13
Insuring Yourself, Your
Family, and Your Property
Everyone needs insurance. Life is full of unanticipated occurrences that can have a high price tag (not to mention emotional burdens) attached. Most are horrific to consider: sudden death, automobile accidents, natu-ral disasters, life-threatening or chronic health conditions, workplace injuries, theft, fire, and so on. Insurance provides financial support that can help you—or your loved ones—get through a difficult, often unex-pected, experience. But it can be challenging to determine exactly what forms of insurance you need (or don’t need) and how much coverage is adequate. Then there’s the task of finding this at a reasonable price from a reliable source.There are two broad categories of insurance. Insurance that covers your personal needs includes health, life, disability, and long-term care insurance. Insurance that covers your property includes automobile and homeowners’. You may not be able to purchase all your insurance policies from a single source. Health, life, and disability may be avail-able from your workplace, but your employer probably is not going to help you insure your home or your car (unless it is a company-owned vehicle).
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I n s u r i n g Yo u r s e l f , Yo u r Fa m i l y , a n d Yo u r P r o p e r t y 121Expecting the Worst, Hoping for the Best
Bonnie and Henry felt truly blessed. They had been married for 5 years, had a healthy toddler son, fulfilling careers, a modest, well-kept home in a friendly neighborhood, and a late-model car that gave them no trouble. After watching a newsmagazine show about families struggling with healthcare costs, Bonnie and Henry began to question whether their own healthcare coverage was adequate. Because Henry was self-employed, Bonnie’s policy covered the family.
She had never really stopped to read the materials given to her the first day she became eligible for coverage—she had just checked off a form for the cheapest option and sent it back. She wasn’t even sure what the monthly premium was, since it was automatically deducted from her paycheck. When a member of the family needed to see a doctor, they picked one off a list of preferred providers and made an appointment. Now that his mother needed highly specialized care, Henry wondered if being in a HMO was what he and Bonnie really wanted. What if they decided to take their son to a pediatrician who wasn’t on the list? What if the baby needed a specialist? Sure, they could always pay out of pocket, but why did they have insurance if it wasn’t going to cover these costs?
As they began looking into their health insurance, Bonnie and Henry realized that now that they were parents, they also needed to obtain life insurance. They wanted to make sure that their son would be well cared for if something happened to one or both of them.
Bonnie made a deal with Henry to divide the labor. She would look into healthcare options if he would research life insurance policies. They set a deadline of one week to gather the information and agreed that they would use multiple sources: looking on the Internet, browsing in the bookstore, and asking friends and family about their coverage and rec-ommendations.
The office manager at Bonnie’s company was happy to help Bonnie navigate the different health insurance options available. There are two basic types, she told Bonnie: for-service and managed care. With fee-for-service, Bonnie and Henry could pick their own doctors, and, after they met a specified deductible, their bill or a portion of it would be paid. Managed care programs, the other option, include health maintenance
organizations (commonly called HMOs), PPOs (preferred provider orga-nizations), and POS, or point-of-service plans. With HMOs, you are given a list of doctors who participate and you must choose one of them, or pay your own way. PPO and POS plans are a little more flexible; you may be allowed to use a doctor outside the plan. Bonnie indicated that she and Henry felt strongly about preventative coverage, especially after their experience with Henry’s mother. The office manager said to the best of her knowledge, preventative coverage may not be covered by a fee-for-service plan but typically is in a managed care policy.
The office manager also briefed Bonnie on some of the basic questions she should consider in choosing a plan. Of course, expense is a major consideration, but it should not be the sole determinant. Your medical history and that of the other members of your family who will be covered are also important, especially if there are pre-existing conditions that require extensive and expensive treatment. Some plans make you wait a certain period of time before covering these illnesses or conditions.
In fact, how healthy you and your family are can be another important determining factor. Do you (or anyone who is to be covered) have any chronic conditions that might make one plan more favorable over another? What about medication? Do you care if prescriptions are paid for through the plan or not? Do you have an accident-prone 7-year-old who is in and out of emergency rooms? Are you a fan of alternative medicine, such as homeopathic remedies or acupuncture? Some plans cover these treatments; others don’t. And what about family planning— obstetrics costs are yet another consideration. She emphasized that these are just a few of the considerations for Bonnie to weigh.
