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Protecting your health and income as an employee or entrepreneur PERSONAL FINANCE

Jennifer recently asked, "How can I prepare our family for the high cost of health insurance if my husband leaves his job at the end of the year to become an independent full-time entrepreneur?"

And Megan left a voicemail saying, "My jobs are all pretty physical and I'm worried that I'm not insured enough to cover my daily expenses if I get hurt." I have heard that you are talking about disability insurance and would like more information on how to get it. What is the best way to buy and take out disability insurance? "

Thanks for those crucial questions, Jordan and Megan! If you or your family's breadwinner lose your job or your business income, or become sick suddenly, what would you do? For many people who have no financial protection, these scenarios are the worst nightmares.

Statistics on whether you become ill during your career or suffer serious injuries are quite sobering. According to the Council for Disability AwarenessMore than one in four 20-year-olds can assume that he will be unemployed for at least one year before he reaches normal retirement age due to disability.

According to the Council for Disability Awareness, more than one in four of today's 20-year-olds expects to be unemployed for at least a year for disability before reaching normal retirement age.

And if a disability occurs, the average working time is almost two years. However, most people do not have a backup plan on how they would pay their daily bills, eg. B. for housing, supply and food. Many Americans do not even have health insurance to pay for part of their medical bills.

Although you may think that protecting your health and income is a luxury, this is not the case. These security measures should be pillars of your financial plan. Let's take a look at three financial safeguards that are surprisingly affordable for both employees and entrepreneurs.

1. savings

If you follow the Money Girl blog or podcast, you've heard that I'm talking about building a cash reserve called an emergency fund. Savings are one of the best ways to protect yourself against unexpected expenses or a sudden drop in revenue.

The trick is to save hard when times are good. If you get a salary increase at work or have a profitable year in your business, it can be terribly tempting to spend the surplus. However, before you buy a luxury item or book a vacation, make sure you have enough money in the bank. I know that saving is not so much fun. The best way to ensure that you are ready when disaster strikes is to prepare for it today.

Before buying a luxury item or booking a holiday, make sure you have enough money in the bank.

Imagine your emergency savings as a special bucket of money that should be kept absolutely safe on a savings account insured by the FDIC. You can open an account in the same location as your current account or use another institution. Consider a high yielding savings that pays more interest than a typical account.

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

Do not make the mistake of investing your emergency money. The purpose of saving money is not to make money or keep up with inflation, but to save you from financial difficulties. If you have invested it, the value could drop significantly as you desperately need it.

Build your savings on at least three months of living expenses. For example, if you spend $ 3,000 a month on rent, utilities, food, transportation, debts, and other expenses that you can not afford to lose, you want to have at least $ 9,000 in your cash reserve. But depending on your family and work situation, you may prefer more or less.

If you have not started saving for an emergency fund, do not fret about it, just get started. Make your goal to collect $ 100, then $ 500 and $ 1,000 as soon as possible. Yes, this might require you to make some sacrifices to reduce spending or find a way to make more money.

If you have not started saving for an emergency fund, do not fret about it, just get started.

A tip that helps me to transfer my savings goals to the autopilot. This will keep you on track and will never tempt you to spend the money. It may take a while to finish your expenses, but eventually you will not even miss the money.

Once you set up a safety net, you have an amazing sense of security and peace of mind, and regardless of what happens to your health or your income, you have options.

2. Health insurance

Although emergency savings are crucial, in the event of serious injury or illness, it would probably not be enough to pay for ongoing medical care. Even a quick trip to the emergency room can bring you thousands of dollars. That's why there is a health insurance.

From 2019, the "Shared Responsibility Payment", the fee for the waiver of health insurance, will cease to apply. Technically, it is still illegal to be uninsured, but the federal government will not punish you for it. However, some states have their own insurance mandate, which requires you to have a qualified health plan or pay a fee with your state taxes.

If your employer offers group insurance, this is usually the cheapest option. But what if you are like Jennifer's husband who is about to start a business?

COBRA sequence coverage

Jennifer, there is no denying that individual health insurance is more expensive than a group plan. In order to manage the health benefits of terminating an employment relationship, I describe your rights and opportunities to make the most of the health benefits of an old employment relationship. One of them uses the COBRA continuation coverage.

COBRA is a law that allows you to continue your employer-sponsored health insurance after you are no longer employed. Instead of having your plan canceled in the month you quit, you can use COBRA to continue to get exactly the benefits and options you had before leaving your company.

In most cases you can use COBRA to maintain your group insurance for up to 18 months.

COBRA protects all those affected, including the former employee, his or her spouse, former spouse and dependent children, from loss of group insurance if certain events occur.

In most cases you can use COBRA to maintain your group insurance for up to 18 months. This also applies to all dental and sight insurance policies that you have taken out through an employer.

As I mentioned earlier, it must be the same as the insurance cover you received before you left your company. You or your family are entitled to the same coverage, co-payments and deductibles.

After leaving an employer, you should receive information about your rights to apply for COBRA. You must notify your Human Resources Department within 30 days of a qualifying event (such as a notice of termination or shortened working hours) that you wish to vote for the COBRA Continuation.

I recommend shopping and comparing the cost of COBRA with a private policy. As a rule, your COBRA costs are higher than those you previously paid as employees because your employer does not grant subsidies.

Depending on your household income and the number of people in your family, you may be eligible for assistance that reduces your monthly premiums on a private policy.

Depending on your household income and the number of people in your family, you may be eligible for assistance that reduces your monthly premiums on a private policy. As a result, the cost of a marketplace plan could be significantly lower than COBRA.

