broken pipes and hot water heaters.

HO-3 Special Form Homeowner Policy: This is the most popular type of coverage for home owners. This is the insurance you want to get for your home if your considering purchasing a home soon. Still, events like earthquakes and floods are usually excluded from HO-3 so you’ll have to contact your insurance provider for special insurance for these perils if you happen to live in an endangered area.

HO-5 Premier Homeowner Policy: This is the most comprehensive coverage and if you are a very cautious person is the type of homeowners insurance for you. This coverage lists the perils not covered by HO-5 and anything not listed is insured.

HO-8 Older Homes: This coverage is pretty basic and for homes that are much older. Perils covered by the HO-8 are fire, smoke, vandalism, theft, as well as some others.

When you talk with a company or agent about the type of homeowners insurance you will need, be sure to discuss all of the details. Don’t rush the process for any reason. Make sure you understand exactly what insurance you’re getting, what’s covered, what’s NOT covered, and exact pricing.

The right homeowners insurance can save you hundreds of thousands of dollars someday.

What type of policy do you have?

Photo by N1NJ4

5 Types of Homeowners Insurance Policies is a post from: PT Money: Personal Finance by PT.
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Austin, who occasionally writes here at PT Money, is in his 2nd year of teaching English in western Japan. With the Japan Tsunami fresh on his mind, he generously offered to write a couple of pieces on preparing for major disasters. You can check out his personal finance site for 20-somethings at Foreigner’s Finances.

One of my best friends lives in Birmingham, Alabama and was luckily 5-10 miles away from a destructive tornado this week that took out houses in seconds.

Some of his friends weren’t so lucky as he told me via email:

“All my friends from Tuscaloosa survived, but lost everything.”

The place you call home is your rock and the most valuable and expensive tangible item you will ever put money in to.

As valuable as a home can be, we sometimes don’t treat it that way and tend to look the other way when someone brings up the idea of theft insurance, lightning insurance, or any other insurance that will protect your home – and your wallet – against an unexpected personal disaster.

Last week we looked at how to protect your wallet in case a disaster hits. Insurance is a broad topic, so today let’s take a look at a few things you the tenant can do to protect your rented apartment or condo in case disaster or damage strikes.

Don’t Risk It – Get the Insurance

Often people who rent try to save a bit every month by forgoing renter’s insurance. Although your building is insured by the landlord, the items in your apartment are not insured. Meaning your 42 inch TV, your new sofa, your laptop and any other valuables are not covered by any insurance.

What you’ll need to purchase as a renter is HO-4 coverage or HO-6 coverage if you live in a condominium. You can purchase these coverages from any insurance company and it will protect your valuables in case of 17 different perils. Some of the big ones, according to InsuranceGuide101.com, are:

• Fire or lightning
• Windstorm or hail
• Vandalism and theft
• Electrical surge damage
• Water related damage from home utilities

Contact any insurance agency today and they’ll walk you through the steps to purchase renters insurance – like listing the value of your items and deciding on a deductible price. If you’re wondering how much is renter’s insurance per month. Know that monthly coverage will run anywhere from $10-50 a month depending on the extent of your policy and situation.

Click here to get a free renter’s insurance quote from insureme.com.

The bottom line: don’t try to save money by forgoing renter’s insurance and risking it. Cut back in a variety of spending areas or try to pick up some side work to make money because the cost of insurance is worth it; regardless if you ever use it.

Insurance For Your Situation: Earthquakes, Tornadoes, Floods

You may have noticed that in the 17 perils covered by the HO-4 renter’s insurance, none of the large scale natural disasters are covered. You’ll have to go a step further to protect your living area from these types of disasters.

Insurance for earthquakes, tornadoes, or floods is a type of property insurance. There is no all-reaching disaster coverage so you’ll have to figure out what disasters have the probability of affecting your area. See the probability of a tornado in your State.

Contact your insurance provider today and ask them to walk you through the steps for purchasing this type of coverage.

Once again, you may say “The chances of something happening to my apartment aren’t very high. I’ll pass on this one.” However, right now there are thousands of people who have lost all of their possessions in Alabama. They are going back to shattered houses to see if they can pick up anything after the disaster.

This is not an area of your life to skimp on. Get the insurance and sleep easy knowing your valuables are protected.

Keep Your Insurance Updated

A lot can change over the course of the year. Keep your list of insured items updated and fresh by going over your personal inventory every 6-12 months. If you’ve purchased a new $3,000 refrigerator but the insurance company doesn’t know about it, that item won’t be replaced after a fire or theft.

Tech tip: Create an event in your Google Calendar every 6, 9, or 12 months that simply states: “Check Insurance Inventory.” You can even create an email reminder and you’ll get an email on the day reminding you of your event.

When this happens, all you have to do is look around your apartment or condo and see if anything of large value has been purchased. If so, contact your insurance agency and inform them of the item so they can update your policy.

