10 Sobering Facts About Medical Bankruptcies & How to Protect Yourself

Many households are carrying more personal debt than ever. In fact, debt is at an all-time high. With mortgages on depreciating homes, families are taking out home equity loans and second mortgages to get by. The financial obligation that is mounting higher and higher is just a crisis waiting to happen. Most Americans are a heart attack, stroke or cancer diagnosis away from medical bankruptcy.

Unfortunately, illnesses don't discriminate. Although more people are surviving critical illnesses, bills mount up during recovery and often times this leads to medical bankruptcies.

Facts About Medical Bankruptcies

  1. Within the next four minutes, 14 Americans will have a heart attack or a stroke. Ten more will be diagnosed with cancer.
  2. In the same time frame, five families will be forced to declare bankruptcy because of medically related financial hardship.
  3. A family has an 83 percent chance of the husband or wife having a heart attack, a stroke or a cancer diagnosis.
  4. Only 3 percent of people diagnosed with a major illness actually die from that illness, according to HUD.
  5. Forty-eight percent of all mortgage foreclosures occur because of a major illness, according to HUD.Tweet: Illnesses cause 48% of mortgage foreclosures. http://ctt.ec/747hs+
  6. Sixty-two percent of personal bankruptcies are due to major illnesses, a Harvard University study revealed.
  7. Seventy-eight percent of those who file for bankruptcy had some form of health insurance at the onset of the disease.
  8. For 92 percent of the medically bankrupt, high medical bills directly contributed to their bankruptcy.
  9. Many lose their health coverage when they become too sick or hurt to work.
  10. The average household has less than $10,000 saved for retirement.
Ways to protect yourself from medical bankruptcies.

The facts show that mortgage protection would only benefit three percent of families with a sick head of household (sadly, when that person dies from the illness and their home is paid off). Meanwhile, others are losing their health benefits because they are too sick to work or cannot pay their premiums any more. Income loss due to illness is common and is compounded by high medical bills. You can have the greatest health insurance policy and still get wiped out because health insurance is designed to cover medical expenses only. It doesn’t pay for your living expenses, such as your mortgage or rent payment, college tuition, car payments, utility bills or food for the family. Losing your ability to earn an income and not having an emergency fund to fall back on is a major contributor to medical bankruptcies.

These facts are indeed sobering but take heart! It is possible to avoid medical bankruptcies altogether as well as minimize the impact or eliminate the financial strain of being medically bankrupt.

How To Prepare For the Unexpected:

  1. Build an emergency fund that can cover anticipated expenses—mortgage, food, insurance premiums and out-of-pocket expenses.
  2. Have a better balance on health insurance between coverage and cost. Having the ‘best’ plan may become unaffordable, yet having the highest deductible plan may be too much to handle at claim time.
  3. Be aware that even with high deductible health plans, you can make zero-interest payments to the providers if you do not have the cash to pay the full deductible up front.
  4. Understand how your health insurance policy really works and stay within the provider network.
  5. Don’t plan to use your retirement portfolio to finance such a burden. It could end up costing you more in penalties and capital gains than you realize.
  6. Disability insurance policies are a great investment in protecting your income should a medical emergency arise.
  7. Cash value life insurance or life insurance policies with ‘living benefits’ will help with financing your medical and household expenses while you are recovering.

Advance planning always pays off and avoiding medical bankruptcies is no exception. The statistics are hard to swallow because medical bankruptcy is not a place where anyone wants to be. The good news is, there are ways to help avoid it.

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