Suze Orman's Advice on Health and Disability Insurance

Continuing our riveting series on insurance here at Free Money Finance, Suze Orman tackles health and disability insurance and gives this advice:

[Health insurance] is one area where you simply can’t afford to be underinsured if there’s any way at all you can help it. Remember, insurance is all about planning for the worst (which, of course, doesn’t prevent you from also hoping for the best). And if you or anyone in your family were to ever develop a severe illness, you would want to make sure you could afford the best care for them.

So please, if you don’t currently have any coverage, make this your main financial priority as of this moment. If you are a recent college grad who has yet to start work or are unemployed without coverage, you can buy short-term policies that will cover you for up to six months or so. (A great tip for college seniors: If you don’t have coverage or are currently covered by your parents’ insurance, buy a health plan of your own while you are still in school—one that will allow you to continue with the policy after graduation. Student policies are often a great deal, and being able to extend your coverage past your school years gives you plenty of flexibility while you job hunt.)

Can't you just hear Suze whining in her usual tone as you read the paragraph's above? That's what I love about her: her advice is so practical that it's dry as a bone and her voice is so grating that it sends dogs howling in pain, yet she's still the biggest thing in personal finance today. Only in America! Do I love this country or what? ;-)

Now back to reality.

Suze then goes on to give us a few ways to save when we buy health insurance:

A key tactic for keeping your premium down is to choose a plan with a high deductible. Stick with me for a sec and you’ll see the wisdom of this. A low deductible, say one of just $500 a year, can actually end up costing you more than one with a $2,000 deductible. That’s because the lower the deductible, the higher the premium. Moreover, when you have a low deductible and make a ton of claims, your insurer might get ornery and jack up your premium when your policy comes up for renewal.

That’s why the smarter thing to do—if you are generally healthy—is to choose a policy with the highest deductible you can afford. Since your deductible is the annual out-of-pocket money you are required to kick in before your insurer covers your health costs, base your choice on what you can afford to pay out from either an emergency cash fund or a low-rate credit card with a line of credit you intend to tap only for emergencies.

If you are totally strapped for money, at least get a policy that provides you with catastrophic coverage. The annual premium can be a lot lower since these policies basically only kick in after you meet a sizeable deductible of $5,000 or more. The idea here is that you are healthy enough so that you don’t expect to need to use the policy for routine health care costs. At the same time, you’ll have the peace of mind of knowing that if you become severely ill you (or your family) will not have to pay monstrous health care bills out-of-pocket.

Good advice overall. She usually does have solid things to say -- except when she starts talking about how you should love and respect your money (or something to that affect).

As she summarizes, she briefly covers disability insurance:

Some employers offer [disability] coverage, but please take the time to make sure you have a policy that will actually give you what you need. For starters, you want coverage that replaces at least 70 percent of your income. And it is very important that your coverage is for “owner’s occupation.” This means you will be eligible for payouts if your illness prevents you from returning to your pre-accident job. What you want to avoid is a policy that kicks in only if you are unable to work in any occupation. You also want to make sure your policy is “guaranteed renewable.” This means your insurer can’t cancel the policy on you as long as you keep up with the payments. And finally, ask about the “elimination period.” This is the amount of time that must lapse after your injury or illness before your policy would start to pay you a benefit. Two months is typical.

It's much more likely that you'll be disabled than it is that you'll die, yet many Americans who forget about disability insurance wouldn't be without life insurance. (I almost said "wouldn't be caught dead without life insurance", but I thought it would confuse the point.) Don't make that mistake. Be sure you have a solid disability policy in place -- especially for the primary bread winner in your household.

Comments

[geoff]

"Can't you just hear Suze whining in her usual tone as you read the paragraph's above?"

and

"(I almost said "wouldn't be caught dead without life insurance", but I thought it would confuse the point.)"

You're cracking me up today.

[Andrew Spark]

Of course health insurance is a major aspect; I think where disability insurance comes into play. Some employers offer coverage, but please take the time to make sure you have a policy that will actually give you what you need.

[Andrea Jasperson]

This blog posting is great. Your views are very true. Everyone should start thinking as you are doing.
Andrea Jasperson
http://www.disabilityinsurancecheap.com

[ProspectZone Insurance]

The best part of this post is the middle paragraph, about choosing a high deductible. Good sense for a large number of people: those who don't, on average, have high medical expenses. Great advice, even though the insurance agents might not like it.

[Eric Olivo]

I agree that most people overlook disability insurance. Here is a great educational presentation on Disability insurance.

[Christopher]

"her voice is so grating that it sends dogs howling in pain". I have no idea what this refers to, she doesn't sound grating to me. I think it's a rude observation that isn't funny. Basically all I see you doing here is parroting her advise that she's already graciously bestowed while at the same time riding on her coattails.