Do you need a financial advisor?

You may think that just because don’t have a lot of money yet, you don’t. And even if you want a financial advisor, you may think it’s impossible to get a qualified advisor to work with you if you don’t have six figures in the bank.

Many of the people I’ve been meeting with lately have echoed these sentiments, but I can tell you that just the opposite is true. Even if you don’t have large assets to manage, you may find that by working with the right advisor, you can reach your financial goals faster. In fact, it’s my opinion that, in many cases, young people need advisors more than older clients!

The question remains, how to choose the right advisor? The best way to answer this question is to be very clear on what your financial needs are.

Most of my younger clients need help in the following areas:

• Starting Investing
• Finding Small Business Funding
• Budgeting
• Buying Life Insurance
• Setting Up Wills and Trusts

The first thing you have to understand that financial advisor is a generic term. An advisor can be anybody who helps you with financial matters including: an attorney, an accountant, a banker, financial planner, or wealth manager. It’s no wonder that when trying to choose a financial advisor, most people don’t know where to begin!

But if you are sure about which of the five areas listed about you want help with, the job of finding the right advisor is actually pretty simple.

Starting Investing

If you’re looking for the best investments to make, a money manager will be the advisor for you. Try as hard as possible to avoid working with anyone who works on commissions like stock brokers and insurance agents. They may be as honest as the day is long. But if a person makes more money by selling you one investment or another, that is what they’re going to try to sell you.

Now, it may be difficult or expensive to get a money manager to work with you if your resources are limited. But here’s a tip that may work. Speak to a successful friend or family member and get them to recommend a good advisor. Ask your well connected friend to make a call and introduce you to her advisor. Ask your friend to convince her advisor to meet with you as a personal favor. Advisors don ‘t like to turn their well-to-do clients down. As a result, you’ll have a good shot at working with a top advisor even if your resources are very limited.

An alternative, if you can afford it, is to look for a good fee-only financial advisor who charges by the hour and hire him or her for a few hours to review your investments and make a plan.

If $500 or so is too much for you at this point, you can start investing on your own with an online broker and guidance you glean from books and blogs like ours. Don’t go all crazy day trading. Find a few low-cost mutual funds and regularly invest in them. But when you’ve amassed $20,000 or more, spend a few hundred bucks to make a plan with an advisor.

Finding Business Funding

Let’s say you have some great business ideas but you need some help getting your enterprise off the ground. People come to me all the time with scenarios like these. But in this case, what you really need is a business lawyer and a good CPA. These professionals are much more important to the success of your business than a financial planner. Save your time and money by visiting with them first.

At the same time, you may consider alternative funding resources like a start up business loan from Lending Club. They may be able to help you raise the money you need quickly and inexpensively. You won’t need a financial planner for this either.

Budgeting

If you are convinced that you need help with budgeting, you may be able to find a fee-only planner or money coach who specializes in this kind of planning.

Before you spend your money that way, however, explore free or affordable self-service options like a budget tracking software package like You Need A Budget or Mint. Of course, once you master your software, you have to really use it. I’m a big fan of recruiting an accountability partner to make sure you stay on course— a friend who wants to get his or her budget in line too.

Life Insurance

If you need life insurance, you can determine how much life insurance you need by yourself and then shop for the coverage you need without an advisor. In fact, I’ll make it even easier for you. If you’re asking yourself whether to buy term life insurance or whole life, always opt for term life insurance when your main objective is to protect your family. Many agents love to sell you whole life or universal life but my experience tells me it’s a waste of money.

Wills and Trusts

If you’ve started a family and/or inherited money, it may be time to start thinking about your will and, if you do have significant assets, creating trusts for your children. Obviously this may come later in life, but it may apply to a few of you! In this case, you’ll want to talk to an estate attorney who specializes in this field. You can search for attorneys in your area using the ABA’s Lawyer Referral Service.

IF YOU DON’T KNOW WHAT YOU NEED

Now, some of us don’t always know what we need—and if that describes you—hire a good financial planner who will work with you on an hourly “fee-only” basis.

You may be tempted to work with a stock broker or insurance agent because they’ll offer to meet with you for free, but don’t fall for it. While they’d love to get in front of you for a few hours without charging you, they’ll do whatever they can to sell you a high-commission product that you likely don’t need. You may feel like you’re saving money by getting a “free” evaluation or plan, but if you blindly buy the investment products this kind of advisor recommends, you may be spending far more than you would for a few hours of a financial planner’s time.

