You never know when a major medical expense will cause you grief and threaten your finances.?
Health care costs continue to rise, and you never know when a major medical expense will strain your personal finances. While none of us like to think of the possibility of falling prey to a major medical expense, the reality is that you need to be ready.
Prepare Ahead of Time
One of the best things you can do is to prepare ahead of time. First of all, make sure that you have the right health insurance coverage. You can reduce overall financial stress?by protecting your assets over time. The right insurance coverage can help prevent the brunt of a major medical expense falling on your shoulders. Check your health insurance to ensure that you are adequately covered.
Next, be sure to build up your emergency fund. A cash cushion can help you when you run into trouble. Your emergency fund can help you cover the costs related to your deductible, especially if you have a high deductible plan. If you do have a high deductible plan, consider opening a Health Savings Account. This is a tax-advantaged account that can help you build your cash reserves to be used on major medical expenses later.
Finally, cultivate income diversity. You might be surprised at how helpful extra income can be during times of health problems. You might not be able to go into work and earn your living as expected, but your alternative income streams from businesses or investments can help shore you up. Take the time to build different revenue sources, and you will have a little more protection in the event of a major medical expense.
You can't know when tragedy will strike. However, one of your best defenses is to prepare?now. Do what you can to get your financial ducks in a row: pay down debt, purchase insurance, build your emergency fund, and develop alternative income. These are good steps to take no matter what, since they can help you prepare for any unexpected expense — not just those related to a medical catastrophe.
Alternative Funding for a Major Medical Expense
Even when you prepare ahead of time, though, it can be difficult to fully manage all of your expenses. Some costs, like those related to a serious illness such as cancer, are just too big to adequately plan for. This is where alternative funding might come into play. There are companies like Life Credit Company willing to provide you with a life insurance benefit loan, which allows you to borrow against your death benefit. With these types of loans, you are able to get extra cash, and the loan (plus fees and interest) are repaid after you pass away. Whatever is left after the loan is discharged goes to your beneficiaries. If you are struggling, and your serious illness has come upon you suddenly, before you've had time to adequately prepare, these solutions can be helpful.
Another consideration is the use of crowdfunding. There are a number of crowdfunding websites devoted to helping you reach out to your network to raise money for a major medical expense. Someone in my own network is using crowdfunding to raise money to help pay for chemotherapy (we've donated).
Chances are that, for a major medical expense, you will need to combine more than one strategy in an attempt to cover your costs. However, if you are creative about your methods, and if you do what you can to prepare ahead of time, you might be able to manage your health care costs.
2 thoughts on “How to Pay for a Major Medical Expense”
We have a health savings account that we are slowly funding. The first level is to get to the ‘out of pocket’ limit that we’d have to pay before insurance kicked in, and we’re really close to that. The next step would be to fund it to the maximum out of pocket for a year, and anything after that is just building for the long term. We also have emergency fund money and non-retirement stock investments that could be tapped into if needed, so I feel we have a good multi-tier strategy.
The HSA is one of my most favorite financial things EVER. I’m trying to avoid actually using my HSA right now. Instead, I’m hoping to build it up to be used as a sort of out-of-pocket health care account during retirement. Because the HSA offers a tax deduction now, and if you use the money on qualified expenses it’s tax-free on earnings, theoretically, it could be money that is NEVER, EVER TAXED. It’s amazing. As far as your own strategy goes, great job on going multi-tier. It’s good to have solid backup plans in place.