CHAPTER
17

Insuring Yourself and Your Property

In This Chapter

• Understanding how insurance works
• Insurance you need and don’t need
• Shopping around for the best rates
• Fighting back for fair treatment

Insurance has been a big topic of discussion in recent years, due largely to health-care legislation known as the Affordable Care Act (ACA), or Obamacare. If you’re under 26 and don’t have a job that offers health insurance, chances are you like the ACA because it allows you to remain on your parent’s policy until you reach that age. The same goes if you have a preexisting condition like asthma or diabetes and were having trouble finding an insurer who would cover you. If you’ve been thrown into the marketplace and can’t find a plan at a price you like, chances are you’re not such a fan of the ACA. Whether or not you care for this particular breed of insurance, it certainly has ignited conversation.

Many of us have a kind of love-hate relationship with insurance, including health insurance. You know you should have it, but you don’t like that it takes a bite out of your budget, especially when you might not even need it. Still, it’s better to have insurance than not to—and better yet to have it and never need it.

Insurance is a method of sharing risk among a large group of people. Everybody pays for it, whether you use it or not. Hopefully, you make your payments on time, never need to make a claim, and recognize how lucky you are. If you do need it, however, paying into that pot of money will have been well worth it.

If you learn one thing about insurance from this chapter, let it be this: insurance is meant to protect the important things in your life—your life itself, your health, the health of your family, your home, etc.—against big losses. If you get sick and can’t work, you’d better have insurance to cover your lost income, even if you’re supporting only yourself. If you have a house and it burns down, you’d better have insurance to rebuild and replace the stuff you lost. Whenever you walk outside and get into your car, there’s the potential for an accident, and you need to be insured just in case.

Insurance 101

More kinds of insurance policies are available than you probably can imagine, and we Americans buy tons of it. Most people, though, don’t really understand the insurance industry and how it works. Many aren’t even sure about what kinds of insurance they should have, or how to go about finding out that information.

The insurance industry is huge, and it commands a large chunk of our nation’s economy—and its attention. Hardly a day goes by when you don’t read or hear some news related to the insurance industry. Tens of thousands of insurance companies are at work in this country, and nearly 2.4 million people are employed in the industry, making it one of the country’s largest employers.

Insurance is a powerful industry as well. It has an extremely strong lobby that exerts tremendous pressure on the government agencies that are supposed to oversee it. As a result, it has become a formidable force in our society.

Insurance is an issue we all need to think about because we need to have it.

Although some insurance companies, including GEICO and United Services Automobile Association (USAA) sell directly to the public, most insurance is sold through agents or brokers who work for insurance companies like Allstate, State Farm, Nationwide, Liberty Mutual, and thousands of others. The agents earn commissions from the insurance companies, based on how much and what type of insurance they sell. Insurance agents aren’t the only people out there who work on commission (real estate agents and many other types of salespeople do as well), and there’s nothing wrong with a commission system, but be aware that that’s how the insurance industry works.

If an agent is going to get a big commission for selling a certain type of policy or a policy for a specific company, you can be sure he’s going to knock himself out trying to sell it. That’s how he makes his living, and some agents are really good at convincing you you need something that’s completely unnecessary. In fact, some analysts say nearly 50 percent of insurance agents and brokers try to sell you policies that generate the highest commissions for them. If you don’t know what you want or need, you could be suckered into buying unnecessary coverage while lining the agent’s pockets.

After you read this chapter, you’ll have a better understanding of what you need and don’t need. Don’t let an agent talk you into buying something you don’t need, for which you’ll end up paying a large premium. Be sure he or she understands your situation so you get the kind of coverage you really should have.

If you don’t know anyone who sells insurance, you’ll have to take your chances with a referral or someone you find on your own. Choose someone with a CLU (Chartered Life Underwriter), ChFC (Chartered Financial Consultant), or CFP (Certified Financial Planner) designation, which demonstrates that the agent has taken courses to further educate him- or herself about the industry. It also implies that the agent has affirmed to practice ethically.

You also could use a service such as Angie’s List when searching for an insurance agent or look for an established insurance company within your community and ask to see a list of agents and their qualifications.

You can buy insurance online, but if you’re purchasing for the first time, it’s probably a good idea to work with a reputable agent who can help you figure out exactly what you need and explain the ins and outs of various policies. If you end up paying a bit more, it’s probably worth it.

