Meeting Your Insurance Needs

When your income or personal situation changes,
review your insurance coverage. If your income
decreases because of a layoff, illness, disability,
divorce, or death of a breadwinner, you may find it
extremely difficult to pay insurance premiums. If
this happens, you should first determine your
minimum needs for insurance. Then, call or write
your agent to check into a different payment plan
that allows you to keep your coverage. Or,
investigate plans with lower premiums.

Insurance is the primary way you protect yourself
against financial loss caused by illness, accidents,
and other destructive or damaging events. Through
insurance, you pool your risk with others. You pay
(or your employer pays for you) a premium to an
insurance company that in return pays for the
damaging effects of a large loss if it occurs.

You may decide to accept some risks and share
others. Savings, instead of insurance or maintenance
contracts, could be used to pay a variety of
unexpected expenses such as burial expenses and
repair of major equipment. Using deductibles (the
amount of money you agree to pay per claim before
the insurance company pays for a loss) is a way to
share risk. If you are married, another way to share
risk is to make sure both spouses are employable so
your family is not dependent on only one income.

Consider minimizing your risks. Although you
cannot eliminate risk from your life, you can
postpone, minimize, or control some losses. For
example, wear your seat belt and use more caution
or do not drive during bad weather to reduce your
chances of an accident.

Health Insurance

Most people rely on employer group health
insurance to ease the burden of medical costs. If you
no longer have a job, some alternatives exist.

The Consolidated Omnibus Budget Reconciliation
Act (COBRA), a federal law, provides that certain
former employees, retirees, spouses, former spouses,
and dependent children have the right to
temporary continuation of health coverage at group
rates. This coverage, however, is only available
when coverage is lost because of certain specific
events. Group health coverage for COBRA
participants is usually more expensive than health
coverage for active employees, since usually the
employer pays a part of the premium for active
employees while COBRA participants generally
pay the entire premium themselves. It is ordinarily
less expensive than individual health coverage.
Contact the office responsible for employee benefits
before leaving any employment position for details.
There is a limited period of time to sign up for this
coverage.

The Health Insurance Portability and Accountability
Act of 1996 (HIPAA) guarantees that persons,
who have exhausted COBRA benefits and are not
eligible for coverage under another group health
plan, have access to health insurance coverage
without being subject to a pre-existing condition
exclusion period. However, certain conditions must
be met.

If COBRA does not apply in your case, you may be
able to convert your group policy to individual
coverage. Contact your employer and the insurance
company for your options. An advantage of converting
policies is that you may not have to pass a
medical exam. A disadvantage is that benefits may
be reduced and premiums will probably be higher.

If you are between jobs, another option on health
insurance is to take out a short term or interim
policy which is typically written for six months or
less. Shop around to compare prices.

If your spouse is employed, check out the possibility
of being covered on your spouse’s group health
insurance. See if and when your spouse could add
family coverage through his/her employer. Many
employers or other groups have limited “open
enrollment” periods, but may add coverage
throughout the year upon proof of a change in the
family situation.

Investigate buying insurance through another group
such as a fraternal or civic organization,
professional association, or health maintenance
organization. Group coverage is almost always
cheaper than coverage by individual policies.

If individual coverage is the only alternative,
compare several policies for the best coverage.
Individual health insurance is very expensive.
Generally, it is wiser to choose a large deductible in
order to lower premium costs. It is better to selfinsure
against routine medical expenses and buy
major medical insurance to cover unexpected,
costly illnesses, or emergencies. Avoid purchasing
single disease policies or overlapping coverage.

If you do not have health insurance or can no
longer pay the premiums for health insurance, there
are limited health services available for the elderly,
disabled, children, and pregnant women. Check
with your county health department to learn about
health care programs provided at little or no cost.
These may include immunization programs, wellbaby
clinics, blood pressure checks, and other
screening programs.

Medicaid is generally available to families who
receive government income assistance or to people
over age 65 or people who are blind or disabled.
Check with your local Health and Human Services
Office for current medical assistance programs and
income and resource guidelines.