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Remember that your insurance company works for you. Ask them for their opinion on different coverages and don’t be afraid to shop around for better rates. Never let an agent bully you in to coverage that you don’t want, but use their knowledge to better your situation. There are thousands of types of insurances for tenants who rent so just ask.

It’s not fun to add another bill to your monthly expenses, but it’s even less fun to live day to day knowing your entire life can be desecrated by one freak accident. Buy the extra insurance and forget about it. You’ll never regret the decision to go the extra mile to protect you and your family.

Photo by LakeMartinVoice

Why Your Apartment or Condo Needs Renter’s Insurance is a post from: PT Money: Personal Finance by PT.
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Confused about your health care coverage?

In our mailbox were another two envelopes from our health insurance company, each one with a check for a seemingly random amount reimbursing us for medical coverage—although we couldn’t tell you exactly what visit the check was for.

Ever since my husband started his new job and we officially changed health insurers, we’ve had inexplicable “Explanation of Benefit” mailings, checks, and dizzying formulas for determining what is and is not covered.

I will admit to burying my head in the sand and just paying whatever was asked right after our son was born. At that point I was too sleep deprived to try to understand the labyrinthine logic of the health care industry. Plus, I was comforted in the fact that I had group vs individual health insurance.

But I recently decided that I needed to actually familiarize myself with what it is that our insurance covers and why we keep getting checks. Below is the cheat sheet for your health insurance terms.

Once you understand these, you’ll be in a better position to know your benefits and dispute problems—and keep your budget healthy!

1. Deductible

Anyone who has ever carried car insurance knows that the deductible is the minimum amount that you must pay before you can get any benefits from the insurance company. The deductible is generally a yearly amount, so it resets every year.

The deductible can get to be hairy if you have several family members on the plan, as we do. We each have an individual deductible of $300, and then there is a cumulative deductible of $900. So if any one of us incurs $900 or more in medical expenses, the benefits kick in for all three of us for the rest of the year.

Just to make things more complicated, we have a non-comprehensive deductible, meaning not all procedures will apply toward the deductible. For many policies, a regular checkup will not apply to the deductible, but a visit to the ER or a surgery would.

Self-employed? Consider a high-deductible plan to make your premiums more affordable.

2. Co-Insurance

This is the part that so confused me about the hospital stay for the birth of my son. I knew that we had met the deductible prior to my son’s birth, so I was confused as to why we still owed the hospital money.

That was because we had co-insurance, meaning that our policy will pay for 80% of a procedure or visit, while we are responsible for the remaining 20%. We had gone into the hospital thinking that we were completely covered, and came out with a somewhat hefty bill.

Luckily, most doctors and hospitals know that co-insurance can take anyone by surprise and will happily set up an interest-free payment plan for the remainder of the bill.

Make sure you avail yourself of this service, because it really will help you to keep medical bills from eating up the rest of your budget.

3. Co-Payments

This is the fixed amount that you will pay at the time of service or when filling a prescription. The one benefit to our new insurance plan is that it has no co-payments, so each doctor visit is simply a quick trip without having to take out the checkbook.

However, at least in our case, by trading out co-payments, we got a much more confusing policy.

4. Annual Out-of-Pocket

Most insurance policies set an annual cap at how much you will pay yourself, including deductibles, co-insurance and co-payments. This will be a boon if you are ever plagued with a bad year, health-wise.

5. Lifetime Maximum

Your insurance company has decided ahead of time how much it can pay for the health of an individual or a family. This lifetime maximum is an important figure to know, because if it is too low it could leave you with a very high bill at a time of great family stress, and it will leave you scrambling to find another insurer for the other members of the family.

Do make sure you know the difference between the individual and family lifetime maximum, as the numbers will often be different.

It’s important to understand your health insurance policy so that you will not be surprised by bills (or checks!) after you have had medical care.

It’s also important to make sure you’re getting the best care for your money, and you can only do that if you understand what options are available to you, both within your insurance policy, and among other possible policies you may buy into.

No one wants to think about health insurance, but both your family’s health and finances are depending on it.

Photo by Brian Lane Winfield Moore

Understanding Your Health Care Coverage is a post from: PT Money: Personal Finance by PT.
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Austin, who occasionally writes here at PT Money, is in his 2nd year of teaching English in western Japan. With the Japan Tsunami fresh on his mind, he generously offered to write a couple of pieces on preparing for major disasters. You can check out his personal finance site for 20-somethings at Foreigner’s Finances.

I teach English in western Japan and was here last month to witness first-hand the carnage that the Tōhoku earthquake and tsunami had on the northeastern coast of Japan.

By now many people have seen the devastating footage of the tsunami reaching mainland with whole houses being ripped from the ground and cars being thrown around like matchboxes. These goods, which people had saved up for for years, were destroyed in minutes.

A man sifts through debris left in the wake of the Tsunami.

The monetary aftermath of this disaster will be a challenge for Japan for decades to come.

If you pay attention to your finances you know that a disaster like the one in Japan can and will wipe away your finances. All of the saving and investing you’ve done can be deleted in minutes if you don’t prepare for it.

