Health Insurance
Insurance that covers you in case you are sick. But there are different types of sickness. Short-term acute (wonderful euphemism) setbacks to your health, like those dodgy tonsils or a dicky topic. Then there’s the bolt from the blue, hideous accident (I’m touching wood that this should never happen to any of us), or there are long-term debilitating conditions. You can just see the actuary’s eyes light up as he assesses the risk of this happening to individuals, depending on how risky their professional lives are. And yes, you guessed it, there’s insurance for all, even bungee-jumping, parachuting, white-water rafting fearless types. The insurers have worked out quite skilfully, that for every one unfortunate person who makes a claim, there are millions of us who cheerfully trundle through life not claiming. So guess who wins? Even so, I reckon that health cover is jolly useful to have, especially for the ever-increasing ranks of the self-employed, who have no one offering super-deluxe corporate health care in the event that we should suffer a serious health setback, like an ingrown toenail. Anyway, here are the four types:
Accident and Sickness Cover
This is actually the most expensive type of protection because it promises to pay your bills and a substantial part of your income for short-term illnesses lasting no more than a year, with immediate effect from the onset of the health problem you suffer.
Critical Illness Cover
You pay regular monthly premiums with the promise of a large lump sum if you are unlucky enough to experience a sudden critical illness like a stroke, a heart attack or a brain tumour. It’s useful to protect against unexpected serious illness and is affordable. A good one to have, methinks.
Permanent Health Insurance
Also called an income protection policy, this pays you a regular income that replaces about 60 per cent of your own income if you are unfortunate enough to be struck by an ongoing illness or disability, and it’s tax-free! It’s called PHI for short. It is a useful cover especially for the self-employed who cannot afford to get sick so easily. The only snag is that it is quite costly. Many of the policies are prohibitively expensive unless you agree to postpone the payout for at least three months from the start of your health troubles. The longer they delay payment, the more affordable this type of insurance gets, but you have to specify the non-payout period at the start of the policy. A good independent financial adviser should be able to shop around for you and get you a very competitive quote from a suitable health insurer (see Independent Financial Adviser).
Private Health Care Insurance
This enables you to see a specialist for your particular brand of hypochondria in double-quick time, instead of relying on the valiant, but ever more creaking National Health Service that just might let you pop your clogs before you get to see anyone about your life-threatening bout of housemaid’s knee. It also pays your medical bills when you get sick. I reckon this type of insurance is almost indispensable.
Hedge Fund
You might assume that since hedging means using derivatives to protect your financial assets against risk, that hedge funds do the same. Boy, what a hideously wrong assumption that would be! The term ‘hedge fund’ encompasses a wide range of different types of fund management. A common theme with them is the use of derivatives. Some managers of hedge funds use derivatives to lower risk in the pursuit of steady returns. Others, bless their cotton socks, use derivatives aggressively to obtain leverage, ie, they take gigantic risks using futures and the like, which sometimes pay off. When they hit the jackpot, they make an obscene load of money. Unfortunately the reverse is also true. When the bets go wrong, they lose their shirts, along with the shirts of the unlucky investors that they’ve persuaded to participate in the fund. What’s crucial is to understand which type you are buying into, if indeed you decide to go for this type of fund at all. It’s a very specialized area, which needs exceptionally good expert advice so investors are under no illusions about what they are getting into (see Derivatives, Fund Management).
Hedging
Hedging your bets, in investment terms, is supposed to mean making sure that you cover your back with insurance should anything go wrong. It offers protection against downside risk. In share markets, often the best way to do this is to use options, the traditional or traded variety (see Derivatives – Options). But some options are so risky that they need to be hedged themselves, or you can get unstuck with them.
High-Yield Shares
There is usually a good reason why a company’s shares offer a better return than the market. There is often, though not always, a catch. It could be that the business has stopped growing. Or the company is in deep debt, and enticing suckers to part with their cash is difficult, so they are forced to offer a better return (in the form of dividends) than the market’s average share return. So, as with any other investment, MORE RETURN MEANS MORE RISK! There are high-yielding companies that are reasonably safe, but investors have to tread carefully and assess in their own minds what the real risks are. If in doubt, don’t buy! (See Income Shares, Risk, Risk/Reward Ratio, Yield.)
HM Revenue & Customs
Shock horror! The Inland Revenue has merged with HM Customs & Excise to make a new super-duper overarching tax collector.
Now that the two organizations have joined forces, it is a comfort to know that this has all been done solely in the name of making the dreaded collection of tax and all other tax-related matters simpler and easier to deal with for us mere mortals!
Home Income Plan
It’s a way for more mature people, 65-plus, to get an income from assets they own, like property, and thus release tied-up capital. Say you own a mortgage-free home. You could take out a mortgage on it that would buy you an annuity (see Pension – Annuity). Part of the money you get will be tax-free (the capital); the remainder is subject to income tax. This is a pretty complicated area, which I reckon needs specialist advice from a good independent financial adviser (see Equity Release, Independent Financial Adviser).
Hyperinflation
When the government prints lots of money to get itself out of trouble, it has the effect of making money worth less; this is inflation. Prices, as well as the value of assets such as property, shares and art tend to go up in these circumstances. Sometimes inflation spirals out of control. It is when a government prints too much money too quickly and continues to do so over a long period of time. The corollary to this is that prices go up very fast and the value of money goes down equally fast. When inflation exceeds 20 per cent per annum, it is classed as hyperinflation. In a final resort, when trying to control the level of the country’s currency proves useless, the government will allow its currency to devalue. This, of course, is also inflationary, so don’t get confused by the ‘de’ in devaluation. Everyone agrees that too much inflation is a bad thing and thankfully that threat seems to have receded in the United Kingdom, Europe and the United States. Now the big worry is deflation, ie, prices and asset values falling, which include property prices, art and the stock market. This isn’t good news either. In this instance investors cry ‘Cash is king!’ (See Deflation, Devaluation, Disinflation, Inflation.)
