ery few people dispute the need for medical insurance. With skyrocketing medical costs, it has become an absolute necessity in today's world.

We tend to think that only low-income people are not covered, but many low-income families and individuals are covered through Medicaid, Medicare or other state programs.

In reality, 40 million Americans do not have health insurance, with a large percentage of those from middle- and upper-income households. If you're one of those people "going naked," you probably know why.

Perhaps you don't have a medical plan available through your employer, or you can't afford individual coverage, or you can get it and afford it but don't know how to choose. Or maybe you've procrastinated and haven't gotten around to it.

Universal health care coverage was a political hot topic in the early 90s, but that issue is dead for now. What has changed over the last decade is the number of insurance plan options offered by companies to their employees. Even small companies, with 10 to 15 employees, can offer two or more plans. There are more choices among individual policies, too. Medical insurance can hit your wallet on a day-to-day basis, with deductibles, co-payments and unreimbursed expenses. That means you have to know the deal that's best for you, what your options are, and what coverage limitations you have so you can plan for them in your budget.

There are three general types of medical insurance policies:

Although we often tend to think of every medical insurance policy as a comprehensive major medical one, that's not the case. For example, someone with a less-than-perfect health record may only be given the option of major medical, which carries a $25,000 deductible or basic medical coverage with maximum plan payments of $25,000.

There are many choices today, making it confusing to know what's right for you and your family. What's right for you depends on your individual circumstances.

With a traditional indemnity plan, you decide where and how you get your medical care. You have your choice of a physician, pick up your prescriptions and go to the hospital you select. Your insurance company is billed afterward. The insurance company does not know beforehand what your medical decisions will be.

Your out-of-pocket costs usually include a deductible of $200 or so, with 20 percent of "reasonable and customary" charges as co-payment. After you've paid a certain dollar amount out-of-pocket each year (called the stop-loss point), your insurer pays the rest of your covered medical charges for the year.

As medical costs have escalated, insurers want to contain their costs and keep premiums affordable by controlling some of the process. That's why traditional indemnity policies are not very common any more.

The first real revolution in health care was the establishment of health maintenance organizations (HMOs). With an HMO, you make one monthly payment and you get all of your medical care and services through the HMO. It doesn't matter how much your medical bills are - all you're charged is a modest visit fee of about $5 to $15 per visit.

A traditional HMO is good for several reasons: You'll have a good idea of your medical costs upfront so you can plan your budget, your wallet is protected against catastrophe, the doctors and other providers are presumably prescreened for excellence and there is convenience in "one-stop shopping."

The primary disadvantage is that your choice is limited to the doctors and hospitals available through the HMO. As a response, some HMOs now have an open-ended provision, so you can get a portion of your medical care elsewhere.

As a compromise between the indemnity plan and the HMO, participating provider organizations (PPOs) were established. A PPO provides managed care but also meets consumer demand for control over who and where you get your services.

Here's how it works: The insurance company establishes a network of providers that are contractually required to care for you. If the doctor, hospital or pharmacy is in the network, you have a small co-payment to make after a deductible. If you choose to go outside the network, there is usually a much higher deductible and only 80 percent of the "reasonable and customary" costs are covered. You must pay the other 20 percent.

The advantages of PPOs are that they are more flexible than HMOs and you can choose to limit your medical costs by using doctors in the network. The disadvantage is that you do not have as much control as with indemnity plans and you don't know for sure what your costs are upfront.

With all of these plans available, it's difficult to know what to do. Keep these two insurance guidelines in mind (these hold true for all insurance):

Don't buy "hospital indemnity" policies, which pay you a set amount - say $50 to $100 per day - while you're in the hospital, or cancer policies, which only cover you if you have cancer. These policies are a waste of money and usually extremely overpriced. The hospital indemnity policy pays only a fraction of current hospital costs. Cancer policies are useless if you have any other medical condition, and they usually cover only a fraction of cancer treatment costs.

The next step is to look at your usage over the past two years and ask yourself these questions:

Then, compare the last two years with your expectations for the next two years. You may be facing changes that will make your insurance needs quite different. If you plan to marry, you might be picking up your spouse as a dependent on your policy, or you may qualify as a dependent for your spouse's plan. If you're planning to have children, be sure to check how your company covers pregnancy, well-baby and infertility coverage.

If your children will be leaving the nest and no longer need or qualify for your insurance policy, how much less will your deductibles and co-payments be? If you move, will your insurance be portable? Some plans allow you to transfer to equivalent policies in other states or areas. Do you have a chronic medical condition? If so, choose a policy with a high maximum limit that best covers the kind of expenses you anticipate. If you're covered at work, ask your employee benefits manager (or whoever handles the company's medical insurance administration) to explain the policy you have and to help you evaluate other options that may be available.

If there are special circumstances when reviewing your medical situation, insurance is an absolute must. Don't drop your insurance policy if you're changing jobs unless you're already covered adequately by your spouse's plan or until your new plan goes into effect. Many insurance plans don't cover new employees until they have been at the company for six months or even a year.

Sign up for the new policy as soon as you can. Many insurance companies require you to prove you're in good health if you don't enroll during the initial enrollment period. The new policy may also have pre-existing limitations, so that any condition for which you have recently sought medical insurance may not be covered for the first three years. That means you may want to continue your previous insurance through a federally mandated program called COBRA , which requires your former employer to offer health coverage for up to 18 months after you leave, as long as you pay the premium yourself.

What if you're married and you both have medical plans? There is a "coordination of benefits" clause that treats your insurance as the primary payer and your spouse's insurance as secondary. That means your insurance will pay first and then your spouse's insurer may pick up the deductibles and co-insurance not already paid for by your primary carrier. You must decide if the extra benefits justify the costs of both policies, or if one policy is good enough for you both.

Self-employed persons should look for group insurance. (Did you know there was group insurance available even for a "group" of one?) If you can't get coverage through your business, consider plans offered through organizations affiliated with your line of work. If you can't get insurance because of chronic illness or ongoing expenses due to an accident, call your state representative or your state Department of Insurance because there may be a special state program available. Even if you can't get coverage for yourself, you may be able to obtain coverage at a low cost for your children.

In case you missed the point, the bottom line is you need medical insurance. It's easy to take medical insurance for granted. But if you're not covered, you probably have a constant worry about becoming sick or injured.

Learn about your medical insurance options. You probably have more choices than you realize. You also may be paying too much, or have the wrong coverage, or think you can't get insurance when you can.

No one in today's world can afford to go without medical insurance, so medical premiums should come in your budget before entertainment, vacations or new clothes. You've worked hard to build up whatever assets you have and medical insurance is your safeguard against spending them on medical costs.