Some Key Health Insurance Terms to Know

Your deductible. How much you pay on your own before your insurance kicks in. If you have a $500 deductible and get charged $400 for a doctor's visit, you'll pay the $400 and all other charges up until you pay $500 in total expenses. Once you hit $500 in bills, the amounts you owe will depend on your insurance. Sometimes all expenses above the deductible are covered. Sometimes there's coinsurance, where you share the cost with the health insurance company (i.e., 80/20, where the insurance company pays 80% of your bills and you pay 20%). Typically, plans with higher premiums (higher costs) come with lower deductibles, and vice versa. Some plans have both an in-network deductible and an out-of-network deductible.

Your copay. Sometimes annual checkups and visits with certain doctors cost a flat fee called a copay. These may also be covered and cost you $0. Your copay could also be the amount you pay per visit after you reach your deductible. Other plans offer coinsurance (mentioned above) up until you hit your out-of-pocket max.

Your out-of-pocket max. There is usually an in-network and out-of-network max for the year. If you are thinking, “Are you kidding me with these terms, Ashley?” Sadly, no, I'm not kidding. The max is the most you can pay out-of-pocket in total (on your own). Your in-network max is typically lower (sometimes much lower) than your out-of-network max. It's the max you'll have to pay with in-network providers. And the out-of-network max is the maximum you'd pay for providers that aren't in-network. The good news is, this is the most you will pay in healthcare expenses in any given year. Once you hit your out-of-pocket max, insurance covers the rest.

Important: Your deductible and out-of-pocket maxes reset each year. On the date your plan resets (which can vary by plan), you're starting from a $0 deductible and $0 toward your out-of-pocket max. In addition, the amounts can change from year to year and typically increase over time.

Where Do I Get Health Insurance?

Your employer. If it's available to you, you'll probably want to get health insurance through work. Usually there are a few options to choose from and companies subsidize part or all of the monthly premiums.

Healthcare.gov (or your state marketplace). If you work for yourself or a company that doesn't offer health insurance, or are unemployed, you can get health insurance through the government health benefit exchange. Depending on your income, you may qualify for a subsidy (or discount). If you are part of a professional organization or union, you may be able to get a less expensive policy through them.

Health insurance company. You can purchase health insurance directly from the health insurance company (rather than going through the exchange). If you are going to get a discount on health insurance, it may be worth it to go through the exchange and reapply each year.

Medicaid. If you earn below a certain income level, you qualify for Medicaid. The requirements vary by state. It's a government-funded program so the costs are lower or free, yet you can still choose your insurance provider.

Medicare. If you are over 65, you qualify for Medicare, which is also a government-funded program so costs are lower.

Your family. If your family or caregiver has an insurance plan and they're inviting you to stay or be added on, you are allowed to do so until you are 26.

COBRA. If you were recently laid off or left your job, you can keep your health insurance plan for the next 18 months using COBRA (stands for Consolidated Omnibus Budget Reconciliation Act of 1985 – quite the mouthful!). It's typically very expensive (because your employer is no longer subsidizing the cost). This option is more attractive if you've already hit your deductible or out-of-pocket max (or are close to it). You can also check your health benefit exchange to get something more affordable in between jobs.

When Can I Get Health Insurance?

Open enrollment is the window of time during which you can sign up for insurance or change your insurance. For the government exchange, open enrollment typically starts in early November and ends in mid-December. If you are getting health insurance through your company, you'll want to ask about specific dates, because they vary.

Qualifying life events like changing or losing a job, having a baby, or getting married allow you to sign up or change your insurance outside of the open enrollment period. You usually have 30–60 days to sign up or make any changes after one of these life events.

“Fun” important fact. You usually have 30–60 days to add a new baby to your health insurance, depending on your insurance plan. To do this you need your child's birth certificate and Social Security number. I know, I know – like you don't have enough to do when you have a newborn.

What About Double Insurance?

You are allowed to have two health insurance plans and many people choose to do so in order to get the best coverage available to them. One policy will be designated the primary insurance and the other will be the secondary insurance. The primary insurance pays claims first and whatever is remaining goes to the secondary insurance. If you qualify to join a parent's plan, a spouse's plan, or Medicaid coverage, you might consider the cost and benefit of having two plans.

How to Choose Your Health Insurance Plan

There are two main types of plans: HMOs (health maintenance organizations) and PPOs (preferred provider organizations). HMO plans are typically less expensive. You are assigned a primary care physician (PCP) and need to get a referral to see any specialist doctors. You can typically find PCPs everywhere, but there's usually one office for specialists in your region (all in one place). Depending on where you live, you may have to travel outside your city.