Life Insurance

If you have life insurance, try not to let it lapse if
others are dependent on your income or wageearning
capacity. Your policy could be expensive or
impossible to replace later. Owners of whole life
insurance policies can borrow against cash value or
use accumulated dividends to pay the premium to
keep the insurance in effect. The cash value of a
whole life insurance policy may be borrowed and
used for other expenses. This loan will reduce the
face value of the policy until it is repaid.

Life insurance protects your dependents against loss
of income and helps to pay expenses because of
your untimely death. If you no longer have
dependents, you may want to cash in your whole
life policy if your income decreases. You may have
to pay income taxes on the money received. You
may have had group term life insurance through an
employer. This is pure protection without a cash
value or savings feature. If you are uninsurable
elsewhere, you may want to convert your former
employer’s group plan into an individual policy.
Check with your employer about converting the
policy.

If you are healthy, insurable, and need coverage,
you may benefit from purchasing individual term
life insurance. This insurance usually provides
maximum protection at the least cost. It insures
your life for a fixed period of time, usually 5, 10, or
15 years, and benefits are paid only if you die
within that time period. Shop around; there is a big
difference in term policy prices.

As with all insurance, review your needs before
talking with an agent. Evaluate your spouse’s
income (if any), potential Social Security
payments, interest, or other income, your debts,
and your family’s living expenses.

Automobile Insurance

Automobile insurance has two parts: (1) liability
coverage for bodily injuries, property damages, and
medical expenses to others when you are at fault,
and uninsured motorist coverage to pay for injuries
caused by another driver who is uninsured or by an
unidentified hit-and-run driver; and (2) physical
damage protection for your vehicle, such as
collision, fire, or theft.

Minimum limits for liability vary from state to state.If your current policy has higher limits
and you cannot pay the premium, consider cutting
back to the minimum liability limits temporarily.
However, these minimum limits usually do not provide
adequate protection for the long term.

One way to reduce automobile insurance premiums,
if your car is not new, is to increase the deductibles
for comprehensive and collision or drop these
coverages. Consider dropping collision coverage if
the car’s value is so low you could assume the loss
yourself.

Minimize your automobile insurance premiums by
checking rates among companies, selecting a higher
deductible, purchasing less expensive coverage, and
insuring all family cars with one company. Check
for special categories that are considered good risks
such as nonsmokers, driver education training for
young drivers, and good driving records. When
planning to purchase a different vehicle, be sure to
check insurance rates as they vary considerably by
make and model.

Property Insurance

Most homeowner’s policies protect you from loss of
property and legal liability. If you experience a loss
because of fire, storms, explosions, vandalism, or
theft, most homeowner’s policies reimburse you for
loss or damage to the house and its contents.

Coverage is based on the cost of replacing the
entire structure, with personal property figured as a
percentage of that cost, typically 50 percent.
Coverage should be based on replacement costs
rather than actual cash value. You are not fully
protected even for partial losses unless purchased
coverage is at least 80 percent of replacement costs.

Liability protection covers individuals injured on
your property, your damage to someone else’s
property, and medical payments for the injured. A
renter’s policy covers the replacement cost of the
contents of your leased home as well as liability
protection.

If you try to save money by lowering premium costs,
beware of under-insuring. Check your policy to see
that it will rebuild your house and replace your
possessions at today’s prices. For example, if your
10-year-old television is stolen and your insurance
only pays what the television set is now worth, you
will have trouble replacing it at current prices.

Disability Income Insurance

If your income is reduced because you are disabled,
you know the importance of buying income
protection through disability income insurance.
The coverage typically provides 50-70 percent of a
worker’s before-tax income. Once disabled, workers
need to check their qualification for benefits
provided through their employer, Social Security, or
veteran’s affairs. Other types of insurance policies
already owned, such as life or credit insurance, may
cover payments or premiums if the policy owner is
disabled. Some loans provide payment of debts if
the debtor purchased disability coverage.

Conclusion

Estimate your needs, shop around, talk with several
agents, and select coverage that will fit your budget.
Do not over-insure. Insurance needs should be
reviewed periodically, particularly when income
changes. With all insurance, make sure the
company has a very high rating with the insurance
rating services. Friends and relatives can share
experiences of companies’ payments on claims.

