By Nicholas Efthemis, CFP®, CRPS®
In today’s world, there are many things to fear, especially when it comes to finances. Topping that list for most of us is the rising cost of healthcare; in fact, many Americans fear medical bills more than the underlying illness. (1) And for good reason!
From heart disease and dementia to diabetes, cancer, and obesity, these five diseases collectively cost the United States $832 billion per year! (2) That accounts for roughly 17% of the national gross domestic product (GDP). (3)
While there is new research coming out every year about how to lessen the severity of these diseases, both physically and financially, there are still many steps the average person should take to protect themselves; one of which is assessing your financial plan to make sure it’s not left vulnerable to costly healthcare expenses in the event you get sick. Here are three things you can do to plan ahead and prevent future health problems from derailing your financial plan.
Make Sure You Have Enough of the Right Insurance Coverage
There are so many different types of insurance that it can be hard to keep track of what you really need. When it comes to healthcare, there are several kinds of policies that should be considered. Depending on your age, current medical condition, and family history, any of the following policies could be combined to create comprehensive coverage:
Health insurance: The typical insurance policy that people think of when it comes to medical expenses, these plans cover day-to-day medical expenses as well as major hospital procedures. Health insurance can come from your employer, the private marketplace, or Medicare.
Disability insurance: Providing income replacement in the event you become disabled, these policies can be long term or short term and typically come from your employer.
Long-term care insurance: These policies are meant for older individuals who may need ongoing medical care as they age. Whether it’s assistance in completing everyday tasks or skilled nursing services, long-term care insurance can help mitigate the exorbitant healthcare costs that come with aging.
It’s always a good idea to reassess your insurance policies at least annually or whenever major changes to your health occur. It can be helpful to work with a qualified financial professional who can assess your needs and make sure you're properly protected in the event of an unexpected illness.
Waiting until the last minute to think about insurance is often the last thing you want to do. The earlier you plan ahead, the more you can save on premiums and the less likely you are to be financially devastated if you do get sick.
Maximize Your Health Savings Account
Health savings accounts (HSAs) require that the participant be enrolled in a high-deductible health plan, so this option will not be available to everyone. If you do have an HSA, make sure you’re maximizing your annual contribution amount.
HSAs can help protect your financial plan in the event of a costly medical diagnosis because the funds contributed are not subject to the “use it or lose it” provision of other savings options like flexible spending accounts (FSAs). Instead, the funds are left to grow in the account until they are needed.
Money withdrawn to pay for qualified medical expenses is received tax-free. If you withdraw the money for any other reason, however, the earnings will be subject to tax and a penalty. If you can afford the out-of-pocket expenses from a high-deductible health plan, leaving the money untouched until age 65 is a tax-efficient option. At that point, the penalty no longer applies to non-medical expenses and the account essentially becomes an IRA.
Overall, maximizing HSA contributions is a tax-efficient method for saving for healthcare expenses. And the best part is, even if you don’t get sick, you will still have access to the money you put away!
Consider Life Insurance With Living Benefits
Also called a hybrid policy, life insurance with living benefits provides a traditional death benefit, but the policy also allows for withdrawals while you are still alive, if certain conditions are met. Living benefits can often be tailored to your needs. A few examples are:
Living benefit: Allows you to access funds from your policy if you receive a terminal diagnosis from a physician. You can generally withdraw a portion of your death benefit, which is then deducted from the overall value of the policy.
Accelerated death benefit: Allows you to access funds to pay for ongoing medical expenses or other needs.
Quality of life insurance: Provides access to your death benefit to pay for ongoing care required by a chronic illness.
Hybrid long-term care insurance: A combination of life insurance or an annuity with long-term care insurance, this provides a death benefit and also helps cover the cost of a nursing home or other long-term care that you may need.
Any of the above hybrid life insurance policies can help reduce the strain on your overall financial plan should you become sick with an illness that requires extensive care. This can protect both you and your loved ones from losing your savings due to illness.
Is Your Financial Plan Protected From Health Problems?
Many people don’t realize the gaps in their insurance or financial protection until it’s too late. Don’t let health problems derail the financial plan you’ve worked so hard to build. At Emergent Wealth Advisors, we can help pre-retirees and retirees navigate their health insurance needs with confidence. To learn more about how we can help, schedule an appointment online, or reach out to me at (716) 828-8390 or email nick@emergentwa.com to schedule a no-obligation conversation.
About Nick
Nick Efthemis is wealth advisor and chief compliance officer at Emergent Wealth Advisors, a fiduciary financial advisory firm serving retirees and pre-retirees with customized financial planning solutions. Having worked in the financial industry since 1997, Nick has deep knowledge and experience in retirement, investment, and comprehensive planning strategies, coupled with an understanding of the hopes, needs, and goals his clients have for their future. He is dedicated to helping his clients find confidence in their financial situation through personalized advice and support that empowers them to make the best decisions for their lives.
Nick is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Retirement Plans SpecialistSM professional. Outside of the office, Nick is an active member of his community, working with the SPCA and the Humane Society. In his free time, you can find him hiking or fishing with his family. If you want to learn more about Nick, connect with him on LinkedIn.
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(1) https://spectator.org/poll-americans-fear-medical-bills-more-than-sickness/
(2) https://www.nabr.org/biomedical-research/importance-biomedical-research/five-most-expensive-diseases
(3) https://www.nabr.org/biomedical-research/importance-biomedical-research/five-most-expensive-diseases