So how does one go about preparing your finances in case a catastrophe were to strike? What are the steps you can put in place this week that would make a huge, unexpected financial hit less painful on you and your family?

Have an Ever-Growing Emergency Fund

Here’s PT’s post about emergency funds in case your new to the idea. To help insure yourself or your family, start one today using a sub-savings account with an online savings account like ING or Ally.

Once you open this account, create an automatic monthly transfer of $25-200 to the account from your regular savings so it continues to grow every 2 weeks, month, or 2 months.

This is money that will only be touched in worst situations where all of your other money has been wiped out and you have no other options. Don’t be content with $500 or $1,000 in this account. Make it grow every month because it’ll insure your financial safety that much more in case a disaster affects your family in the future.

Remember: it’s always a good problem if you have too much in your emergency fund.

A town in northern Miyagi that sat in a natural valley which channeled the tsunami. Very few buildings remained.

Insure Your Big-Ticket Items

Your house and car should already be insured, but consider extra insurance for prized possessions in case of natural disasters, fire, theft, etc. Maybe you have a $14,000 wedding ring or a rare painting from France that’s worth $10,000.

Can you insure these items for a little bit every month in case of emergency?

By spending a little to insure these high importance items you’ll allow yourself to sleep easily knowing these items can be, at least, monetarily replaced in a time of need.

Contact your insurance agent today to see about rates for your most valuable high-ticket items. Also, here’s a NY Times about the best ways to insure your valuables which can be helpful if you’re going to do this yourself.

Have 2-3 Credit Cards with Large Credit Limits

It’s been a month since the Japanese tsunami and people are still holed up in shelters. In times of need, having quick access to money is important and something that can provide another level of security is a credit card.

Not having to worry about the amount of cash you have in a time of need is one benefit for those who are credit card weary. Need water, clothes, food, or a hotel for your family? Just put it on the credit card, make sure everyone is safe, and worry about the payment later.

A soldier with 35th CSSB hands out a purse to a teacher at a school in Ishinomaki.

Credit cards allow some financial breathing room in a time of need. Not only that, but when used correctly they can improve your credit and save you tens of thousands of dollars on big purchases in your life.

So get 1-3 cards and put them in your wallet. Every 6-12 months, call the credit card companies and have your credit line increased to insure yourself just a little more. In a time of tragedy, you need to be worrying about the people you love and credit cards allow you the room to breathe when you need it most.

Keep Money in an ATM Accessible Checking Account

If a disaster hits you probably won’t be able to get to a computer to transfer money to a checking account. If you keep a couple hundred dollars in a checking account at all times, you’ll be able to access that cash as long as you can get to an ATM. Without that luxury, you might be out of luck in a time where you need money more than ever.

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Just like creating a will, these steps are often put off because people don’t like to think of their immortality or very negative situations. That’s not a good reason to put off creating a healthy emergency fund or getting a credit card. If done correctly, these steps could save you more money than a million frugality tips if a disaster were to affect your life.

Take an afternoon and make sure you have these steps covered in your financial life. It’ll never be the perfect time to do it, but your life is to important to leave up to chance.

I’ll be back next week to share some tips for making sure your house is disaster-proof.

Editor’s note: All the photos above were taken by Mark Stroud, a Combat Correspondent in the United States Marine Corps. His complete photostream can be found on Flickr.com at stroud4341. Thanks, Mark!

How to Prepare Your Wallet for a Disaster is a post from: PT Money: Personal Finance by PT.
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Every day, many people go from an individual health insurance plan to a group plan. That’s a good direction to be going, right? Most people worry (with good reason) about the opposite move: group to individual.

I did this once, back when I quit my corporate job, and I can tell you that it’s not much to worry about. See my post from last year on buying health insurance when self-employed.

With some jobs returning to the economy though, going from individual to group is likely a more popular move than ever.

In most cases, this move (individual to group) will mean better coverage and a portion of the costs to be absorbed by the employer. Praise the Lord, right?! But there are some other things to consider.

You should stay insured with your individual plan until you are certain you are on your new group plan (duh!). You don’t want to have a lapse of coverage and give your employer a reason to make you wait 12 months before they cover you, in case of any pre-existing conditions. Just be sure you haven’t ended your individual plan too soon.

Also, make sure that your new employer will allow you to include your spouse and dependents on the plan. Finally, don’t expect the two insurance plans to communicate, even if they are the same company. Group and individual are usually two completely different businesses, even within the same company.

I recently moved back to group health insurance and between the two separate Blue Cross Blue Shield plans, no one had a clue I had moved within the BCBS family. Odd, I thought.

Because they don’t necessarily communicate, even within the same company, make sure you call each plan and first understand your coverage. Then understand your stop/start dates so you’ll be exactly sure of when your coverage ends and begins. Finally, you should understand your payment options with each so that you can be prepared to make payment.

What has been your experience with going from individual to group?

Going from Individual to Group Health Insurance is a post from: PT Money: Personal Finance by PT.
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