By coupling a high-deductible health insurance plan with Critical Illness, Long Term Care, and Accidental Injury policies, you can lower your total cost of Health Insurance while simultaneously increasing your level of protection.
Fact: Costly illnesses are responsible for two-thirds of all personal bankruptcies in the United States.
Health Insurance costs are outrageously expensive, but it is necessary to keep because medical costs themselves are outrageously expensive. But the medical costs themselves are not the only costs of suffering a major illness.
Have you thought about how you are going to pay the mortgage and living expenses if you are out of work for a long period of time? How will you replace that income? Its not just yourself either. What if your spouse or children require care or treatment that prevents you from working?
Critical Illness Insurance, Long Term Care/Chronic Illness Insurance, and Accidental Injury Insurance provide an additional level of protection that is every bit as important as the Health Insurance itself. Luckily, these types of insurance are comparably inexpenive compared to Health Insurance.
In fact, you can bundle these 3 policies in with a High Deductible Health Insurance plan and still pay less than you would have for a Low-deductible Health Insurance Plan.
High-deductible Health Insurance
I personally prefer a high-deductible health plan anyway. You have a choice: pay a lot with absolute certainty or maybe pay a lot. I prefer to “maybe pay a lot”. Low deductible health plans fall into the “pay a lot with absolute certainty” category.
If you look at the difference in premium between a high deductible plan and one with a low (or no) deductible, the difference in price can easily add up to the amount of the deductible. If you have the discipline to set this money aside, you are clearly better off with a high deductible plan in most cases. And if you don’t use the insurance, the savings can accrue each year.
So if you become ill and need to utilize your insurance benefits, you will have to come out of pocket until the high deductible is met. But, if you suffer a critical illness, even though you have to come out of pocket to meet the deductible, the Critical Illness Insurance will pay a benefit that can be used to offset the deductible.
Critical Illness Insurance
Critical illness insurance has been around since the 1980s. It is intended to cover expenses not covered by health insurance policies such as loss of income and all the expenses the household incurs while the insured cannot work.
Critical illness insurance helps to fill the gap between traditional health insurance coverage and having to tap into savings in the event of a serious illness or condition. Unlike other forms of health insurance that pay or reimburse for the direct cost of medical treatment or care, critical illness insurance pays the insured a lump-sum cash amount for a qualifying serious illness, condition, or occurrence. The money can be used however the insured chooses. Including paying for the deductible on the health insurance!
Critical illness insurance only covers specifically named illnesses. Coverage varies by carrier, but Critical Illness generally includes at least the following: Heart Attack, Cancer, ALS, Kidney Failure, Major Organ Transplant. I don’t know about you, but these major illnesses cover my biggest concerns and are the primary reason I have health insurance.
Long Term Care/Chronic Illness Insurance
Long-term Care is for people who have lost the ability to take care of themselves. The “Trigger” for benefit payment is that the insured cannot perform 2 out of the 6 “Activities of Daily Living” without substantial assistance from another person or being severely cognitively impaired. The activities of daily living include:
- toileting and
The primary difference between Long Term Care and Chronic Illness Coverage is that LTC Insurance is usually a reimbursement plan whereas Chronic Illness Coverage simply pays a defined benefit. Chronic Illness is a little more flexible because the benefits can be used however the beneficiary sees fit.
So if you are bedridden and can’t work, Chronic Illness coverage will provide money to pay the household bills.
Critical and Chronic Illness Riders on Life Insurance
Many new Life Insurance policies include both Critical Illness and Chronic Illness Riders on their policies at little to no additional cost. One consideration is whether to use Term or Permanent Life Insurance. Term life insurance policies that include these riders are generally inexpensive, especially compared to the health insurance premiums. It helps if you are healthy and don’t smoke. Ideally, you should choose the longest term that you can afford since the insurance doesn’t provide any benefit after it expires. And your old age is probably when you will need it most. Remember that life insurance gets more expensive every single year. AND you may suffer an illness that makes you uninsurable. If you wake up tomorrow and find out that you have cancer, it’s a little too late to go out and get life insurance.
Permanent Insurance will have higher premiums. But over your lifetime, you can get your money back through a “Return of Premium” feature.
The reason Permanent Insurance is more expensive is simple: permanent life insurance WILL pay a death benefit some day. This means that there needs to be a savings mechanism built into the policy to set aside enough money to ultimately grow and compound over your lifetime to pay your death benefit by the time you reach your natural life expectancy.
Term insurance is meant to protect you against an untimely (early) death. The life insurance companies expect most people to outlive their policies. They simply pool enough of the premium dollars to cover the expected claims.
