This article was written by Joanna Lahey, an associate professor of economics at the George H.W. Bush School of Government and Public Service at Texas A&M University and the National Bureau of Economic Research (NBER). The opinions expressed in this post do not necessarily reflect those of the aforementioned institutions. This is the third of four articles on health insurance. The final part will be published next Saturday. Here are the first and second articles in the series.

I got married relatively young, at age 22. There was a gap between my marriage which kicked me off my parents' insurance and getting put on graduate school insurance. My father-in-law gave us short-term gap private insurance as a wedding present. It was expensive from my perspective (I was looking at an annual stipend of under $20K), but for private health insurance it was cheap.

Private Health Insurance Options

Private health insurance is one method that people use to get coverage when they're self-employed or unemployed. Because the private health insurance market is broken, it can be prohibitively expensive, if available at all. Private coverage can be affordable if you are young, healthy, single (or male) and only need it temporarily. But if you don't fall into all of those categories, it can be difficult and expensive. Fortunately, under the Affordable Care Act (ACA), private insurance can no longer kick you off if you get sick after paying for private coverage. Children with pre-existing conditions cannot be denied coverage. In 2014, insurance companies will no longer be able to deny adults coverage based on pre-existing conditions. Also in 2014, states should have their Affordable Insurance Exchanges set up, allowing individuals and small businesses to better shop for health insurance plans.

This article was written by Joanna Lahey, an associate professor of economics at the George H.W. Bush School of Government and Public Service at Texas A&M University and the National Bureau of Economic Research (NBER).

Ellen's note: Joanna has written four articles about health insurance. This is the first, and every Saturday for the next month, we'll be publishing one. Given the readers' concern over the cost of health insurance as well as the ability to get insurance, we think her articles will be a great addition to GRS.

What is Insurance?

We save for retirement in order to smooth our consumption over time. Money saved now when we have income allows us to eat more than cat food when we're retired and not bringing in as much.

Note: Robert's post is particularly timely this week, which is National Financial Planning Week. Time to get your finances in order!

Let's get this out of the way up front: This post is going to be a downer. So — right now — I want you to think of something happy to do after you've read it.

Got it? Good. Because this article is all about risk — in other words, all the things that can go wrong with your financial plan. We'll talk about ways to mitigate these risks, but thinking through this stuff isn't going to be all rainbows and cupcakes (though we've attempted to lighten things up with photos from the hilarious website AwkwardFamilyPhotos.com). Still, it's better to know what's possible and take preemptive action rather than stick your head in the sand, especially because getting sand out of all your head holes can be very difficult. So let's take a deep breath and confront the potential grim side of reality.

Sitting on my desk as I write this is an application I should have filled out months ago. Twenty-two months ago, to be exact.

It was then that I left my 40-hour-a-week office job, which included a convenient 401(k), dependable health care plan and, most refreshingly, a kind and understanding boss. It was tough to leave that job, but I wanted to pursue a career in freelance writing.

The entire experience was overwhelming. Details of that are for another post, perhaps, but the point is: what I found most overwhelming was dealing with my own finances. Administratively speaking, my employer had taken care of my retirement plan, taxes and health insurance. It was great.

My dad's death last year not only made me and my siblings 40-something orphans, but it also marked the end of my parents' Nursing Home Era (1998-2011). Until his death, either my mom or dad was in a nursing home for almost 11 years of that 13 year span. That blew.

It was also very expensive. My mom shelled out $500,000 cash over the years, and her place was neither shmancy nor fancy. My dad "only" paid $22,000 per year because he had Long-Term Care Insurance.

What Is Long-Term Care Insurance?

Long-Term Care Insurance (LTCI) is insurance you buy to help pay for Nursing Home, Assisted Living, or In-Home Care should you ever need it. We did not have LTCI for my mom. We paid about $200/day for her care.

If you're anything like me, you're barely insured. I don't work for a company that offers benefits and so I've had to shop for individual insurance. Setting aside what a headache that was, I've ended up with catastrophic insurance. This means that if I step off a curb wrong and break every bone in my leg, I won't be in totally ruined. That said, I don't get any help with regular checkups or routine care.

There are lots of things I do every day to help keep the Doctor away that go far beyond a simple apple. Every day, I work toward more optimal health and have learned that prevention is far cheaper than treatment. Not only do I consider my health to be my greatest asset, but staying away from MDs is a financial reality I've had to learn to navigate. None of this is groundbreaking, but let it serve as a reminder that just like your financial health, your mental and physical health requires daily attention.