Insurance Must-Haves

You should think big when it concerns insurance. Forget the little stuff, even if it’s tempting because it doesn’t seem to cost very much. In many cases, the same coverage offered with “specialty” policies, such as mortgage life insurance or flight insurance, is already provided for in your regular life insurance policy.

If you buy a lot of little insurance policies hoping to cover every possibility for loss, you’ll end up spending a lot more on the policies than you would fixing the things that go wrong. If your computer or cellphone breaks, by the time you pay the deductible, spend an hour or two filling out the claim, and try to cut through the inevitable red tape, you’re probably better off having it fixed on your own.

Make no mistake about it: you can buy as much insurance as you want. You can insure all your electronics, your road bike, your drum set, your toaster oven, and your snowboard if you want to. You can pay $44 a month to buy health insurance on your 5-year-old golden retriever and still be out a $500 deductible and 20 percent of costs for care in the event she needs it. You can insure your lawn mower, your microwave, and the locket you wore when you were a baby. Before you start buying insurance on everything you own, however, consider what you really need.

Single with no dependents At this point in your life, you need health insurance; auto insurance; homeowner’s insurance if you own a place; and enough life insurance to cover your burial, final expenses, and any outstanding loans. If you rent, you also should have renter’s insurance. Disability insurance also makes sense for you now.

Married with no kids Now you need some life insurance, especially if your spouse doesn’t work or if you own a home. Auto and homeowner’s or renter’s insurance are necessary, as are health and disability insurance.

Married with kids Kids bump up the amount and types of insurance you need. If you don’t have life insurance yet, you definitely need it now. Term life insurance, for which you pay a certain amount per year and your survivors receive a certain amount if you die (more about this in Chapter 19), is probably your best bet. You still need health and disability insurance, too, along with auto (pay special attention to that one after the babies get to be teenagers and start driving!) and homeowner’s insurance. It’s a good idea at this point to reexamine all your policies to be sure you’re adequately covered. Having kids makes you responsible for them, and you want to be sure they’d have plenty to get by on if you suddenly became disabled.

Let’s concentrate on the types of insurance necessary for people in the first two categories, single with no dependents and married with no kids. We also touch briefly on what you need if you’re in the third category, married with kids.

Health Insurance

You need to be covered for hospitalization, physician costs, and charges for procedures such as x-rays, lab tests, and diagnostic tests. Maternity benefits, mammograms, and annual physicals are all required coverages under the ACA.

As mentioned earlier, health-care insurance has become a hot political issue due to the ACA being passed into law. As Congress plans to tweak (or repeal) the coverage, it remains an upfront topic of conversation. Many politicians and citizens claim to not like the ACA, but it has reduced the number of Americans who are without health insurance. According to the Centers for Disease Control and Prevention, after the first half of 2015, for the first time in more than a half-century, more than 90 percent of all Americans had health insurance.

More people insured is good news, but it does raise questions about how we’ll pay for our growing cost of health care. And many people are still underinsured or have policies with deductibles and other high out-of-pocket costs. The United States spends more of its gross domestic product on health care than any other major industrialized nation, with many patients facing increasing out-of-pocket costs.

If you’re lucky enough to have health care provided through your employer, chances are you’re contributing more toward it than you would have been a decade ago. On average, a family health insurance plan in 2015 cost an employer about $16,000, with employees paying about a quarter of that cost. For a single worker, the tab to an employer was almost $6,000, with employees contributing about $1,000. The cost of health care for American workers has risen dramatically more than wages or inflation.

If your employer doesn’t provide coverage, or if you are self-employed, you need to buy your own health insurance. You can either get private insurance on our own or check out what the ACA has to offer by calling 800-410-9538 or going to HealthCare.gov. Regardless of which route you take, be sure to research thoroughly, as options and conditions change.

If you’re leaving a job where you have an insurance plan, look into the possibility of extending your coverage when you leave. COBRA (Consolidated Omnibus Budget Reconciliation Act) requires your employer to continue your health coverage after a job loss, death of an employee, divorce, or attaining a certain age (as when a child reaches an age and is no longer covered under the plan). Your employer is required to offer COBRA coverage for 18 months after you quit your job or 36 months for other situations (such as divorce). You have to pay for the insurance, but at least you’ll be covered and your insurance won’t lapse.

Compare the benefits of coverage under COBRA and through the Affordable Care Act Market-place (healthcare.gov). COBRA is expensive (105 percent of the cost of the coverage), but you continue with your current deductibles, co-pays, and pharmaceutical coverages. Your premiums may be less expensive if you buy through the ACA Marketplace, but you may face larger deductibles and other out-of-pocket costs.