Meet with a fee-only advisor. Pay for an hour or two of his or her time and map out a financial plan. It’s worth it!

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But that’s not the only reason credit cards are the safer way to pay. To discuss some valuable but often-overlooked credit card perks, here’s Michael:

Love ‘em or hate ‘em, the fact is many credit cards come with some benefits you just can’t get with debit cards or cash. You probably know about rewards and fraud protection, but lesser-known credit card benefits are sometimes the most valuable.

What I’m talking about are various insurance benefits many credit cards offer cardholders. Here are some of the most useful:

INSURANCE FOR STOLEN OR ACCIDENTALLY DAMAGED ITEMS

How many times have you bought something, only to break or lose it soon after? I actually just had this happen to me a couple weeks ago. I bought a hoodie that I snagged on sale, only to totally mess it up a week later in the dryer…the fabric melted!

Unfortunately, I bought this with my Discover card. I used it to earn the 5% cash back at the department store, but, sadly, Discover doesn’t offer this benefit. If I had used an American Express card like the Preferred Rewards Gold Card, I would have been covered with Amex’s Purchase Protection insurance. In a nutshell, here’s how it works:

On eligible purchases you will be protected up to $1,000 in the event of accidental damage or theft occurring within 90 days from date of purchase.

Not surprisingly, the fine print lists a barrage of Purchase Protection exclusions, but most of them are to be expected. For example, you can’t blame AmEx for excluding motorized vehicles, living things, and perishable items. (Otherwise people could make claims for the moldy bread and bananas they forgot to eat.)

Visa offers a similar program called “Purchase Security” and MasterCard has “Purchase Assurance”, but both of these come with more restrictions than the AmEx program. Furthermore, not every Visa/MC includes it.

TRAVEL ACCIDENT INSURANCE

This benefit is included on most mid-tier and premium cards. The amount of coverage varies by card but it’s usually in the neighborhood of $100,000 to $500,000.

So when is all that moolah paid out? Well, if you die during “Common Carrier Conveyance” travel (an insurance term for passenger plane, ship, train, etc.), then your beneficiaries should be paid the full amount. If you survive the accident but are “dismembered” (i.e., you lose a limb or finger) then you will be directly paid a fraction of the amount.

There are a couple important things to point out here. First, this benefit only applies to travel paid for with the credit card. Second, some issuers also provide coverage beyond the “Common Carrier” part. For example, if you were on the way to the airport for a flight and your crazy taxi driver crashes, some cards may still cover you since you had technically already begun your trip. You’ll need to check with your card issuer to find out what is and isn’t covered.

One last thing…make sure you tell your loved ones about this benefit! Why? Because if, God forbid, you do die in an accident, you won’t be around to remind your parents or spouse about this benefit. Otherwise all that money may go unclaimed!

INSURANCE FOR LOST, DAMAGED, OR STOLEN LUGGAGE

In addition to your life, your luggage may be insured, too. Fortunately, you don’t have to die to get paid for this one!

Like the travel accident insurance, credit card luggage insurance applies to “Common Carrier Conveyance” (for most of us, this means travel on an airline).

If your luggage is lost, damaged or stolen, the credit card company may offer up to $1,250 (or more) in coverage. This is secondary to other forms of insurance. So if your luggage was worth $1,500 but the airline only pays you $1,000, then the credit card company will cough up another $500.

This benefit isn’t as common as some of the others mentioned here. Typically, you will only see it on premium travel cards and those with annual fees. There are a few exceptions, however, such as Visa Signature and World MasterCard tiers (which are sometimes free).

CAR RENTAL INSURANCE

This benefit is extremely useful as long as you understand how it works, because there is a boatload of fine print that goes along with it.

For starters, with almost every card you are given secondary coverage. So if you total that bright shiny 2011 Mustang you rented at Hertz and your personal car insurance provides coverage for rentals, don’t expect your credit card to pay any more than the deductible. However, if there are no other forms of coverage in place (i.e. you don’t own a car with insurance), then the cardholder coverage will kick in.

