When one engages in any type of insurance as a policyholder, he or she is doing what economists call risk management. In order to hedge oneself from a certain risk-fortuitous or otherwise-a premium is paid to another entity that will indemnify when it does happen by pooling together resources. Such events can come in the form of contraction of an illness, a debilitating disease, and a disabling accident. Individuals who wish to be shielded from the heavy toll of these events, not just on the body, but also on the resources, acquire one or two health insurances or medical plans.

In principle, the fee or the premium is determined by the risk severity and frequency. The premium is likely to be higher for those whose health risks are assessed to be serious, probable, and recurring. This explains why health insurance premiums tend to be more expensive for those who are buying at their old age. People who smoke, drink, and take drugs may have difficulty securing a medical plan, or, they pay a large sum for a premium. Sometimes, those who are engaged in extreme sports or hobbies are unable to get one, unless their activities are excluded from the insurer’s list of accidental losses.

The US government will have medical plans for those with disabilities, as well as for those who are already 65-years-old, above. Since social health insurance works around the principle of resources pooling in order to provide coverage, the person insured will have the advantage of lower premiums despite predictable and probable losses. A certain degree of stability is also guaranteed, because the risk is shared both by the government and the citizenry. Of course, health insurance of this type also provides a wide range of accredited physicians and clinics, extending to all states.

However, the limited coverage of the public health insurance may be appealing to many. There are those who go for private medical plans that have wider coverage in terms of health risks, to include chronic and debilitating diseases, which may require prolonged hospitalization and treatments. Some insurers allow their clients the flexibility of choosing their preferred and trusted doctors and hospitals, an attractive feature of this health insurance. Inclusion of health of the immediate family members in the coverage is also possible, for an extra fee. As one may have already observed, private medical plans are costly, and perhaps a luxury these days.

While insurance has been highly commercialized, evolving into many forms to suit every person’s needs, there is still the old school of self-insuring. To manage risks and possible losses in the future, people are satisfied with just saving their money in the bank, instead of paying health insurance premiums. But factoring into the equation the rising inflation ever year and the miniscule interest that the bank gives, the funds deposited will decrease in value over the years. Like investment, it is wise to not put all the eggs in one basket. Self-insuring may be continued, but alongside, an insurance policy must also be secured and enforced for a better hedge in the years to come.

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Category: Finances
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