It used to be the general rule of thumb—and still is, in some states—that you could get a better rate with a health maintenance organization (HMO) or preferred provider organization (PPO) plan, both of which limit your choice of health-care providers, than with a plan that allows you to see whatever provider you choose. The health insurance arena is changing, however, and HMOs and PPOs aren’t always available in all areas, nor are they always the most economical types of plans.

If you can get an HMO or PPO plan in your area, do check them out because they may still be your best deal. Don’t reject HMOs and PPOs outright because you think you’ll have to find a new doctor. Many HMOs and PPOs probably include your current physicians, so ask to see a list of which doctors are included as providers before you make your decision.

Check out a big health-care insurer such as Blue Cross Blue Shield if you’re shopping for a policy. They normally can get better rates from health-care providers and are more stable than many smaller companies. Look for a plan that has the highest lifetime maximum benefits you can find and is guaranteed to be renewable.

Because health-care insurance changes so often and so quickly, and the regulations vary greatly from state to state, shopping for a policy can be extremely challenging. If you need to find your own insurance, consider these suggestions:

Go to the ACA website at healthcare.gov. It is imperative to carefully compare the policies you’ll find there. You’ll need to consider not only the cost of a policy, but also the deductibles and whether or not you qualify for a subsidy. One of the key provisions of the ACA is the availability of subsidies to offset the cost of coverage. If you qualify for a subsidy, you’ll have to file a federal income tax return to confirm that your income is what you stated on the application.

Another option is to find a health insurance agent to help you identify a viable insurance plan. An agent should be able to guide you not only on price, but also on the ins and outs of various companies, deductibles, co-pays, and so forth. The National Association of Health Underwriters (nahu.org) can point you to an agent in your area. Remember, however, that the only way to qualify for the government subsidy is to obtain your insurance through the ACA Marketplace.

Also check out your state’s insurance department website. Most sites include the names of companies that offer policies within your state through the ACA Marketplace, along with some information about them. State sites also may include a record of complaints against various companies. One of the popular provisions of the ACA is that no one is disqualified from coverage due to a prior medical condition.

A medical savings account is another option for certain people. As the name implies, this is a savings account created for the purpose of paying for medical expenses, attempting to make medical insurance more affordable. It works in conjunction with qualified major medical insurance and can be used to help pay deductibles and expenses insurance doesn’t cover. Generally, these plans are options for people who are self-employed, who work for a company with 50 or fewer employees, or who themselves employ 50 or fewer workers. The Internal Revenue Service (IRS) offers a form on medical savings accounts, 969, “Health Savings Accounts and Other Tax-Favored Health Plans.” Access it at the IRS website, irs.gov.

Auto Insurance

You must have car insurance because the liability risk if you’re in an accident is too great to ignore. Auto insurance is expensive, but it’s required by law in nearly every state (except New Hampshire). Even if it wasn’t legally required, you couldn’t afford to be without it.

Liability coverage Different types of coverage are associated with car insurance, but the one required by almost all states is liability. Liability coverage is twofold: bodily injury and property damage.

Bodily injury liability coverage protects you against lawsuits in the event someone is injured in an accident in which you’re involved. Although it varies from state to state, most states impose a minimum amount of bodily injury coverage, between $25,000 and $50,000 per person and up to $100,000 per accident. If you lend your car to someone else to drive, remember that the insurance follows the car. That means your coverage is the primary insurance in the event of an accident, counting as an accident on your record and increasing your policy costs.

Property damage liability covers damage to other cars and property that’s caused by your car. It would cover not only the cost of fixing a car you hit, but also pay to repair or replace the fence you ran over, too. Most states require a minimum of $10,000 in property coverage, although many require significantly more.

Collision and comprehensive coverage If you have a loan on your car, you’ll need collision and comprehensive coverage as well. Collision coverage pays for damage to your car if you’re in an accident or pays to replace a car that’s totaled. Comprehensive coverage protects you from car theft or weird things that could happen to your car, such as a tree falling on it or it being damaged during a riot, fire, or flood.

Uninsured motorist coverage If you get hit by someone who doesn’t have insurance (not as unusual as you might think), you’ll need uninsured motorist coverage. This insurance covers your medical expenses and lost wages in the event that you’re injured by an uninsured motorist.