The benefit varies greatly by card and issuer but here are a few things to point out:

• If you don’t pay for the rental in full using the card, you won’t be eligible for this benefit.
• There’s a laundry list of vehicles that are excluded. Luxury cars, exotics, trucks, and even some SUVs are not eligible.
• Most cards will also cover you outside the United States but there are excluded countries.
• Coverage for administrative, loss of use, and other fees that rental agencies will ding you for aren’t always covered.

You can compare car rental coverage by credit card company, in which you’ll notice there are a couple of options if you want primary coverage instead of secondary. The Continental Airlines OnePass Plus and most Diners Club cards offer it.

EXTENDED WARRANTY COVERAGE

It rarely ever makes sense to pay for an extended warranty, but what if you get it for free? Well, you may be surprised to learn there’s a good chance the card in your wallet already gives you this benefit! Quite a few Visa and MasterCards include this, but American Express is the granddaddy of them all because they include it on all of their cards and provide more extensive coverage:

American Express will extend the terms of the original U.S. manufacturer’s warranty for up to one additional year on eligible purchases with warranties of 5 years or less, when the eligible purchase is charged to the card.

I have heard from members on my forum that had their laptops, phones, LCD TVs, and other devices covered b AMEX. It’s an extremely useful benefit, but you’ll wan to verify certain coverage exclusions imposed by AmEx.

TRIP OR TICKET CANCELLATION INSURANCE

Ever book a trip that you were unable to take due to illness? Or maybe you shelled out big bucks for tickets to a concert or game, only to come down with the flu a day before?

With some some credit cards, you can actually be reimbursed if your trip/ticketed event is cancelled or interrupted due to qualified circumstances. What qualifies, you ask? That varies by issuer, but if you or someone you’re traveling with has a serious illness or injury, there’s a good chance you will be covered. Some card issuers even cover things like natural disasters, losing your job, terrorism, labor disputes, and more.

If you want a card that offers this type of insurance, you may want to check out Escape by Discover.

INSURANCE FOR UNRETURNABLE MERCHANDISE

I think you probably would agree with me that stores are mostly accommodating when it comes to accepting returns, but every once in a while we encounter one that gives us a hard time or just doesn’t accept returns, period.

When that happens, this benefit can come in handy. Here’s how the AmEx version works:

If you buy an eligible item and the merchant won’t accept your return during the first 90 days, AmEx will refund the full purchase price, up to $300 per item/$1,000 annually. However, shipping and handling costs will not be refunded.

Some Visa cards offer similar coverage but the benefit is capped at $250 per item/$1,000 annually. MasterCard is the same as Visa, except that coverage is only available up to 60 days after purchase.

Weigh in: Have you used any insurance benefits on your credit cards? What happened? How’d it work out?

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I’m talking about health insurance. If you’re lucky enough to be offered insurance at work, you can simply enroll in your company’s plan. But like many young adults, I don’t get insurance through my job — I’m a freelance writer. When I bought my own health insurance plan over a year ago, I didn’t know what I needed to buy or how much I had to pay. I just picked a plan that sounded good and hoped for the best.

Since healthcare reform passed earlier this year, there are more health insurance options for young adults and new sources for health insurance information. So there’s no excuse not to get covered.

Why you need insurance, even if you’re young and healthy

Young adults are less likely to be uninsured than any other age group because we’re less likely to work in jobs that offer health insurance, according to a 2009 Henry J. Kaiser Family Foundation report on the uninsured. We’re also likely to be in school or have low incomes, which can make finding affordable health insurance difficult.

Considering that medical bills are the leading cause of bankruptcies, according to a 2009 New England Journal of Medicine study, health insurance is one of our most important financial protections. Even if you’re healthy, an unexpected injury like a broken leg could leave you with thousands of dollars of debt if you don’t have insurance.

New options for young adults under 26

If you’re under 26 and don’t get health insurance at work, a recently enacted provision of healthcare reform lets you stay insured under a parent’s plan, even if you don’t live with your parents or you’re married. Latching onto a parent’s plan may be your most affordable option – your parent’s premium may increase slightly, but the increase will likely be less than you would pay for your own plan. For more details about the new dependent health insurance provision, visit GettingCovered.org.

Buying insurance on your own

When I bought my own health insurance plan from the individual market, I didn’t know what kind of insurance plan I needed, how much I should pay for insurance or how to compare plans. So I asked Keith Mendonsa, a consumer specialist at the health insurance comparison website eHealthInsurance, for some pointers on shopping for health insurance.

