Much of personal finance is not amazingly complex once you take some time to lay out the basics. We have covered some important topics previously: tips on using credit cards, retirement saving, creating an emergency fund… One of the most critical factors is to insure yourself against possible catastrophic events.

Some personal finance mistakes can set you behind, say falling to save for retirement when you are 28 or cashing in your 401(k) when you switch jobs at 27. Those mistakes however are most often manageable. You just need to save more later. For health insurance the critical need is to protect yourself from huge costs.

Bankruptcies are a huge problem due to health costs. If you have done everything else right and have saved up say $150,000 in mutual funds (in addition to retirement savings and a house) at age 40 but have no health insurance there is little I can think of more likely to result in your losing that saving than a health crisis when you are without coverage (disability insurance is another critical personal finance need that I will discuss in another post and the another such risk – as is an uninsured home). The costs of health care are just too large for any but the richest to survive a major cost without either ruining an entire lifetime of smart financial moves or coming close.

There are certain things that cannot be compromised in your personal financial situation. Health coverage for significant costs is one of those. If you can afford a $5,000 (or higher) deductible that is fine. The critical need for health insurance is not the first $2,000 or $20,000 but the 2nd, 3rd, 4th… $100,000 bill. A bill for $2,000 you can’t afford is a challenge but a bill for $100,000 you can’t afford can ruin decades of smart and diligent financial moves.

As I mentioned earlier, I will discuss disability insurance in another post, but it is another thing that you must get. The risks are much to high without it. As is car insurance. If you must compromise the risk to your long term financial picture is the huge risks ($50,000, $200,000…). If you need to take risks, take them by raising your deductible (which will limit your cost of insurance) and get the important catastrophic coverage you need.

The health system in the USA does not always make this easy (sometimes it is because it just is a benefit that you get from your job). Still it is critical. You can’t take the risk of living without health insurance.

Related: Broken Health Care System: Self-Employed Insurance – Held Hostage By Health Care – Traveling for Health Care

Resources: Web MD Health Insurance Education Center – AARP Individual Health Insurance – Buying Private Health Insurance – Money 101: Health Insurance – The Commonwealth Fund on Health Insurance

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