Life Insurance Options: Pros and Cons

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This content is provided courtesy of USAA.

Do you feel sick just thinking about health insurance? Don't just lie around moaning about the costs. Find out what you can do to help protect yourself.

If you're among the growing number of Americans without health insurance, there are options that can fit your budget and health needs. The cost depends on your personal circumstances, like where you live, how healthy you are and whether you're male or female.

See which one of these plans fits your situation.

The Just-need-coverage-for-a-few-months Plan: Short-Term Insurance

WHO: If you've outgrown your parents' insurance, are an early retiree waiting for Medicare eligibility or are between jobs, short-term health insurance covers the gap.

PROS: These plans often let you drop coverage at any time without a penalty. They can be relatively inexpensive. Depending on where you live, your monthly cost (or premium) may start at less than $50. Your deductible (or out-of-pocket costs before insurance kicks in) could be as low as $500.

CONS: Only temporary. Most plans will cover you for 12 months or less. They may not cover preventative care, such as yearly physical exams, and may not cover medical conditions you already have.

HOW TO GET IT: You can purchase short-term policies directly from health insurance companies.

NOTE: Consider all your options. If you've lost your job and were covered by your employer's health plan, you may be entitled to stay in that plan for 18 months or more, though you may pay a much higher premium. If you're graduating from college, the health reform law (Patient Protection and Affordable Care Act) enacted in 2010 lets you stay on your parents' policy — with their permission — until you're 26.

The I-want-coverage-for-the-long-haul Plan: Permanent Individual Insurance

WHO: If you support yourself through freelance work, temping or running your own business, look into permanent individual plans that offer long-term coverage.

PROS: The variety of plans available lets you pick and choose the benefits you want, such as your doctors and hospitals.

CONS: The price of individual health insurance varies widely and can have a high deductible. Before you start your insurance search, ask yourself two questions: Do I need prescription drugs? Is there a particular doctor I want to continue seeing? Figure out what you want and need, and then shop around.

HOW TO GET IT: First, find out if your alumni association, place of worship or a professional organization to which you belong offers access to health insurance.

The I'm-only-concerned-about-major-expenses Plan: High-Deductible Insurance

WHO: If you're willing to cover all your routine medical expenses by yourself and save insurance for less frequent or major expenses, a high-deductible plan may be for you. By accepting responsibility for all the costs up to the larger deductible, you may get a much lower premium. The IRS defines a high deductible health plan as one that has a deductible of at least $1,200 for individual coverage and $2,400 for families.

PROS: Lower-cost coverage provides protection against the bills that are most threatening to your financial well-being.

CONS: If you don't have money set aside for noncatastrophic medical expenses, which can add up to thousands of dollars in a year, you may struggle to keep up.

HOW TO GET IT: Before you buy, learn about health savings accounts. If you have a qualified high-deductible plan in 2012 and meet eligibility requirements, you are allowed to contribute up to $3,100 a year for individuals (or $6,250 for families) to an account you can tap to pay qualified expenses that are your responsibility. You can contact your employer or health plan provider for instructions to set up your health savings account. Health savings accounts come with a rare double tax-benefit: Contributions are deductible and qualified withdrawals for medical expenses are tax-free.

The I've-been-turned-down-for-coverage Plan: New Insurance Option for You

WHO: If you've been denied health insurance because of a pre-existing condition, new health reform requirements may help address your needs. The law launched the Pre-Existing Condition Insurance Plan, which may provide a broad range of health benefits if:

  • You've been uninsured for at least six months.
  • You have a pre-existing condition or have been denied health coverage because of a condition.
  • You're a U.S. citizen or living here legally.

PROS: You won't be charged a higher premium because of your medical condition, and eligibility isn't based on income. Use the plan's interactive map for an estimate of the cost in your state.

CONS: You'll need to find new coverage in 2014, when insurers will be required to accept all applicants regardless of their medical history.

HOW TO GET IT: The way the pre-existing insurance plan is administered depends on where you live. If you have a child under 19 with a pre-existing condition, you may not need this plan. The Patient Protection and Affordable Care Act generally requires insurers to offer coverage for children under 19 who have pre-existing conditions. In 2014, that will also be true for adults.

Making the Cut

Before offering you a policy, insurance companies usually investigate your health — a process known as medical underwriting. They're most interested in knowing if you have a previous or ongoing illness or medical condition, such as asthma, heart disease or diabetes.

In insurance lingo, this is known as a pre-existing condition. If you have one, you could end up paying a higher premium or even being turned down completely. Under the health care reform laws (Patient Protection and Affordable Care Act), children younger than age 19 generally can't be denied coverage for pre-existing conditions. In 2014, the law will apply to adults.

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