The good news is that the cash value of the policy belongs to you, not the insurance company. Ultimately, your cash value will equal more than you ever paid into the policy. You COULD cash it in and walk away with all of your premium returned to you.
The cash value also represents a source of savings that can be tapped to meet your deductible. It’s there if you need it in an emergency. Otherwise its a source of retirement savings. Policy loans against this cash value are how I design TAX-FREE retirement strategies.
So what does this all mean for you? It means that if you have a Kidney Stone or break your arm falling off of a ladder, you will still have to pay your deductible. BUT, if you suffer a Critical or Chronic Illness, your life insurance policy will advance a portion of the death benefit.
Accidental Injury Insurance
Luckily, if you do fall off of a ladder and break your arm, there is insurance that can cover that. Accident insurance is inexpensive and covers MOST of the incidents that will require a trip to the emergency room. My plan costs only $21 per month.
Let’s take a look at “Bob”. Bob is a healthy 45-year old who exercises frequently and doesn’t smoke. He has selected a high deductible health insurance plan because he rarely goes to the doctor. He gets an annual physical which is covered under every health plan as required by the ACA. The lowest cost health insurance plan has a high deductible and costs $300 per month. On the other hand, the plans with low deductibles and no copays were upwards of $800 per month. The $500 difference in premium translated to a $6,000 annual savings.
The best-case scenario is that Bob does not become ill at all and the year goes by without any trip to the doctor’s office besides his annual physical. In this case, he saved $6,000.
The worst-case scenario for Bob is that he becomes ill and must pay the first $6,500 of his treatment cost. Under typical circumstances, meaning he doesn’t become seriously ill every single year, Bob is much better off with the high deductible health insurance plan.
Bob buys a Life Insurance Policy with Critical and Chronic Illness Riders and Accidental Injury Insurance
Bob did not become ill the first year. But on his way to work one day during the year, Bob saw a medevac helicopter fly in to pickup someone injured in a bad car accident. Bob gave some serious thought to the cost of treatment for that person. Even without the medevac, the cost of treating multiple injuries, especially with the neck and back, could vastly surpass the deductible on his health insurance. And how would he pay the bills while he was in the hospital or in physical therapy. Bob decided to mitigate his risk of having to come out of pocket for the deductible on his health insurance plan.
Bob purchased a 30-year term life insurance policy that included the critical and chronic illness riders. Since he is healthy and doesn’t smoke, he got a preferred rating from the insurance company. His premium for $250,000 of coverage was fixed at $1,200 per year for all 30 years. That averaged out to $100 per month for coverage that would last until he was 75 years old. Bob’s wife Sue was grateful for the additional piece of mind from the life insurance death benefit. She often wondered what she would do if Bob wasn’t around.
Bob also purchased a low cost accidental injury policy that cost only $21 per month.
So essentially, Bob gave up just $121 of the $500 monthly savings to purchase these two additional policies. He was still saving $379 per month compared to the low deductible insurance option. But now the worst-case situation is that he suffers a non-critical illness that is not covered under either of the two supplemental policies. If he was injured in an accident or if he suffered a critical illness, the supplemental insurance policies would not only provide a benefit that could be used to pay the deductible, but in the case of the life insurance, it was money that could be used toward anything, such as the loss of income from not being able to work.
Coupling Critical and Chronic Illness Insurance with a High-deductible Health Plan should save money relative to a Low-deductible Health Plan.
Life Insurance with Critical and Chronic Illness riders will also work… and with the added benefit of the Life Insurance. This is a very inexpensive solution that may help you avoid having to pay the high deductible on your health insurance.
But it’s not a complete fix. The Critical Illness Insurance will provide a benefit only in the case of a very serious health issue as defined in the policy. The accidental injury insurance will provide coverage against some of the “unexpected” accidents around the house or on vacation. This covers a wide range, but still leaves you vulnerable to more common, less serious illness.
These are inexpensive solutions that can help take the sting out of your high deductible health insurance.
Hopefully the case study pointed out some of the additional benefits of using life insurance. Bob’s use of his savings was a little off-topic, but I never miss an opportunity to show people how to create retirement income.
Will it work for me?
You won’t know until you see the numbers. Generally, the savings of moving from a low-deductible plan to a high deductible plan is enough to cover the cost of the Life Insurance and the Supplemental Accident/Injury Policy. Go back to the website and set up an appointment to speak with a qualified agent to run some numbers. This would be a good time to discuss all of your financial needs.