First, determine what you need health insurance for, Keith said. Do you use prescription drugs? Visit the doctor frequently? If you’re a woman, do you need health insurance to cover medical care for a pregnancy? Do you want to visit a particular doctor?

Understanding your health care needs will come in handy when you search for insurance plans. If you plan to get pregnant, you’ll want to look for a plan that covers maternity care (not all insurance plans do). Have your heart set on getting check-ups from your favorite doctor? You should pick a plan from an insurance network your doctor belongs to – otherwise, your visits may not be covered.

Comparing plans

To search for an insurance plan, you can use a website like eHealthInsurance or talk to an insurance broker. But comparing plans for price can be tricky — you’ll need to consider premiums, deductibles, co-pays, co-insurance and out-of-pocket maximums to figure out how much you’ll pay.

I told Keith I was unhappy that my insurer raised my monthly premiums by about 25 percent earlier this year. I found a similar plan with a lower premium and asked Keith if it would be a good option for me. Keith explained that the plan with a lower premium had a higher out-of-pocket maximum, so while I would initially spend less on premiums, I could end up paying more in the long run if I get sick.

Although it’s tempting to pick the plan with the lowest premium, ask yourself how much you could afford to pay if you actually got sick or injured – if it’s less than the plan’s out-of-pocket maximum, you may be better off with a plan with a higher monthly premium. But even if you choose a plan with a higher deductible or out-of-pocket maximum in exchange for a lower premium, you’re still making a better choice than skipping health insurance altogether to save $100 a month on premiums, Keith said.

Health care you can get for free

If you bought your own health insurance plan after September 23, 2010, changes under health care reform require your plan to cover preventive care, like flu shots and blood pressure screenings, for free — your co-pay, co-insurance or deductible wouldn’t apply. If you bought a plan before that date, it might be “grandfathered in” and not subject to this new requirement. For more information about what’s covered under the preventive care provision, check out Healthcare.gov.

Options for people with pre-existing conditions

You may not be able to buy your own health insurance plan if you have a pre-existing condition like asthma or diabetes. By 2014, health care will prohibit insurers from denying coverage due to medical history. But until then, you may be able to get insured through the federal high-risk health insurance pool or a state program. Keith suggests visiting Coverageforall.org to see what programs are available in your state.

Emily Beaver is a San Francisco-based freelance writer who covers healthcare issues. Her writing has appeared in the Huffington Post and Youth Radio’s Generation Invincible series.

• Myth 1: Nobody needs life insurance in their twenties, but everybody needs life insurance when they get older.
• Myth 2: Certain types of life insurance are a smart way to build wealth.

Fact #1: You Need Life Insurance If (And Only If) You Have a Family

Don’t base the decision to purchase a life insurance policy on age. If you’re 24 and already have two children, unless you’re already wealthy, you should have life insurance. You may be healthy, but accidents happen, and the responsible thing to do is to leave your children with something. On the flip side, if you’re 25, 30, or even 45 and single, you do not need life insurance. If you kick the bucket, so what? Your salary wasn’t putting a roof over anybody’s head but your own.

So as soon as you have a child, you need to start thinking about life insurance. You only need to carry life insurance until your oldest child moves out (or finishes college, if you want to help provide for higher education) or you will have saved enough to provide for your family if you die. (If you’re investing wisely, you will hopefully have significant assets in 20 or 30 years). And with guaranteed level term life insurance, the younger and healthier you are when you purchase policy, the less you pay for the entire 20 or 30 years you carry the policy.

Fact #2: Term Life Insurance Is the Only Kind You Should Buy

Unfortunately, seventy percent of life insurance policies sold in America these days are cash value life insurance policies as opposed to term life insurance policies. What’s the difference?

• Cash Value Life Insurance: With a cash value policy, you pay regular premiums to the insurer and the insurer invests your premiums (minus expenses). If you die before the policy expiration, the insurer pays out a full death benefit. If you don’t die before the policy expiration, you get back your premiums plus interest, minus expenses.
• Term Life Insurance: With a term policy, you pay regular premiums for a fixed term (20 or 30 years). If you die within it that term, the insurer pays a death benefit. Otherwise, when the term expires, you do not get any of your premiums back.

Okay, so based on the above descriptions, cash value sounds like the better deal. After all, with cash value you get to keep some of your investment if you don’t die. Why should you go with term life insurance?

