Investing in Your Health
Although health problems and injuries can strike anytime, the chances increase as you age.To prepare for any and all health-related situations, it pays to plan ahead.
Thinking about how a future illness or disability could affect your finances and family is not a pleasant exercise for most people. However, the average cost for one year in a nursing home is about $60,0001, and the costs are rising at a brisk pace. Due to the continuing rise of health care costs – and the probability of facing health issues down the road – you should think about ways to address your medical needs long before problems arise.
Why Plan Ahead?
Despite the passage of last year’s health reform bill, the future of health care remains uncertain. “Regardless of the health care system, people will still have to plan ahead for health-related expenses,” says Kellie Perrault, a Financial Consultant with First Midwest Financial Network and specialist in Long-Term Care (LTC) insurance.
As the baby boomers enter their 60s, today’s senior citizens have a 40 percent chance of entering a nursing home2. Yet Medicare typically does not cover home health care nor an extended stay in a nursing home, and regular insurance won’t provide the kind of long-term care that many of us will need.
The Benefits of LTC Insurance
“I don’t think people are necessarily aware of the benefits of long-term care insurance,” Perrault says. By 2020, an estimated 12 million aging Americans will require assistance for a broad range of personal needs and daily activities, such as dressing and bathing. LTC insurance addresses those needs through an array of services for people with conditions ranging from Alzheimer’s to Parkinson’s3.
As with any insurance, you must have it before a medical problem occurs. LTC insurance is recommended for people who are between 50 and 70, relatively healthy, and have assets worth protecting. The benefit of starting at a younger age is that you lock into a lower cost, but you can add coverage later on.
Still, the cost of premiums dissuades many people from getting LTC insurance, and the choice may depend on your assets, your family’s medical history and other factors.
“Are you single? Do you have family members that would be able to help provide care for you?” Perrault asks. There are also different types of packages available. “For example, you could make a lump sum deposit of $50,000 into a policy that would provide a monthly income to be used toward your care. If you never need to use the funds for long-term care, the money will be earning interest for you, or you can leave a legacy to your named beneficiaries.”
Whereas LTC insurance protects people later in life, the need for disability insurance could arise at any time. It replaces a portion of your income if you’re unable to work due to an accident, generally covering up to 60 percent of your salary, Perrault says. If you’re self-employed or your employer doesn’t offer it, and you couldn’t live comfortably without your income in the event of a significant injury, disability insurance should be a priority.
“If you were in a car accident and couldn’t work for six months, this would help pay for the mortgage, utilities or college tuition,” she says, adding that not all jobs include long-term disability coverage. Find out what kind of package you have, and for extra security, you could extend existing coverage as well.
Although it’s impossible to predict illnesses, you can assess your options upfront by meeting with a Financial Consultant with First Midwest Financial Network. Getting an extra layer of financial security now may be the best way to protect your assets – and your health – later on.
Two more great ways to set aside funds for unexpected medical expenses:
Health Savings Account (HSA):
Opening an HSA today can help supplement your health care in retirement. After age 65, unused funds can be used for any medical purpose. To qualify you must have a high-deductible health plan, which generally costs less than traditional health care coverage. Also, using an HSA to pay for qualified, out-of-pocket medical expenses allows you an unlimited number of tax-free payments or withdrawals to pay for them as they occur.
The benefits of an HSA include:
- Funds accumulate year after year
- Benefits are portable should you change jobs, medical coverage or state of residence
- People 55 or older can contribute an additional $1,000 to their account
- 2015 maximum deposit contributions are $3,350 for an individual; $6,650 for a family
- Tax savings on contributions, earnings and withdrawals, as well as 5 percent annually of your year-to-date average FMB account balance
Flexible Spending Account (FSA)
A medical or health care Flexible Spending Account (FSA) helps you pay for some health care expenses not covered by your health plan. “Typically funded through your salary, it’s used to help with deductibles, co-pays or prescription drugs,” says Kellie Perrault, a Financial Consultant with First Midwest Financial Network.
The money goes into your account before taxes – saving you money – and can be used for many things, such as:
- Contact lenses
- Hearing aids
- Laboratory fees
- Mental health counseling
If your employer offers a FSA for medical expenses, they may also offer an FSA for expenses incurred for caring for dependents while you are at work. Typically most common is care for children under 13 but these accounts can also be used for adults such as a senior citizen that lives with you who is incapable of self-care.