A week later, Bonnie and Henry shared their findings while they sat at their dining room table. Bonnie spread out the information package on the family’s current health insurance coverage and was able to outline to Henry its advantages and disadvantages. She thought they should stay with their same plan with a few minor adjustments, including one to the deductible and another to allow them to be partially reimbursed for doc-tors outside the company’s network. She had even investigated purchas-ing medical coverage outside of her employer and was horrified by how expensive it would be to cover the family—thousands of dollars monthly.
Henry had investigated both types of life insurance, term and perma-nent. He had made a chart explaining the differences:
TYPE DEFINITION ADVANTAGES DISADVANTAGES
Term
Protection for a specific time period, usually 1–30 years,
for a set amount at a set premium determined by age,
gender, health, length of policy, and tobacco use.
Inexpensive and competitively priced.
Guaranteed rates. May not require a medical exam. Can start
immedi-ately.
No savings or investment component Once the term ends you
have to buy another policy, possibly at higher
cost Permanent (AKA Cash Value, Variable, or Universal Life)
Pays a benefit on death, but also accumulates cash value for every year you are alive. Available as Whole Life (fixed premium for a defined
cash payout), Universal (flexible premium payments
determining payout), or Variable (includes an investment component). Premiums are accumulated
in a fund and paid out as dividends.
Premiums are set Cash value is a form
of savings Doesn’t have to be
renewed
Value of the investment component of policy may lag the market and has to cover agent commissions and processing expenses More expensive than term Available only through licensed brokers and not
online May incur a penalty for
cashing out early
Together they concluded that for their present needs, term was a bet-ter fit. Henry could buy a 30-year policy relatively cheaply since he was in good health and not a smoker. He thought they should purchase a policy that would pay around eight to 10 times his annual salary. This was the amount recommended by industry experts. Then, he could add Bonnie to the policy so she wouldn’t have to have a separate one. If somewhere later down the line they decided to switch to a whole life policy, they could revisit the issue. A client of Henry’s had recommended a broker to write the term policy, and Henry said he would follow up if that was okay with Bonnie.
Henry’s client had also suggested that Henry and Bonnie see whether they could find disability insurance at a reasonable price, perhaps from Bonnie’s employer. In the event of a catastrophic illness, health insurance would not pay the everyday bills that Henry and Bonnie needed both
salaries to cover. That was something they hadn’t considered at all. He additionally recommended long-term-care insurance in case an illness or accident resulted in the need for expensive long-term care. These costs also might not be covered by traditional health insurance. Although important, they decided to postpone this purchase for a few more years.
Once Henry and Bonnie had educated themselves and made informed decisions about their personal insurance needs, they felt they could rest easier about what the future might hold.
Commonsense Considerations
Henry and Bonnie’s research project helped them clarify the many options and determine a clear direction.
While health, life, disability, and long-term-care insurance offer dis-tinctly different types of coverage, here are some common points to con-sider when purchasing insurance.
• Your needs are unique. You, your family, your financial situation, and a whole host of factors you can’t control, such as your genetic predis-position to illness, make a difference. Don’t let anyone talk you into general policies that don’t take into account your particular circum-stances.
• Strive for enough coverage. But don’t overinsure. The point of insur-ance is to protect you and your family in the event of a tragedy. You need adequate coverage, but not so much that it is redundant or ties up valuable dollars that could be better invested elsewhere.
• Try to find a provider that offers multiplan policies. There may be substantial discounts if the same company issues your life, disability, auto, and home insurance.
• Consolidate separate policies and maintain only one policy per family. For life insurance, a policy with a rider for your spouse will save on processing fees. If you have access to two individual policies through work, analyze the costs versus a single family policy.
• Life insurance on children is usually not necessary. The coverage for their parents, however, is essential in providing for the children. If you are insistent upon life insurance for your children, include them as a
“child rider” and only buy enough insurance to cover burial costs. • Stay away from adding on extra options. These extra costs might keep
you from affording the maximum protection. Do your homework: Look up how much you spend on prescription drugs before you sign on for coverage. Compare the extra cost of this benefit with your out-of-pocket expenses. It may not be worth it.
• Comparison shop. Doing so is easier than ever, thanks to information readily available over the Internet.
• Revisit all insurance decisions at least annually or on the occasion of a “life event” such as a birth or death.
