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Why You Need a Health Emergency Fund
by Chris Iliades
A health emergency, an emergency room visit, or a long illness can set you back financially if you are not prepared.Learn how to set up a health savings fund to cover things your health insurance might not.Even with good health insurance, a health emergency or a prolonged illness can be a financial disaster. Health insurance deductibles, co-payments, emergency room costs, and other costs of illness can add up in a hurry. A health savings account (HSA) is one way you can put aside tax-free money for a health emergency. HSAs were established in 2003. If you are covered by a type of insurance known as a high-deductible insurance plan, you can make tax-deductible contributions to an HSA. Your employer may also make tax-deductible contributions. 11 Weird Body Quirks—Explained! "An HSA account is very different from having a general emergency fund account," says Joseph J. Porco, managing member of the Financial Security Group, LLC, in Newtown, Conn. “An emergency fund is about more than just out-of-pocket medical expenses. If possible, it’s a good idea to have both.” How Much of an Emergency Fund Do You Need? For an older adult, a health emergency might result in the need for long-term care, possibly for the rest of the senior’s life. For a young adult supporting a family, a medical emergency might be much more than just the cost of illness. Your health emergency could cause a disability that results in loss of income over an extended period. That means you should save enough to cover all your expenses. "Most advisers would say you should have enough emergency funds saved to cover your family expenses for three to six months. I would recommend trying to put enough aside to cover all your expenses, not just health expenses, for 6 to 12 months," says Porco. How much you need for a health emergency and how much you can actually put into an emergency fund will depend on your family size, your income, your health status, and your age. But your first step is to understand your health insurance situation. "The best way to start is to sit down with a financial adviser and figure out what your insurance actually covers and what it doesn't cover. What are your insurance limits? What kind of medical bills might arise that you would be responsible for? Get some expert advice on how best to cover your actual needs," advises Porco. 9 Surprising Things That Can Make You Sick What Insurance May Not Cover How much insurance companies actually pay for accidents, cancer treatment, or surgery depends on what kind of insurance you have, but there are usually limits. Here are some facts to consider:
How to Save for a Health EmergencyOnce you know what your insurance actually covers and how much you need to put away for an emergency, the next question is where to put it. "Money that you put aside for a health emergency needs to be liquid and secure," says Porco. "That means you need to be able to get it when you need it.” And your money needs to remain liquid. “Those who fail to set up an emergency fund may find themselves running up credit card debts to cover their expenses. The last thing you need is to be paying interest on your emergency," warns Porco. Examples of places to put your emergency fund include an interest-bearing checking or savings account, money market fund, or bond fund. Don't tie your money up in anything that would penalize you for early withdrawals or any investment or account that has the potential for loss. A Sneak Peek Inside the Human Body Practical Ways to Save There are many different ways to approach starting — and adding to — your health emergency savings. "You can take advantage of a health savings account if this is offered at your job, but start a general emergency fund also," suggests Porco. Here are more health savings tips:
Remember, while HSA accounts are useful, a general emergency fund is equally important. Whether it is a health emergency that involves an uncovered emergency room cost or a prolonged illness like cancer, the actual cost of illness may end up being much more than your out-of-pocket health costs if you’re unable to work. Sit down with a financial adviser and find out what you can do to better insulate yourself from a health emergency. |
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