For one, compared to investing wisely, on your own, in mutual funds, cash value life insurance makes a pretty lousy investment. Sales people promise all sorts of great returns, but after expenses, buying a cash value life insurance policy can be like leaving your money in savings account for 30 years. In addition, term life insurance is about 10 times cheaper than cash value policies.

Dave Ramsey also recommends term life insurance above cash value, citing the following example:

If a 30-year-old man has $100 per month to spend on life insurance and shops the top five cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100.

Ramsey goes onto give average returns, after expenses, for whole life (2.6 percent), universal life (4.2 percent) and variable life (7.4 percent). That doesn’t sound half bad, until you consider that many investors get between eight and 12 percent average annual returns with mutual funds.

So the lessons are: If you have a family, you need life insurance (regardless of age) until you have saved enough to provide for them if you die. Do not buy cash value life insurance, get a term policy and invest the difference.

Learn more or get a term life insurance quote now

Probability of Developing Cancer

According to the American Cancer Society and their studies showcasing the probability of developing invasive cancers over selected age intervals there is a one in 70 chance of developing cancer before the age of 39 for men and a one in 48 chance for women. If we stretch it out even further then over ones entire lifetime there is a one in two chance of developing cancer for a male and a one in three chance for a female.

If the above statistics don’t scare you and shock you to some degree then consider that these are just cancer statistics! There are any other myriad number of different things that can and often do go wrong from a simple broken bone in a sports injury to an illness that you had never even heard of until the doctor sits you down to give you the diagnosis.

I’m not just rattling off these statistics to paint a doom and gloom picture, but to set the stage for three reasons I believe you need adequate health insurance benefits.

My Three Reasons

1. Very bad medical problems can and do happen to many of us—maybe even you.
2. Those very bad medical problems can be very expensive and potentially ruin one’s financial future if they do not have adequate health insurance.
3. It is a smart thing to purchase comprehensive health insurance coverage to protect not only your health but also your financial future.

The Cost of Common Health Procedures

According to ChangeHealthcare.com the cost of these common procedures at Tampa General Hospital close by where I live is somewhere in these ranges (keep in mind that these cost estimates are just for the hospital fees and does not include medications, extra tests, Doctors fees, etc.

I know from personal experience after talking with a friend of mine that after he developed leukemia the cost of his prescriptions alone would have been somewhere in the $3,500/month range without his health insurance. Stories like his are good stories to tell because he actually had health insurance coverage, where as the owner of an agency that sells Florida health insurance I could tell you many other stories from the flip side of people that ran their finances into the ground because they did not have adequate health insurance coverage):

• Heart Attack: $37,650 to $41,17
• Fracture of Upper Leg (Femur): $22,648 to $24,771
• Lung Disease: $49,963 to $51,366

Again, the cost estimates above are just the basic hospital average costs for Tampa General Hospital and do not include many of the associated fees that are involved.

Buy Health Insurance Before You Need It

Many people are of the mistaken belief that they should just wait until they develop a major illness before they buy health insurance. This kind of thinking is akin to someone who totals their car without having any car insurance and then goes to an auto insurance agent and attempts to buy collision coverage for their already totaled vehicle and expects the insurance company to pay for the damages to their car. The most responsible thing that you can do when it comes to caring for you and your family’s health (and securing your financial future) is to make sure that you have adequate health insurance at all times – before you may need it (and hopefully you never even need to use it!)

Compare Health Insurance Providers

If you have financial goals like buying a first home, getting out of debt, or any other number of great things then take the time to do some comparison shopping to find not only a cheap health insurance plan but one that will act as a safety net to protect your financial goals from the financial ruin that a uninsured medical bill could bring. Just like it is common knowledge that you can save money by doing a car insurance comparison every so often it is not as widely known but just as effective to shop around and compare health insurance providers in order to find an affordable plan.

Stick with large and trusted companies like Blue Cross Blue Shield, United Healthcare, Aetna, Humana, etc. and stay away from discount health plans that masquerade as true health insurance but in reality are just hyped up coupon cards that leave you out in the cold with little to no coverage should you ever get hit with a large medical bill.

Do your homework to shop around and then choose a comprehensive major medical health insurance plan from a trusted nationwide company to make sure that your health care and financial future has an adequate safety net should the unfortunate happen.