When you rent a car, your policy provides coverage unless it states otherwise. Read your policy, and always call before you go on a trip. If your deductibles are high, you should purchase coverage from the rental company.

There’s a big difference in auto insurance rates, so shop around. Be aware that a poor driving record will dramatically increase your insurance rates.

Look for cars with good safety records (the Insurance Institute for Highway Safety’s Highway Loss Data Institute provides a list of these at iihs.org/iihs/ratings/TSP-List), and stay away from hot sports cars or convertibles if you’re interested in keeping your rates down. If you’re shopping for a new or used car, learn how rates vary from model to model before making your purchase.

If you’re over 25, you’ll generally get a better rate than someone who is younger. Also, being married, living in what is considered a safe neighborhood, and having a relatively short work commute (driving less than 7,500 miles per year or not using your car for work) also will lower your insurance rates.

Property Insurance

You’re required to buy property insurance before you can get a mortgage, so if you own a home, you already have homeowner’s insurance.

If you’re renting an apartment, you need renter’s insurance if you have a lot of stuff you want to protect. Damage to the building is not your responsibility, but if your TV or laptop is stolen or damaged, you need insurance if you want to replace it without paying out of pocket. If you have a bunch of good computer equipment or a rare-coin collection, you definitely should look into renter’s insurance.

Your best bet is to get a policy that provides replacement value. It will cost a little more, but it will pay you what it would cost to replace your TV or computer at the current purchase price—not the price you paid 5 years ago.

Disability Insurance

What would happen if you had a serious accident while skiing that resulted in a head injury? Pretty gruesome to think about, right? Still, nobody is immune to accidents or injury. You have a greater chance of being disabled by age 65 than dying, and if you were hurt and unable to work for a long period of time, you’d be out of luck.

You’d be a little less out of luck, though, if you had disability insurance, which would provide you with an income to live on until you could work again. Most large companies provide disability insurance to employees who are unable to work because of a physical or mental disability.

There are two types of disability insurance coverage: short term (usually for up to 3 or 6 months) and long term (beginning after 6 months). But if you work for a small company or are self-employed, you might have to buy it on your own. If you can’t afford to be without a paycheck for an extended period of time, you’d better have disability insurance. By the way, if you don’t work, you can’t get disability insurance.

How much disability insurance you need depends on how much money you have. If you’ve been living paycheck to paycheck and have no money saved, you’d better have insurance to cover as much of your income as you can purchase. This is usually 60 percent of your income. If you have enough money in the bank to live off of for 6 months or a year, you can skimp a little.

Disability insurance becomes increasingly important as you gain dependents. If you’re married and your spouse doesn’t work or doesn’t earn enough to support both of you, you can’t be without it. If your spouse is making enough to support both of you, it’s not as important. If you have kids, however, you’ve got to have disability insurance, unless your spouse makes enough money to support the entire family for an extended period of time.

Be sure you know what’s included in your disability coverage if you get it through work. Many people don’t take the time to find out, and you can’t depend on the benefits department to seek you out and tell you you’re eligible for coverage. Most companies have short-term and long-term provisions, so if you find out you need an operation and will be out of work for a couple weeks, you’ll want to know whether you’re eligible for benefits.

Also be sure the short-term and long-term disability provisions “match,” so that once you are on disability, you continue to receive benefits without having to incur another elimination period, or the number of days you must be disabled before the insurance kicks in.

If you need to buy your own disability insurance, go for the longest elimination period you think you could handle. This will result in a significantly lower rate. A 90-day elimination period often is recommended, but you’d need to be able to support yourself (and your family, if applicable) for that period of time.

Also, be sure you understand how the policy defines “disabled.” Some policies require that you be hospitalized to receive benefits. You should look for a policy that will keep paying you as long as you’re unable to perform your job duties.

Don’t depend on government programs such as Social Security (you must be off work for at least 6 months to qualify for Social Security benefits) or workers’ compensation to provide you with benefits in the event of a disability. If you’re eligible for coverage, your benefits won’t be as much as you need. Also, your chances of being injured off the job are probably as good, or better, as those of being injured at work. You need coverage in the event of any disability.

Dental Insurance

If your employer offers dental insurance, by all means, go ahead and use it. If not, though, don’t bother getting it on your own. It usually doesn’t pay for extensive work, and it’s not worth buying to cover having your teeth cleaned a few times a year.