However, if you have a high income and you do not qualify for reduced premiums, COBRA can cost you roughly the same or even better you for the price. There are several ways you can purchase the insurance cover:

  • Healthcare.gov, the health market of the federal government
  • Insurance Aggregator Websites, such as: Bankrate.com and eHealth.com
  • About an insurance broker
  • Online health care market of your state

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

The best way to protect yourself and your family depends on what you can afford, whether you need frequent visits to a specialist, and whether your preferred doctors are covered. Below are some types of health insurance that may be available and the benefits they offer.

HMO Plan (Health Maintenance Organization)

An HMO is a network of doctors, service providers and hospitals from which you can select for health care. You choose a family doctor (PCP), who must refer you to a specialist if necessary, eg. A dermatologist or an allergist.

If you are being treated outside an HMO network, this may not be covered. However, there are exceptions, such as transfer to a hospital outside the network in an emergency.

With an HMO, you pay monthly premiums, and benefits start as soon as you meet an annual deductible. They are responsible for co-insurance, which accounts for a percentage of health care costs. They also have set fees for doctor visits and prescription drugs.

Since an HMO gives you less freedom of choice than other plans, they usually cost less. This is a good option if you want to maintain low healthcare costs and are in relatively good health.

PPO plan (Preferred Provider Organization)

A PPO is similar to an HMO in that you select health care providers from a recommended network. However, you are allowed to be cared for outside of your network, and you do not have to select a family doctor or have yourself referred for a specialist visit.

While a PPO gives you more freedom to seek the care you want, it's usually a more expensive plan than other options. When you leave a PPO network, you typically get less network coverage and therefore have higher cost of ownership. Like an HMO, you also pay monthly premiums, a deductible, copays and co-insurance.

A PPO is a good option if you can afford higher premiums and healthcare costs. However, it gives you the greatest flexibility when traveling frequently or looking for doctors outside the network.

Catastrophic health plan

A disaster plan should only be beneficial if you suffer from a major medical event, such as: In a car accident, a heart attack or cancer. It protects your finances when you are diagnosed with a serious illness or need emergency treatment.

A disaster plan should only be beneficial if you suffer from a major medical event, such as: In a car accident, a heart attack or cancer.

These plans are limited in coverage, have a high deductible and are usually only offered to people under the age of 30. Policyholders may need to use network providers and may not cover prescription drugs.

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

HDHP (high deductible health plan)

An HDHP can be any health plan, e.g. An HMO or PPO, however, has an above-average deductible and lower monthly premiums. In addition, many HDHP insureds authorize the use of an HSA or health care account.

With an HSA, you can make pre-tax contributions up to an annual limit that you can spend on a variety of qualifying healthcare services, including medical, dental, hearing and visual expenses. It gives you several tax benefits:

  • Contributions are never taxed
  • Interest or capital gains are never taxed
  • Withdrawals to pay for qualified medical expenses are never taxed
  • The balances change from year to year without the need for an issuing period

If you are under 65 years of age and spend HSA money on non-qualified expenses, you will be liable to income tax plus an additional 20% penalty for withdrawals. However, withdrawals after the age of 65 can be used for non-medical expenses without penalty (but income taxes will apply).

A HDHP may be a good option if you want lower premiums, are in relatively good health, and are likely to benefit from HSA.

If you have a chronic illness or are taking expensive prescription drugs, you need a more comprehensive plan, such as: B. a PPO. However, if you have a limited budget and are relatively healthy, you can opt for an HMO or HDHP.

However, it is important to know that you have to pay a deductible, co-payments and co-insurance from your own pocket even when taking out a health insurance. A health plan rarely covers 100% of your medical expenses. It's a safety net that helps you limit your potential total debt.

For 2020, a highly deductible health insurance plan may require you to pay a maximum of $ 6,900 as a single person or $ 13,800 as a family per calendar year. These annual limits do not even apply to benefits you may receive outside of your plan's network of physicians.

If you have savings on the bank or on a tax-privileged health care (HSA) account, you will pay the medical bills until you meet your annual deductible or your insurance company no longer covers it.

3. Disability insurance

If you have savings and health insurance, there is still a significant risk: you can not earn income while recovering from an accident or illness. The health insurance pays only part of your medical bills, not your daily living expenses.

Megan is very wise to consider that she is vulnerable if she gets hurt. The reality, however, is that you do not need a "physical" workplace to be at risk. Anyone can be injured in a car accident or sick with a serious illness that makes you incapable of work. Yes, there is also an insurance for that!

The health insurance pays only part of your medical bills, not your daily living expenses.

You may be able to enroll in a short or long term Occupational Disability Policy. It is usually cheaper than a private policy and requires less insurance coverage, eg. Eg no physical examination. Depending on your income and your family situation, however, insurance coverage may not be sufficient.

Regardless of whether you are underinsured or self-employed at work, you can take out disability insurance yourself. The costs depend on various factors, e.g. For example, the amount of the replacement income (eg 50% or 70%), the waiting period until the beginning of the benefits, your age and your state of health. However, if you are still relatively young and in good health, a good disability insurance can cost $ 25 to $ 50 per month.

There are several ways you can purchase disability cover:

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

If you think you do not need private disability insurance because the government offers Social Security Disability Insurance (SSDI), make sure you understand that. Yes, it is correct that you can obtain SSDI until retirement age and then switch to social security pensions if you qualify for SSDI.

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

  • You can not work because you have an illness that is likely to last for at least a year or to death
  • No partial or short-term disability
  • Meet the definition of SSA for disability

For a list of disability benefits, see List of impairments by adults Page at SSA.gov.

Which types of health and disability insurance are most suitable for you depends on your finances, your health needs and your family situation. Compare several options and always talk to a certified insurance professional if you need help.

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