Joel Ohman is a Certified Financial Planner and President of 360 Quote, LLC. He is a serial entrepreneur and is currently spearheading several successful consumer comparison websites including Credit Card Chaser and Health Insurance Providers.

Photo Credit: The Doctr

Over 47 million Americans lack health insurance; 39 percent of the uninsured are between the ages of 18 and 34, according to Qvisory.

It makes sense that young people are the least insured. We’re more likely to be in school or working part-time and not have access to employer-sponsored health insurance. We don’t qualify for government programs like Medicaid. Our incomes are low, so we can’t afford even the least expensive policies. Finally, because we’re young and healthy, many of us simply feel invincible and like we don’t need insurance.

Half of the states extend the age that dependents may be covered by their parents’ insurance beyond age 19.

If you live in one of these 25 states, your parents may be able to include you on their health insurance plan.

Medical bills are the leading cause of consumer bankruptcy.

According to a study by The New England Journal of Medicine, “illness or medical bills contributed to nearly two thirds, or 62 percent, of all bankruptcies in 2007—before the major impact of the housing collapse and current economic downturn”. If you get sick or injured and don’t have insurance, there’s a good chance your medical bills will drive you into bankruptcy. But the problem doesn’t stop with the uninsured. According to this related Consumer Reports article,

Just over three-quarters of people who suffered a bankruptcy due to illness were insured at the onset of their health issue. But the total out-of-pocket medical costs for those who had insurance when they became ill was a steep $17,749, on average. For those who didn’t have insurance, the average debt was $26,971.

Young adults may pay for a big part of healthcare reform.

Again, a big reason young people are under-insured is because we can’t afford coverage. The low-cost insurance options Washington is proposing as part of healthcare reform will help, but they don’t solve this problem entirely.

First, since young adults are healthier and less costly to insure, our premiums will subsidize the care of the older and the sicker. But most critically, if the government mandates that Americans have health insurance, we may have to pay a fine if we don’t purchase a policy. According to this Washington Post article:

[One bill] would fine individuals who do not purchase coverage. An early draft of the proposal set the penalty at $750 or $950 per year for single people, depending on income. But according to various insurance experts, even the least expensive plan under the bill could cost more than $100 per month, making it cheaper for people to pay the fine than to buy insurance.

In effect, this may not solve young Americans’ healthcare problem at all: it simply taxes those that continue to go without healthcare while providing less expensive (but potentially still unaffordable) plans.

You can buy health insurance on your own, right now.

Many young people don’t realize that you can buy health insurance even if you don’t get it through your employer, college, or parents. You probably can’t afford “Cadillac” health insurance plans like those offered by some employers, but you may be able to afford what are called “catastrophic” plans that will cover you should you get into an accident or suddenly become sick. Two resources can help:

• Qvisory has partnered with insurers to provide affordable plans specifically for young people. Learn more about Qvisory health insurance plans.
• eHealthInsurance is a Website that lets all consumers shop for and compare hundreds of different plans. Learn more about eHealthInsurance.

What do you think? Do you think the government should require Americans to buy health insurance or pay a fine? What would you do? Are you young and dealing with extraordinary healthcare costs? Were you insured? Please share your story in a comment.

Young adults are the “least insured” group in America. We have plenty of excuses: We’re students, we’re either unemployed or employed in jobs that don’t provide health insurance, we’re poor, and, of course, we’re mostly healthy. Unfortunately, we also use that last excuse to justify not using health insurance even when we have it.

And that’s a big mistake. Not only for our health, but also for our wallet.

Under most affordable health insurance plans in America (whether employer sponsored or purchased individually), our out-of-pocket costs for preventative health care are minimal. There might be a $20 copay for a visit to the doctor’s office and another for a prescription.

When it comes to medical emergencies and the treatment of chronic conditions, however, our out-of-pocket costs skyrocket. Under many affordable health insurance plans, for example, ER visits cost us $50, $100, even $150. Many plans will also require an out-of-pocket payment for hospital stays, up to an annual deductible.

Of course, some emergencies and hospitalizations aren’t preventable. But many are. Seeing your doctor regularly—or at the first sign of a potential problem—could at least save you the difference between a $20 office visit and a $150 ER visit.

Plus, there’s another good reason to use your health insurance: The possibility that you’ll become uninsured.

