Reply #11: They are an IRA you can use in an emergency [View All]

[TechBear_Seattle]

Nothing more. They are an investment plan, not a savings account (the difference is that savings accounts are insured, investment accounts are not) and most definitely not an insurance replacement.

Where they are useful is when you have exceptional, unexpected health problems that are not covered by your insurance or for situations where your insurance gets used up. Most insurance policies have caps on how much they will pay out for a given disease (cancer, organ transplant, etc.) and caps on how much you can get in a period of time. If those caps are hit or your insurance will not cover something completely, you can withdraw money from your medical investment account to cover related expenses without the usual IRA early withdrawal penalty. In short, it is an emergency supply of cash that can be put aside without tax penalty.

If you are young, healthy and very likely to stay that way, they are not a bad idea, as I believe they count separately from your regular IRA (ie contributions to one do not count as contributions to the other, but check with a licensed investment advisor to make sure.) But again, these "savings accounts" are not savings accounts nor are they by any stretch a substitute for regular insurance.