• If you lose or leave your job, check out COBRA. This is your federally mandated option to continue on your former employer’s group policy (COBRA is short for Consolidated Omnibus Budget Reconciliation Act) for the first 18 months after you leave the job. You have to pay the premiums yourself, but it’s a deal compared with paying for a policy on your own.
The other broad category of insurance you need to educate yourself about protects you from loss or damage to your property, mainly your automobile and your home.
Automobile insurance is required by law in nearly every state in the country. Components include:
• Comprehensive (collision) AU: INSERTION OK? coverage that pays for damage to or theft of your car
• Liability coverage that covers your legal responsibility to others for bodily damage or property damage
• Medical coverage pays for the cost of treating injuries, rehabilitation, and, sometimes, lost wages or funeral costs
• Uninsured motorists coverage pays for treating your injuries and repairing or replacing your property damaged as the result of an acci-dent caused by an individual who does not have liability coverage In the realm of home-related insurance, if you paid all cash for your home, you may be able to avoid mortgage lender-required homeowner’s insurance, though it’s a good idea to get this coverage anyway. Standard
homeowners’ policies exist primarily to protect you from catastrophic events like house fires and typically exclude damage caused by floods, earthquakes, sewer damage, and, in some cases, windstorms, hurricanes, and mold. Homeowners’ policies may also include liability coverage in case someone is injured on your property. If you rent, you can purchase renter’s insurance to cover damage or loss of your possessions, or injury to a guest or visitor. It’s relatively inexpensive and definitely worth it.
Driving Down Insurance Costs
Patrick hated paying the monthly premiums on his auto insurance, but he knew he had to. It was part of the responsibility of owning a car. His uncle, who happened to be an insurance agent, had written the policy for him and made sure he was adequately covered. Patrick knew that his insurance rates were affected by a couple of factors over which he had no control—his age, for starters, and his gender and bachelorhood. His uncle had also advised him on a number of factors he could do some-thing about—like where he lived, his occupation, and the kind of car he drove. It also made a difference that he had a clean driving record with no moving violations and no major claims.
One day, Patrick was driving to a meeting and heard a call-in talk show about car insurance rates. The show’s guest host listed a number of additional items that Patrick hadn’t realized could also affect his insur-ance rate, like how far he drove to work every day, the fact that he kept his car on the street instead of in a garage, and the car theft alarm. The host suggested that consumers looking to lower their auto insurance should definitely shop around and consider increasing their deductibles if they felt they had the financial resources to cover a larger amount in the event of an accident. And he revealed that an individual’s credit report could have a positive or negative effect on rates.
That was news to Patrick. He resolved to give his uncle a call first thing in the morning to see whether he could update his policy so that it reflected those factors that might cause a decrease in his rates. Patrick was lucky to have been tuned to that radio station—it saved him $50 a month in the end.
Commonsense Considerations
While your insurance agent works with your best interests in mind, you should take responsibility, as Patrick did, for staying current on information that affects your wallet. These general guidelines can also help you make sure your property insurance—whether for your home or auto—is adequate and covers your property at the lowest cost possible.
• Be a detective. Compare your alternatives by researching and receiv-ing at least three price quotes from different companies.
• You may be able to reduce your rates if you buy both your homeown-ers’ and automobile insurance from the same insurer. You might con-sider asking both companies to price the additional policy for you if you are presently buying your policies from different insurers. • Bump up your deductible. This is the amount of money you will have
to pay out-of-pocket before your insurance companies’ payment kicks in. Observe the relationship between your deductible and your rates. For example, if you can afford to raise it from $500 to $1,000 on our auto insurance, you can save significantly on your annual costs. (How-ever, this means you should have at least this much on hand should you need to file a claim.)
• Disaster-proof your home. Ask your agent what actions you can take to prepare for natural disasters. Certain areas of the country are more prone to certain types of natural disaster such as tornados or hurri-canes. Find out what protections you can install to minimize your risks.
• Ask about discounts that may be available to you. Every insurance company has a list of items that will qualify you for a discount—for example, a smoke detector or an alarm system may reduce your hom-eowners’ rates, just as an alarm system on your car may do the same on your automobile policy. Safe driver discounts and good grades dis-counts (for students) should also be investigated.
• Buy additional coverage when necessary. Depending on where you live, you may need separate coverage, especially if you’re in an area prone to natural disasters.
• Try not to file claims if you don’t have to. Some experts recommend not filing claims for less than $1,000. If you file too many claims, your company may raise your premium or drop you altogether.