PPOs tend to have higher monthly premiums but you have more flexibility to see the doctors you want to see and there is usually coverage for in-network and out-of-network doctors (although out-of-network will typically be more expensive). PPOs can be high-deductible health plans (HDHPs) if the deductible is over $1,400 for an individual and $2,800 for a family. When you have an HDHP you are eligible for an HSA (health savings account – yippee!). Check out later in this chapter for more info on this).

As tedious as it can be to look through these plans, I recommend understanding how each plan works and then running your own numbers. How? Start with what you expect your medical expenses to look like. Do you anticipate any doctor's appointments outside of your annual physical and gynecology checkup? Do you have any upcoming procedures or plan to have a baby? Do you or a loved one you are responsible for have a chronic illness or disability? Is there a specific doctor or hospital you want to go to for care?

While we can't predict every medical expense, if you plan to have a baby or typically see a lot of specialists, you can probably plan to hit your deductible (at the very least). If you have or plan to have multiple people on your health insurance plan, go through this process for each person.

After going through these exercises you will have a much better picture of which plan makes the most sense for you. Brian Walsh (he's the CFP and PhD in personal finance with SoFi you met in previous chapters) shares that one of the biggest mistakes he sees is that people choose the cheapest plan or the plan they already have (just because it's familiar) and that this can get them in trouble when an unexpected medical expense comes up.

Don't Be Afraid to Fight

Sometimes you'll get a bill that completely surprises you or something you expect to be covered by insurance isn't. Don't be afraid to ask questions, negotiate, and try to understand why things look different from what you expected. There are plenty of mistakes or miscommunications that happen and you don't want to be the one who pays for them. I know. Who has time for this?

Always reference your insurance plan to make sure the numbers match your coverage (e.g., your copay, coinsurance, deductible, etc.). Keep records of your bills: what you paid, whom you spoke to, when, and what they said (sometimes there's a case number given). If you are double-insured, make sure they billed the other insurance too.

You can also negotiate your medical bills. Wha? Yep! You can negotiate with the insurance company or hospital/health provider, and some health insurance plans or hospitals have patient advocates or social workers who can help and negotiate on your behalf. All hospitals have to forgive expenses or provide financial assistance for people who live at or below the federal or state income level or experience hardship, but anyone can apply.

Big Exclusions: Fertility Treatments, Adoption, and Trans-Related Healthcare

Fertility treatments like IVF and egg freezing are not typically covered under health insurance plans and are very expensive (like tens of thousands of dollars). More and more companies are offering fertility coverage of some sort to help defray those costs. It's worth looking into and considering in your planning (and even your job search).

Typically, benefits that help to cover the high costs ($40,000-plus) associated with adoption are part of the fertility plan. It's important to note that the high cost and lack of insurance for fertility treatments as well as adoption costs disproportionately affect the LGBTQ+ community.

Many policies do not cover any trans-related healthcare at all. This includes any surgeries, hormone treatments, or anything that gets categorized as trans-healthcare. This has a tremendous financial impact for the transgender community and their families.

How Do I Ever Budget for This?

You know that healthcare expense guesstimate you made previously to choose your policy? You can use that as your medical budget for the year! If you know you are going to have a procedure or deliver a baby soon, you can call your health insurance company for an estimate. If you think you are going to hit your deductible or out-of-pocket max, make sure your budget accounts for that too.

There are some very “cool” medical expense accounts that can help (you now know my sense of cool is majorly warped but these really are wondrous accounts). An HSA (health savings account) allows any individual with an HDHP (high-deductible health plan) to put pretax money aside for medical expenses.

If you have an HDHP, in 2022 you can contribute up to $3,650 for an individual or $7,300 for a family (and $1,000 more if you're over 55) to pay for qualifying medical expenses. You don't have to use the money that year (or even in the next 10 years) and once your balance hits a certain amount (often $1,000–$2,000), you are able to invest the money in the account and have it grow tax-free. Tax-free – like your 401(k) and IRA!

You can set aside more money in your HSA than you need for medical expenses as a strategy to grow more money tax-free. HSAs are actually double tax-free because you never have to pay taxes on the contributions (as long as you use them for qualified medical expenses) and you don't pay taxes on the investment growth. Once you've maxed out your retirement accounts and paid off high-interest debt, it's a great option to keep the party going.