Get Insurance
Yes, it's expensive and you'll probably never use it. I haven't had to go to the Doctor since college. The what-ifs however, are too disheartening to ignore. Any sort of grave accident or surprise diagnoses, without insurance, would have me sunk. I have an extremely high deductible and not surprisingly, it matches my emergency fund. If you feel like you don't need insurance at all, you don't necessarily need get much, but get yourself something.

I am sick. For the past ten days, I've been wrestling with a high fever, a cough, a persistent sore throat, and a general malaise that's kicking my ass. Basically, I'm the sickest I've been in over a decade. (The last time I was this sick? The evening that The Fellowship of the Ring premiered. I went to see it with friends, but don't remember a thing about that night because I was sick with a high fever. High fevers suck!)

Normally, I don't go to the doctor. My family has a funny thing about doctors, and usually prefer to let an illness run its course rather than to pay a doctor to tell us to "let the illness run its course". Last Tuesday, though, I decided that sometimes discretion is the better part of valor. After four days with a high fever, and after sensing that something wasn't quite right with my lungs, I drove myself to urgent care.

"You have the flu," the nurse practitioner told me. "And it'd be even worse if you hadn't had your flu shot. As it is, you may have pneumonia. It's been going around."

We financial planners and financial writers love to trot out hypothetical illustrations along the lines of “If you save 20% of your income starting at age 40, you'll be able to retire by your late 60s, assuming an 8% rate of return” — a scenario I wrote about in March. While such projections are necessary for planning for the future, the truth is that they will most definitely be wrong once the future rolls around. There are just too many unknowable variables, such as future investment returns, inflation rates, and tax rates.

However, the unknowable unknowns aren't just limited to economic variables, as readers often remind me after I write such an article. Here's a tale a GRS reader told in the comments section after my March post:

In 1996 I had $78,000 in retirement funds and was 32 years old (hubby was 38). Then our home was flooded because a contractor doing a city project made a mistake. While struggling with being unable to live in the house, I was diagnosed with cancer and needed surgery ([we had] no insurance). Within a year I had cashed out the $78,000 to begin rebuilding the house and pay for surgery (we recouped a very small portion of the loss from the contractor). We sold the house and walked away with $11,000 to our name. That was in 1998.

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California newspaper The Daily Breeze recently published an article about a man who was issued a $35 ticket for failing to come to a complete stop, which became a $234 ticket after added penalties. (State legislators have been adding new penalties, such as a "state conviction fee," since 2009, thanks to a $10 billion budget deficit. The base fine for running a red light is $100 in Los Angeles County, for example, but after added penalties the ticket will cost a grand total of $480.)

Even if you live in a state without these hefty additional penalties, the cost of a traffic violation doesn't end with the cost of the ticket. If you want to keep the infraction off your driving record, there's the added cost of a traffic school fee and the cost of the traffic school course. If you choose to pay the ticket and not attend driver's ed, your ticket might get even more expensive — you'll incur the long-term costs of higher auto insurance.

Violations can Raise Premiums by 50 Percent

According to an Insurance.com analysis of more than 32,000 insurance policies, drivers who purchased a one-car, single-driver policy in 2010 and had one violation on their record paid about 18% more on average than drivers without any violation. Drivers with two paid 34% more for their policy, while drivers with three violations paid a staggering 53% more for auto insurance than those with zero violations. Continue reading...

Pet insurance costs will vary based on the type of pet, its age and other factors, but one national pet insurance company recently quoted us a policy online of $94.54 per month with a $200 deductible for a 6-year-old mixed breed, female dog. That number can go higher or lower depending on the deductible, very much like human insurance.

While becoming a more recognizable option, most pets are not privately insured. According to the North American Pet Health Insurance Association, there are 179 million pets in North America and about 1.4 million are covered by insurance. The most important tip is to understand what the policy does and does not cover and how the monthly fees compare to average yearly veterinary care for your pet. In some cases, it may make more sense to simply bulk up your emergency fund, as blogger Sierra Black did. Before we get to her story, though: Pet insurance isn't the only option. if you have trouble affording care for your pet, the ASPCA has resources that can help.

Sierra Black's Story

My cat, Monster, died after a struggle with cancer. Monster followed me home one day when I was 17; he was with me through every heartbreak, every move, job, boyfriend, and roommate. I'm grateful for the fifteen years we had together, but I miss him. I'll miss him always, I suspect.