For example, if you rely on your employer’s health insurance plan and suddenly become unemployed, you may not be able to afford continued coverage through COBRA or other affordable health insurance options. Although it’s always best to find carry kind of affordable health insurance (even if it’s just a minimal policy), the more you use your health insurance when you have it, the more secure you’ll be in your health should you face a period without insurance.

So if you’re worried about losing your job (and insurance) or anticipate making a life change that will leave you uninsured, get in to see a doctor while you are still covered. Hopefully, the doc will give you a clean bill of health. In the worst case, he or she will alert you to potential health problems that you can either manage carefully if you have to go without health insurance or make you think twice about going uninsured.

If you are unemployed or anticipate losing your job, read How (and Why) to Get Health Insurance When Unemployed. Looking for an affordable health insurance plan on your own? Check out health insurance quotes from eHealthInsurance.com.

Even when insurers break down plan benefits in neat grids, you need to know the difference between deductibles, premiums, out-of-pocket maximums, co-pays, and co-insurance to know what you’re actually paying.

If you already have insurance, it’s important to be prepared for your share of the doctor’s bill, but it’s especially important to understand this stuff if you’re shopping for health insurance. (I know, when you’re healthy, it’s tempting to ignore deductibles and out-of-pocket maximums because, chances are, you won’t need much care. But when you do need care, these things directly impact how much YOU pay for healthcare.)

There are several health insurance terms to understand:

• Premium: The monthly fee for your insurance.
• Deductible: How much you must kick-in for care first, before your insurer pays.
• Co-pay: Your cost for routine services to which your deductible does not apply.
• Co-insurance: The percentage you must pay for care after you’ve met your deductible.
• Out-of-pocket maximum: The absolute max you’ll pay annually.

Still confused? I’ll explain these terms in more detail below. Need insurance? Armed with this information you can fairly compare plans. Shop for individual and family health insurance online now with eHealthInsurance…it’s the easiest way to compare plans, and you can buy insurance online in most states.

PREMIUM

Your premium is the amount you pay into the insurance plan on a regular basis. If you belong to an employer-sponsored plan, the premium is likely deducted from each paycheck as pre-tax dollars. If you purchase your own health insurance plan, you may have the option to pay your premium annually, quarterly, or monthly. Health insurance premiums vary greatly depending on what medical expenses the plan covers, which doctors you can see, and how much you will have to pay in other ways when you use services.

DEDUCTIBLE

Your health insurance deductible is the amount that you will have to pay annually for your healthcare (such as surgical procedures, blood tests, or hospitalizations, but not routine office visits) before the health insurance pays anything. For example, if you have a $2,500 deductable and undergo three $1,000 procedures in a year, you will have to pay the full bill for the first two procedures and $500 of the third…your insurance will cover half of the third procedure.

Increasing your deductible is the easiest way to lower your premiums and, if you’re mostly healthy, might be a good idea. Just understand, however, that if you have a $10,000 deductible and get sick, you could end up with $10,000 of medical bills in a year. Typically, your deductible does not apply for preventative health checkups and many routine health services…you’ll just pay a co-pay instead.

CO-PAY

Your co-pay is the fixed amount you pay for using routine services like visiting your primary care physician or an emergency room or purchasing a prescription drug. In most cases, the payment is the same regardless of the extent of the visit or the cost of the drug. For example, a plan may require co-pays of $20 for office visits, $100 for emergency room visits, and $15 for generic prescriptions or $30 for name-brand drugs.

CO-INSURANCE

Co-insurance is similar to a co-pay, although co-insurance generally applies to less routine expenses, and is expressed as a percentage rather than a fixed dollar amount. Co-insurance is in addition to your deductible. So if your plan has a $100 deductible and 30% co-insurance and you use $1,000 in services, you’ll pay the $100 plus 30% of the remaining $900, up to your out-of-pocket maximum. You may find plans with no co-insurance requirements, some with 20/80 or 50/50 coinsurance, or other combinations.

OUT-OF-POCKET MAXIMUM

Your out-of-pocket maximum is an important feature of your health plan because it limits the total amount you pay each calendar year for healthcare including co-pays, deductibles, and co-insurance. If your policy carries a $2,500 out-of-pocket maximum and you get sick and require a lot of healthcare services, the most you will pay in a year is $2,500. After that, insurance picks up the rest of the tab.

