South Carolina Insurance Practice Exam

Which of the following statements is true about Health Savings Accounts (HSAs)?

1. They require high premiums to establish

2. Withdrawals for non-medical expenses are tax-free

3. Funds can be invested for growth

4. They are only available to employed individuals

The correct answer is: Funds can be invested for growth

The statement that funds can be invested for growth is accurate in the context of Health Savings Accounts (HSAs). HSAs are designed to allow account holders to set aside money on a tax-advantaged basis for medical expenses, and one of the key features of these accounts is the ability to invest the funds once a certain balance is reached. This investment can potentially lead to growth over time, much like other investment accounts. The funds in HSAs can typically be invested in a variety of options such as stocks, bonds, or mutual funds, depending on the account provider. This investment aspect is particularly beneficial for account holders who want to maximize their savings for future medical expenses, as it allows their funds to grow tax-deferred. Additionally, if the account holder uses the money for qualified medical expenses, it remains tax-free, providing a strong incentive to contribute and manage the account wisely. The other options do not reflect the nature of HSAs accurately. For example, HSAs do not require high premiums; in fact, they are typically associated with high-deductible health plans (HDHPs) which have lower premiums. Withdrawals for non-medical expenses are subject to taxes and potential penalties, particularly if the account holder is under 65 years of