Types of insurance coverage that you can choose to meet your particular health insurance needs

Finding coverage for critical illnessTaking a look at long-term careThinking ahead about disability

This post helps prepare you before an accident, the onset of serious illness, or other critical health-related situations may occur by explaining the main points about types of insurance coverage that you can choose to meet your particular health insurance needs. Having this knowledge in advance can lessen the impact of a sudden change in health status.

You may live in an area with a high incidence of a particular disease or condition. Perhaps family history raises concerns about your susceptibility to a critical illness or disease. In these situations, you may want to consider setting up a finan­cial cushion — beyond what your health insurance policy offers — in anticipation of above-average medical expenses.

Some insurance companies offer specified or dread disease policies, most commonly cancer insurance. These policies pay a cash benefit for procedures and treatments that con­ventional medical insurance may not cover. The dread dis­ease plans pay a fixed dollar amount for every day you’re in the hospital or receive treatment on an outpatient basis only if you contract the specific disease or group of diseases that the policy cites.

Don’t think of a dread disease policy as a replacement for gen­eral medical coverage: The policy may limit the amount of benefits it pays. In fact, some states regard dread disease poli­cies as offering little value or protection to the policyholder and have banned or restricted such policies. The cost of a dread disease policy may not be very high because it covers very specific conditions. Even so, weigh the cost of the pol­icy carefully compared to the benefits it pays before you buy.

Think about your family history and lifestyle as you shop for a dread disease policy: These factors may help you get a sense of whether you’re at risk for a particular disease. Start by examining plans carefully, because they often exclude cover­age for problems resulting from the specified disease itself, such as infections, diabetes, and pneumonia. In some cases, you have to wait several years after you buy a policy before the plan will pay for treatments. Always check the fine print for the following:

All-inclusiveness: Benefits should include expenses for items such as hospital stays, medicine, surgery, doctors’ visits, radiation treatment, chemotherapy, and recon­structive surgery after a mastectomy.Additional benefits during a hospital stay: You may find a policy that offers additional benefits after you’ve been in the hospital for more than 90 days. Be warned, however, that research states that the average hospital stay for cancer is only 13 days.Travel expenses: When treatments mean traveling long distances to a hospital, you definitely want a policy that covers your travel expenses — and perhaps travel expenses for a companion.Double coverage pay: Keep an eye out for whether the dread disease insurance plan will pay benefits even though you’re covered under another policy. Also check whether the other policy will pay benefits if you have a dread disease policy.

Most dread disease insurance policies exclude people who have already been diagnosed with the disease.

Insurance companies often pay for bone marrow transplants and stem cell transplants to treat leukemia and lymphoma. However, insurers may not pay for these types of transplants when they’re used to treat other types of cancer, where they’re still considered experimental.

When you’re evaluating a dread disease insurance plan, ask about how the plan pays for experimental procedures.

Some dread disease insurance plans do one or more of the following:

Adjust premium payments based on your lifestyle or family historyPay an initial lump sum and then pay for various costsPay a single lump sum at the time of initial diagnosis and then end the coverage (which helps to lower their premiums)Increase premiums as you age

People are living longer, so they’re more apt to experience serious illnesses or injuries that can temporarily put them out of commission. A critical illness plan covers more than just one condition. When you don’t need disability insurance (because you expect to be back on your feet), critical illness insurance steps in to fill the void.

In general, although benefits vary from plan to plan, critical illness insurance pays you a lump-sum benefit if you suffer one of the covered critical illnesses or injuries.

Catastrophic limit is another way to refer to maximum out-of-pocket. In fact, major medical insurance is sometimes called catastrophic insurance. Major medical insurance may pay over an extended period for hospitalization costs and other health services that exceed the maximums your basic plan provides. See this post about How to Evaluate Your Health Insurance Plan Options  for more information on major medical insurance.

Most insurance plans, whether public or private, don’t cover home health care at all. If they do, the services they cover may be very limited. Some plans, for example, won’t pay for a care provider who is a member of the immediate family.

One way to enhance coverage for catastrophic illness is to pur­chase a catastrophic coverage policy. These policies are designed to pay for hospital and medical expenses that exceed a very high deductible, perhaps $20,000 or more. Such policies may also provide for a fairly high maximum lifetime limit.

Another approach is to add a living insurance rider to a life insurance policy. A living insurance rider provides benefits to the insured — while the insured is still living — in case of a catastrophic illness.

Long-term care insurance policies are special policies that pro­vide coverage for nursing home stays and home health care for a period established when you buy your policy. These policies are also called convalescent care or nursing home insur­ance. The policies are usually indemnity-type policies, mean­ing that they pay an established amount for each day of coverage you spend in a nursing home, regardless of the actual cost you incur.