“Fun” fact: After you're 65 years old, you can use the funds in your HSA for anything, but if it's not for qualified medical expenses you have to pay taxes on that money (similar to how you would in your traditional 401(k) or IRA).

A flexible spending account (FSA) is similar in that it allows you to set aside pretax money for medical expenses; the biggest differences are that (1) your employer has to offer the plan (you can't open one on your own) and (2) the money in there is “use it or lose it.” You can usually either roll over $550 into the next year or sometimes there's a 2.5-month grace period where you can spend (or try to spend) the remainder of the funds. The most you can set aside in an FSA account in 2022 is $2,850. Some employers allowed more to roll over to 2022 because of the pandemic.

You can also set up a separate sinking fund for medical bills in an online savings account. Once you know your out-of-pocket max, it's helpful to revisit your rainy-day fund with that lens. Can it cover you in a year you have much higher than expected (or the max) medical expenses?

“Fun” fact: There's another type of FSA that allows you to pay for dependent-care expenses, like preschool, summer day camp, before- or after-school programs, nanny expenses, and child or adult daycare, with pretax money. A big discount! You can find the full list of qualifying deductible expenses in the Financial Adulting toolkit. Sadly, if your work doesn't offer this plan, you won't have access to it. You can set aside up to $10,500 each year. You lose any unused funds and will need to renew your enrollment each year (we learned this the hard way).

Don't forget to update your financial plan for these numbers!

Important note. If you plan to contribute to an HSA or FSA plan through work, you may want to remove or reduce the amount of medical expenses in your financial plan because you'll now have money coming out of your paycheck to go toward them.

Homeowners Insurance – What You Need to Know

Homeowners insurance protects you if something breaks in your home or there is damage to your home, if something is stolen, or if someone sues you for getting injured in your home. It even can cover the cost of a hotel and meals if you have to be out of your home.

One important thing you'll want to calculate is your replacement cost. If your entire home was demolished in a fire (keeping it dark for you), how much would it cost to rebuild your home and replace everything inside? That's the amount of coverage you want to get. Liability limits are the maximum the insurance company will pay out under each type of coverage. There are usually limits per claim as well as a total limit for the year.

If you live in an apartment, your building may have homeowners insurance for the outside and structure of the building. In that case you would only need to cover the replacement cost of everything inside the apartment.

Depending on where you live, you might want to purchase additional insurance for certain perils (a cause of damage) that aren't covered under your homeowners insurance. If you live in Florida, hurricane damage is not typically covered in your homeowners insurance so you'd need a separate policy. If you live in an area prone to flooding you will want to make sure you're covered in the case of a flood or purchase additional insurance.

Your deductible is the amount you pay on your own before the insurance kicks in; it resets each year.

What If I Rent?

If you rent, you'll want a similar type of policy called renters insurance. It was one of the best purchases I ever made. Instead of covering the structure of the building and things like appliances and fixtures, it covers the things you own inside the home like your furniture and clothing, and will also pay for your hotel and meals in case you're not able to live in your home. It even covers items you own if they were stolen while not in your home. Snazzy, right?

In order to determine how much coverage you need, imagine that your apartment was turned upside down and everything was dumped out. How much money would you need to replace everything? Similar to homeowners insurance, there will be a coverage amount (the cost to replace your items) as well as a deductible (the amount you'll pay out of pocket before the insurance kicks in).

If you live with roommates, that's no problem. Just make sure to add them to the policy. I made the mistake of splitting a policy with my roommate and didn't put her name on it. When she went to make a claim, they weren't able to help her. I still feel terrible to this day!

Car Insurance – What You Need to Know

If you have a car, auto insurance is essential. It covers the damage to you and your car or someone else and their car in the case of an accident, as well as any damage from other things like theft, hail, or falling objects (or at least it should).

Your car insurance declaration page will list everything that you are covered for. Make sure:

• It includes everyone who will be driving the car.
• The car information is correct.
• It's enough coverage (more on this later in the chapter).
• The liability limits are correct (the max the insurance company pays).

How Much Will Car Insurance Cost?

Some factors used to price your car insurance include your location, the amount of coverage (more coverage is typically more expensive), your age (young drivers under 25 years old often receive a higher rate), how much you drive, your car make and model (safety, the cost to repair it, and chances of it being stolen may be considered), your driving history, and your credit score.

“Fun” fact: People with no credit pay 67% more for car insurance than people with excellent credit.¹⁰ In California, Massachusetts, and Hawaii, car insurance companies cannot charge you more if you have a low credit score. If you are not in one of those states and your credit score increases, contact your car insurance company to see if they'll give you a better rate.