Flight Insurance

This novelty insurance plays on the fears of people who don’t like to fly. If your life is worth a lot of money, you’ll have your life insurance up to date anyway.

Credit Life and Disability Insurance

Sold by credit card companies, these policies pay a small amount to your beneficiaries if you die with a credit card balance. The policy only covers the debt on that one card. Don’t bother. Your term life insurance policy should be large enough to cover all your debts.

Life Insurance for Your Kids

Life insurance is to protect income, and children generally don’t have income. If your child dies, a small amount of insurance money isn’t going to make things better for you. You may purchase a child rider on your life insurance policy to cover a funeral and final expenses if you wouldn’t be able to afford these if your child were to die.

Shop Around and Save

Insurance costs can vary greatly, so to limit the costs of your insurance policies, you must comparison shop.

We mentioned earlier that you should take the highest deductibles you can afford on your insurance. Of course, you’ll pay more in the event that something happens, but you’ll pay less on your premiums. Chances are, you’ll end up paying more in premiums than you will on a higher deductible for an occasional claim. If you have a very low deductible, you’ll end up filing claims a lot more often than if your deductible is higher.

Say your roof leaked during that last nasty thunderstorm. It’s nothing too bad, but the estimate to repair the damage was $175. If your deductible is $100, you’re going to spend a lot of time filling out claim forms and hassling with the insurance company for the sake of $75. Also, if you report every minor claim, you can bet the insurance company will soon be hiking up your rates. If you have a $500 deductible, though, you’ll save significant money on your premiums—a savings you can use to make minor repairs. Comparison shop the premium savings and the deductible limits and then determine what you can afford to pay out if you have a claim.

Also mentioned earlier was the advantage of getting a group rate on an insurance policy rather than buying it on your own. Whenever possible, check out group rates through your employer or an organization you belong to. You often can save significant money by doing so. A benefit of having an individual policy is that you can retain the coverage if you change jobs.

Finally, when you’re shopping around, check out the rating of the insurance company you’re thinking of doing business with. Various organizations evaluate and rate insurance companies, judging them on their financial stability and health. Look to A.M. Best (ambest.com), Standard and Poor’s (standardandpoors.com), Weiss Research (weissinc.com), or Moody’s (moodys.com) rating services.

When You’re Not Covered

Coming from your insurance agent, “You’re not covered” can strike fear in even the staunchest hearts. If you’ve filed a claim and your insurer doesn’t want to pay it, or wants to pay only part of what you believe it should, don’t roll over. There are things you can do to assure your best shot at getting what you deserve.

Document Your Losses

If you’re in a car accident, get the names and addresses of all possible witnesses. If your property was damaged, take photos or videos of the damage. File police reports when necessary, and get several estimates for what it will cost to repair or replace whatever was damaged. If you aren’t at fault in the accident, be certain that’s noted on your policy. Whether or not your premium increases at your next renewal depends largely on who is at fault for the accident. Some companies now offer a one-accident forgiveness feature, which is something to consider when you are shopping around.

Don’t Give Up

If you file a claim for $2,286 for repairs to your car after a wreck and the insurance company says it will give you $1,500, find out why. If you don’t get any satisfaction from the adjuster, ask to talk to the supervisors and managers. Ask your agent to help you, too.

Prepare Your Claim Carefully

Be sure your policy covers the claim you’re about to make, and write out your claim report carefully and clearly. By all means, keep a copy of the report, and document all conversations you have with anyone concerning your claim.

Get Help

If you’ve been denied coverage for a major claim you feel you’re entitled to, call your state insurance department and discuss the situation with a representative. If you’re still not satisfied, you might want to review the matter with a lawyer who specializes in insurance concerns. Hiring an attorney can be expensive, but if there’s a significant amount of money at stake, it might be worth it.

Insurance is a big, powerful industry, and it’s in the business of making money. Don’t expect your insurer to go out of its way to please you and make you happy. Although you shouldn’t assume an adversarial position with your insurance company, you should remain alert to the possibility that you’ll have to do a little haggling to get what you deserve. Good companies do, and all companies are expected to, honor their commitments and promises to their customers.

The Least You Need to Know

• Purchase insurance to cover major losses, not to protect you against every little thing that could go wrong.
• Some types of policies are recommended for almost everyone, and some hardly anyone should buy.
• You can save money when buying insurance, so it pays to know what you need and look around before you buy.
• If your insurer hassles you about paying a claim, be prepared to fight.