Deductible vs. out-of-pocket maximum. The difference between your deductible and an out-of-pocket maximum is subtle but important. Out-of-pocket maximum is typically higher than your deductible to account for things like co-pays and co-insurance. For example, if you hit your deductible of $2,500 but continue to go for office visits with a $25 co-pay, you’ll still have to pay that co-pay until you’ve spent your out-of-pocket maximum, at which time your insurance would take over and cover everything.

A note about lifetime maximums. Insurance plans used to frequently have lifetime maximums, often of $1,000,000 or more. The recent healthcare reform has made this illegal, however. These lifetime maximums could be devastating if you ever required intensive surgery or cancer treatments, which often can cost up to $500,000 a piece. If you needed more than one, you could basically run out of health insurance when you need it most.

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For anybody who is laid off or quits a job that provided health insurance, it’s critical to understand how COBRA laws work and allow you to continue health insurance coverage if you need it.

If you’re simply moving from one job with health insurance benefits to the next, you don’t need to worry about COBRA. If, however, you will be unemployed or otherwise without health insurance for a period of time, listen up. COBRA allows you to elect to continue receiving your health insurance benefits for up to 18 months at the same group rate your employer was paying. Your employer should give you a document outlining the monthly costs for your healthcare plan.

COBRA health insurance, although the same as what you were receiving at work, will likely be more expensive. That’s because most employers pay for a substantial percentage of your healthcare premium—deducting only a small amount of the premium from your pay. If you elect COBRA coverage, you’ll pay the full premium.

The good news is COBRA is retroactive within the election period, which may be quite lengthy. That means if you decide not to pay for COBRA health insurance but, a month from now, fall and break your arm, you can sign up for COBRA and the insurance will be good back to the date you left work. And paying for that insurance just might be cheaper than paying for an arm cast.

COBRA provides an important safety net for laid off employees with ongoing medical needs. Healthy individuals, however, may be better served by low-cost health plans they can buy on their own that cover only major medical expenses from an accident or unexpected illness. You can compare health insurance plans at eHealthInsurance or read more about why and how to insure yourself when unemployed.

If your parents, university, or full-time employer provides health insurance, fortunately you don’t have to spend much time thinking about it. But what if you’re self employed or work only part-time? What if you’re employed today but lose your job tomorrow? Do you know where to turn for health insurance?

Why You Need Health Insurance

In case you don’t think you need health insurance, consider the possibility that you could be hit by a bus on the way home tonight. Next, consider the average costs of some regular medical expenses based on data from ChangeHealthcare.com, a site where consumers can share and compare medical expenses:

• Emergency room visit: $1,200
• MRI: $1,800
• X-Ray: $250–$600
• Fracture: $500–$3,000

Finally, consider that every other test, every follow-up appointment, and every prescription you need will dramatically add to the above costs. Health insurance, even a minimal amount, is one of the smartest financial decisions you can make.

Health Insurance for the Unemployed and Self-Employed

The reason why health insurance is such an important employee benefit is because it’s so expensive, and employers get discounts for buying group policies for all their employees. That said, freelancers, entrepreneurs, part-time workers, and everybody else not working for the man can go out and buy health insurance on their own. It’s just expensive. Comprehensive health insurance plans for a single policyholder can be well above $500 a month.

Of course, these kinds of health insurance policies—HMOs and PPOs—are expensive because they let you see most doctors for a $20 copay and will require very little additional out-of-pocket expenses, no matter what happens to you.

You can, however, get much more affordable plans that may not reimburse your gym fees and acupuncture sessions, but will save you tens of thousands if you wipe out snowboarding this weekend and end up in a body cast. These so-called catastrophic health insurance plans can be yours for much less. Regular checkups and prescriptions may not be covered under these plans, but they’ll kick in to cover the big expenses if you require procedures or a hospital stay.

If you recently left your job—whether you were laid off or quit—you are also eligible for COBRA health insurance. Under federal law, you can continue to subscribe to the health policy you were receiving at work for up to 18 months, but you’ll have to pay the entire premium. (Most employers pay a big percentage of this while you’re on the payroll). Therefore, COBRA coverage will end up being expensive and you might be better off with a cheaper catastrophic plan.

Finding Your Own Health Insurance

There are a number of health insurance comparison Websites out there on which you can search and compare health plans based upon your needs. One site, eHealthInsurance, stands out in part for the sheer number of options it provides—thousands of health plans from hundreds of providers.