Rates will vary by company because they all have different ways of calculating your risk. In the Financial Adulting toolkit you can find the average cost of car insurance by state as well as some other great car insurance resources.

How Much Car Insurance Is Enough?

Not having enough or the right coverage has been a fear of mine: you pay your premium every month, you get in an accident, and come to find out your insurance doesn't cover what you need. Understanding the types of car insurance quelled my fears.

Minimum limits. This is the minimum amount of car insurance required by your state. Most drivers will want more car insurance than the minimums. This may include personal injury protection, uninsured/underinsured motorist, and liability coverage (more on what these are shortly!).

Comprehensive and Collision. This one is a biggie. This covers the cost of repairing your vehicle in a crash (it doesn't matter who's at fault) or in the case of damage from a different cause (like a falling tree). Currently no state's minimum limits include comprehensive and collision. In the case of a crash, the minimum limits only cover the cost of repairs to the other person's vehicle.

Personal injury protection. This covers medical expenses for you and the others in your car (after an accident). This can include lost wages.

Uninsured/underinsured motorist. This covers damage caused by another driver who doesn't have insurance or not enough insurance.

Liability. This is if you are the one at fault in an accident. This can be liability for property damage or an injury.

What Is Life Insurance and When Do You Need It?

Life insurance pays out a specific amount of tax-free money when you die. This is called the death benefit. In exchange, you pay a monthly (or annual) premium (the cost of the insurance). Typically, the higher the payout (or death benefit), the higher the monthly premium. Also, the more likely you will die (the older you are, the more health issues you have, if you are a man, or the more risky your hobbies), the higher the premium. Dark, I know.

Who gets the money? Your named beneficiary or whoever you put on the policy; this can be a partner, child, or other person of your choosing. If the insurance is active when you pass away, they file a claim to get the money. It's worth reiterating that the money is tax-free to them.

Life insurance is important if you have children or someone else depending on you financially; you might also want some if you bought a home with a partner and they rely on you for the mortgage. Lauren Anastasio (the CFP and Director of Financial Advice at Stash we met in earlier chapters) says it can also make sense for anyone with student loans (that won't be forgiven) or credit card debt so that those they leave behind will be able to cover those debt obligations. But if no one is relying on you for money, you don't need life insurance. Don't buy life insurance if you don't need it.

The Types of Life Insurance

There are two main types of life insurance: term and permanent. With term life insurance you choose your amount of coverage (i.e., the amount your beneficiary gets if you pass away) and in exchange, you pay a monthly premium for a certain number of years. You can typically choose 10, 20, or 30 years. After that time, you no longer have life insurance or pay for life insurance, the idea being that your child is now grown up and doesn't depend on your income, your house is paid off, or you have saved up enough money that your dependents are protected if something were to happen to you. For 99% of people, term life insurance is the best choice. It's also the most cost-effective choice.

Some people (including insurance salespeople) will harp on the “wasted” money going toward premiums if you are alive at the end of the term and there's no death benefit paid out for your insurance. I'd say being alive is a bigger win. Tiffany says it best: “In the end, life insurance is a risk management tool, just like car insurance. If you pay for your car insurance policy through the life of its term and you never use it, are you going to be mad that you never got in an accident so that you could have used your insurance? I don't think so …”

The other type of life insurance is permanent insurance. It gets this name because you pay into it and once you pay into it enough, it doesn't go away when you stop making payments. There are different types of permanent insurance. The most common is whole life insurance. Universal life and variable life are other types of permanent insurance. These policies are very expensive, meaning they have very high premiums in relation to the insurance coverage you get, and insurance agents make a very high commission when they sell one.

There are a lot of fancy things insurance brokers may say to sell these policies to you. They'll talk about the cash value, fixed investment returns, the ability to borrow from your cash value, or even pretend it's a savings plan (yes, this happened to a client of mine). But if you were to take the amount you'd pay for this really expensive policy and compare it to a much less expensive term policy (we're talking 20–25 times more per month), and invest the difference, you'll have much (and I mean much) more money in the end in the scenario where you purchased the term policy.

So this begs the question, are these permanent insurance policies a scam? I've been asking this for years. Lauren says that, while they aren't a scam, people should be very judicious prior to purchasing insurance. The important questions to ask are: Where is the money going? What is the cost breakdown? What benefit amount do I really need? What is the type of policy, insurance or investment? She says, “Unfortunately, they are often being sold to people that they're not appropriate for.” I 100% agree. Shame on them.

