5 insurance must-haves

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The insurance landscape is shifting. The days of relying on policies to cover small-ticket items like parking lot fender dings or water damage to attic relics are over. Gone too, for the most part, is the era when patients could expect full medical coverage through insurance. Except for those in a group health insurance plan, claim filers often receive jumps in premiums or notifications of dropped coverage.

If insurance has changed into a tool you hesitate to use, why should you bother? Three reasons: you, your family and everything you own. It’s a means to protect yourself against catastrophic damage to your finances. Most people will need all of these five insurance policies at some time in their lives.

Do you need health insurance?
Do you need it?
How much coverage?
Which policy?
Do you need it?
While consumers generally buy insurance to cover themselves in case of disaster, health care is the exception to the rule. You need it for expensive hospital stays and for checkups with your family doctor. “Because of their size, insurance companies have negotiated discounts,” says Matt Tassey, past chairman of Life & Health Foundation for Education. “So instead of $200 for an office visit, you pay a $20 co-pay and the insurance company pays $90.”

People without insurance, and therefore without a primary care physician, often end up using the emergency room as their physician with charges of up to 20 times the cost of routine care. Many hospitals limit access to patients without insurance because costs for hospital stays add up quickly, to the point where many people can’t manage to pay for care on their own. Tassey warns that one person in 11 will need hospitalization or outpatient surgery in a given year. Health insurance protects your assets in case of big bills and provides access to convenient or quality care.

How much coverage?
According to Tassey, $450 is the average amount most Americans spend in a year on health care. However, in the event of sickness or injury that requires hospitalization, costs often rise to $40,000 or $50,000, even for short stays. Generally insurance coverage caps out at $1 million to $3 million, but can also cap out at $50,000, leaving you responsible for serious illness or injury treatments, so pay attention to that maximum lifetime policy benefit number.

A traditional delivery of a child today is around $7,000 to $10,000, but if the child is born premature, costs routinely run upwards of $330,000. The providers are going to expect to be paid somehow, and if you have assets, you’re going to be expected to tap those. “You have to think what the impact of not being insured will be on your 401(k) balance, IRA or home if you have a home,” says Tassey.

Even with comprehensive coverage, you could be underinsured if you have a high deductible and no means to cover it. In the individual market there are often $5,000 deductibles.

Which policy?
If you can access coverage through an employer, it will be your best bet. Employers are able to negotiate better rates than you could on your own. Absent that option, going with a group is still often the cheaper route. A number of associations offer group health care to their members, so look to professional, trade or community organizations. “The individual market tends to offer a less generous payout at a much higher cost,” says Tassey.

There is an array of choices that breaks down into a few categories: Managed care (including HMO, POS, and PPO plans), which most people have these days; indemnity, also called fee-for-service plans, that once were the standard; and consumer-directed plans, the new kids on the insurance scene, which come with high deductibles and are often paired with a health savings account. After age 65, Medicare kicks in.

All of the plans will operate pretty well if you have a terrible catastrophe, but if you have chronic illness such as diabetes or ongoing chemotherapy treatments, you’ll need to look more deeply at your coverage choices.

“When you’re young and healthy you worry about accidents,” Tassey says. “I often liken our need for coverage to a car. When it comes out of the showroom it looks good and you generally are only worried about wrecking it, but with time you need maintenance.”

Make sure the plan you choose covers the treatment you anticipate needing. Look at enrollment materials to make sure your physicians are in the network. Check into the use of screening tests, whether they be mammograms or colonoscopies or blood tests. See if preventative care is available when looking at a consumer-directed plan.

Whichever policy you choose, make sure you stay covered. If you have what is termed a life event, notify the insurance company within 30 days. Life events are the big things: you get married or divorced, have a baby, adopt or become widowed. If you get married and your spouse is joining your health plan, unless you tell the insurance company in a timely manner, you’ll have to wait until open enrollment, which is usually an annual occurrence. To the surprise of some new parents, even if insurance covered your pregnancy and delivery, you need to notify the company to add your baby on the plan.

When you leave work and go to a new employer, find out when the medical insurance there starts. Say you have a 90-day waiting period, if you are coming from an employer with more than 20 employees, you can use the federally mandated COBRA coverage (Consolidated Omnibus Budget Reconciliation Act). If you terminate employment, you can generally keep COBRA at 102 percent of company pricing for 18 months, and if you have been widowed that coverage period extends for three years — even longer if you are disabled.