Additional Ways to Cut Your Insurance Costs

For All Insurance

Look for broad policies that insure exactly what you need to insure. Avoid narrowly defined policies. For example, one comprehensive health insurance policy should eliminate the need for a cancer insurance policy.
Do not buy insurance coverage for risks that you could insure yourself. You could prepare for low-cost risks, such as minor damage to your car, through savings.
Take the biggest deductible that you can afford. The deductible is the part of the insurance costs that you have to pay.
Check policies to make certain that you are not paying twice for the same coverage. For example, you could lower your auto insurance premium by decreasing your medical payments coverage if you have good health care coverage for you and your family.
Check out all possible discounts with your insurance representative.
Pay premiums the least expensive way which is usually annually, not quarterly or monthly.
Compare the costs of several different companies before making a choice. Call state Department of Insurance to obtain a list of typical prices with different licensed companies.
Learn if you are eligible for a group policy. Group rates are lower than individual rates.
Check the local library for information about the financial soundness of insurance companies, such as Best’s Insurance Reports. You should select a company that has at least an “A” rating.

For Health Insurance

Select a company that returns a high percentage of the premiums paid to it. Ask the agent or your state Department of Insurance for the loss ratio.
Do not try to make a profit on your insurance by carrying overlapping coverage. A coordination of benefits clause usually limits benefits paid by one or more policies to 100 percent of expenses.
Note pre-existing condition clauses. These clauses mean that for the first weeks or months your policy will not cover medical conditions you had when you bought the insurance.
Check renewal provisions. Ideally, you would purchase a non-cancelable, guaranteed renewable policy.
Study deductibles and coinsurance clauses. If you are able to absorb more medical expenses by choosing a higher deductible, you can lower your insurance premiums.
Keep records of your expenses and file claims on time.
Be cautious about switching policies. A new policy may mean new waiting periods and exclusions.

For Life Insurance

For universal life insurance policies, compare administrative costs. Some can be substantial. Ask if the charges are front loaded (deducted before the premium is credited to your cash value) or back loaded (paid when you surrender the policy).
Find out the purpose of any optional features of a policy and decide which are worth the added cost.
Compare the interest-adjusted net cost index. Cost comparisons should only be made between similar plans of life insurance. The index for a cash value policy cannot be compared with that of a term policy.
Evaluate fees and agents’ commissions before switching policies. The costs may outweigh the benefits.
Buy credit life insurance only if you cannot find life insurance coverage elsewhere. Lenders sell credit life policies and collect the proceeds to repay the debt if the borrower dies. A good term life insurance policy is far less expensive than credit life insurance.

For Auto Insurance

Choose the right car. Discounts and surcharges for particular models can be from 10 percent to 55 percent. Your insurance company can tell you which cars are more or less expensive to drive.
Change your rating category. Car pool or use public transportation rather than driving your car to work. Have a young driver share the family car rather than drive his or her own.
Avoid unneeded options. If you have adequate life, health, and homeowner’s insurance, you may not need the limited life, medical payments, and theft insurance that many companies sell.
Do not buy rental car insurance if your auto insurance policy protects you.

For Property Insurance

Install security devices. Practically every insurance company offers discounts for some combination of the following protection devices: burglar alarms, deadbolt locks on all doors, smoke alarms, and fire extinguishers.
When purchasing or building a home, consider one built of a fire resistant material such as brick.
Your home’s location affects your insurance rates. A home located near a fire station is less expensive to insure than one several miles away from fire protection. Insurance costs are lower for homes in low crime and vandalism areas.
Review your homeowner’s insurance regularly. Drop riders you may have purchased years ago and no longer need.
Ask about discounts. You may receive a discount if, for example, you buy your homeowner’s and auto insurance from the same company.

KEEP YOUR INSURANCE POLICIES UP-TO-DATE

Even if a policy change will result in a higher premium, make sure that you keep your agent
fully informed and up-to-date about the coverage you need. This will reduce the possibility of a
loss that is not covered by your insurance.
Notify your agent if you or a member of your household:

• should no longer be covered on a policy

• gets married or divorced

• moves to a different location

• a boarder moves into the house

• substantially reduces or increases amount of driving

• buys or sells a car, recreation vehicle, or boat