So who should consider a permanent insurance policy? Lauren says they can make sense in two cases. And by can she means that it's something you can evaluate, not that it always makes sense. For those with:

• A high value illiquid (noncash) estate who are worried about the estate taxes that will be owed by those they leave behind. Georgia Lee Hussey (the CEO and founder of Modernist Financial whom you met in earlier chapters) gives the example of a family farm or multigenerational business where the assets being left aren't in cash.
• A child or family member who has special needs and will need expensive care throughout their life.

Brian shares that these circumstances account for less than 0.01% of the population and that no one else should consider whole life insurance. So there you have it. If you aren't in one of those two scenarios, stick with a term life insurance policy. And if you are in one of those two scenarios, know that not all permanent policies are created equal. You'll want to work with an independent broker and do a lot of research (more on this in the next section).

If you have a permanent insurance plan and now know that it's not a fit for you, it's important to understand what happens when you cancel to decide whether it's worth it to cancel (it usually is, unless you've been paying into it for 10 years, as that's when the bulk of the fees are paid off). Also make sure to have your term policy lined up before canceling your permanent policy.

How Much Life Insurance Do I Need?

Great question. Luckily, there's a calculator for that (in the Financial Adulting toolkit). There's also a pricing guide. Lauren recommends starting with your goals. Are you looking to cover your funeral expenses, pay off your debt, or have the money to support your kids through college? As fun as it sounds, think through the scenario if you were to pass away. How much would you want your partner, dependent, or children to have? How much would you want to give your children's guardian to raise them? How much would your sibling or friend need to pay off your mortgage if you're leaving them your home?

If you are looking for more of a general guideline, experts generally recommend getting 10–15 times your income in coverage and choosing a plan that covers you up until you retire. But I highly recommend working through a calculator as well.

What If I Get Life Insurance Through Work?

Some companies offer a certain amount of term life insurance as a benefit, either at no additional cost or for a small fee per paycheck. You can definitely factor this amount of insurance into your planning, but it's important to consider what happens when you leave the company. Are you able to continue the policy? If not, it's important to have a separate policy as well. You can always increase your private policy to make up for the difference. But if five years have gone by, the cost to increase your policy will be higher and it might have been more cost efficient to start with the total coverage amount five years earlier.

Short-Term versus Long-Term Disability Insurance

The main difference between short-term and long-term disability insurance is the length of time you have coverage. Short-term disability is for the short term. It typically kicks in after a couple of weeks and can provide you with income up until a year. Long-term disability is for the long term. It covers your income from usually around the year mark until retirement. Finally, financial terms that make sense!

Unless you get short-term disability through work (many do), it's usually not a cost-effective insurance to have. If your workplace doesn't offer a short-term disability policy, you can protect yourself for the short term with rainy-day fund savings.

How Much Does Long-Term Disability Insurance Cost?

Unfortunately, the cost of long-term disability insurance can be hefty. It can cost 1–3%¹¹ of your income per year. If you have long-term disability insurance available through work, it can often be much cheaper. I had the opportunity to carry over a long-term disability insurance policy through my last job. If you have that chance, do it!

“Fun” (but actually really not fun at all) fact: Disability insurance costs more for women since they have filed more disability claims. This is heavily skewed due to childbirth and pregnancy, which wouldn't be the case if we had mandatory paid leave. Ahhh. Rant over. Some insurance companies offer a gender-neutral rate.

Important: An “own-occupation” policy will pay out if you can't work in your current job, even if you can work in another job. If it's not an own-occupation policy, you might only see a payout if you can't work in any job. That's a huge difference! If you are in a highly specialized job that requires certain education and experience, you want an own-occupation policy if you can afford it.

Do I Need Disability Insurance?

Yes – if you earn money and want to protect your ability to earn money, you need long-term disability insurance.

Do People Use Short-Term Disability for Parental Leave?

Having a baby is one of the most common causes of short-term disability – which makes sense when most companies offer zero paid parental leave. Some people have short-term disability available through their employers, others get it on their own or qualify through their state. Some use FMLA (Family and Medical Leave Act) for 12 weeks’ unpaid leave when they have a baby. FMLA requires companies to keep your job for you while you are out. If you are out on short-term disability, there is no requirement for your employer to hold your job for you. FMLA can be used for paternity leave, but fathers taking leave will not qualify for short-term disability. It's often recommended that moms take short-term disability at the same time as FMLA so they are paid and their job is protected.