The goal of home health care can be to maintain, improve, or restore a person’s health. Usually, a doctor orders home health care and writes a plan of care, or instructions for the patient and the caretakers. In addition to registered nurses and licensed practical nurses, many other kinds of care providers may play a role, including the following:

Home health aides and visiting nursesHomemakers from an outside service (housekeeping duties; no medical-related duties)NutritionistsPersonal care attendants (PCAs — meal preparation, bathing, laundry, light housekeeping, and so on)Physical, speech, and occupational therapistsSocial workers

Patients may also need certain pieces of equipment at home, such as hospital beds and accessories, respirators and oxygen tanks, wheelchairs, and walkers. Major medical policies usu­ally cover these expenses.

Nursing homes are characterized by the type of services they provide:

Custodial care homes: These facilities are intended to maintain and support the individual’s current level of health, while trying to prevent any further decline. Peo­ple in custodial care homes usually need a place to live and help with activities of daily living, which non-medically trained professionals can provide. This type of nursing home is the lowest level and least expensive of the three.Intermediate care facilities: These facilities provide planned, continuous programs of nursing care for resi­dents who can’t live alone. These programs are preven­tive and rehabilitative.Skilled nursing facilities (SNFs): A doctor must pre­scribe care for people in these facilities. Registered nurses and other medical personnel provide specialized medical care 24 hours a day.

Major medical coverage may cover the cost of a skilled nurs­ing facility, but not the cost of a custodial care facility.

See the Medicare and Medicaid sections in a later post for more information about catastrophic coverage and long-term care.

Beyond the challenges of suffering pain or discomfort and undergoing treatment, disability may also mean loss of income. To replace this loss, you may be able to draw on var­ious sources of financial compensation, such as the following:

Social Security: For those who are severely disabled and unable to work at allWorkers’ compensation: For work-related illness or injuryCivil service disability: For federal and state govern­ment workersAutomobile insurance: For disability due to an auto­mobile accident

Check with your state insurance department to see whether your state mandates and monitors disability plans. In states that do, your employer automatically deducts premiums from your paycheck. You file claims directly with the state.

If you aren’t eligible for one of these sources, you probably won’t receive compensation for lost income (other than sick-leave benefits from your employer), which is where disabil­ity insurance comes in.

Short-term disability insurance covers only loss from illness or disease; it excludes loss from accident or injury. Employer-sponsored plans may include STD insurance as part of a health insurance plan. Benefits generally pay a certain per­centage of your salary for a certain number of weeks, based on your years of employment.

For short-term disability, experts advise that you not rely on disability insurance — the cost of an STD policy may out­weigh the benefits. In addition to any sick-leave benefits your employer pays, live on your savings or the sale of an invest­ment for a couple of months.

Long-term disability insurance kicks in when short-term disability ends, usually after 52 weeks. Its goal is to lessen the threat of financial disaster. LTD plans pay monthly benefits — from periods of one year up to a lifetime, depending on your plan — when disability prevents you from returning to work. Your plan also specifies when your benefits begin, how much you will receive, and any coverage limitations.

Check with your employer to see whether a group long-term disability policy is available. Some LTD plans offered through employers may be more cost-effective than in individual plans.

Disability insurance replaces only a percentage of your lost wages, usually about 60 percent of your income at the time you buy the plan. This insurance doesn’t cover the cost of reha­bilitation, which is a medical expense. Medicare benefits, which cover medical expenses, take effect in your 25th month of disability.

Deciding whether to buy disability insurance depends on your individual situation. You need to consider several fac­tors, including the following:

How much financial risk are you willing to assume if you’re unable to work for an extended period?How long can you live on your savings and investments?What will it take, in terms of time and effort, to rebuild your savings and investments and recoup lost interest?Can your spouse’s income can make up for your lost wages?

If you decide to buy a disability insurance policy, think about the following:

How the insurer defines “disability”: One insurer may define “disability” as being unable to perform the duties of your customary occupation. Another insurer’s defini­tion may mean that you can engage in no gainful employment at all.When benefits begin: Benefits may begin from one to six months or more after the start of disability. If you can afford the lost income, lower your premiums by choos­ing a later starting date.Whether the policy covers both accident and illness.

Benefits may be taxable depending on who pays the premiums for the disability policy. The following parameters usually hold true, but you should consult your tax professional with any questions:

If you pay the premiums for an individual policy, the benefits you receive aren’t subject to income tax.If your employer pays some or all of the premiums under a group policy, some or all of the benefits may be taxable.