May
9
How to Buy Individual Health Insurance
Filed Under Insurance | Leave a Comment
If you don’t have health insurance through your employer, or your spouse’s employer, you can either buy an individual health insurance plan, a family plan, or a group plan through a trade group or credit union to which you belong. The costs will be higher, but the cost of not having insurance is much higher. More than 50% of all bankruptcies are caused by medical bills.
This basic overview of your options and methods for saving money on insurance can help you wade through the process of buying private health insurance.
Types of Individual Health Insurance Plans
Group plans, usually through an employer, offer the best coverage at the lowest cost because you can’t be rejected due to pre-existing conditions. Individual health insurance coverage isn’t as extensive, but you can find a plan to suit your needs and your budget. Plans come in four primary types:
Indemnity
Indemnity coverage is best for young, healthy people. Most indemnity plans have a very high deductible. You also often have to pay the total cost up front and then file a claim for reimbursement. This option has two benefits: low annual premiums and complete flexibility to see any doctor, any time.
Preferred Provider Organization (PPO)
A PPO controls costs by limiting coverage to in-network doctors and hospitals. When you opt for a PPO plan, you don’t have to choose a Primary Care Physician (PCP), and can see an in-network doctor without a referral. Most plans include a deductible, which you have to pay before your coverage kicks-in. You’ll pay a co-pay when you visit the doctor, but the doctor then bills your insurance. In most cases, preventative care visits are covered, but you’ll have to pay the negotiated rate for tests until the deductible is met. Some also require co-insurance after the deductible is met, which means that you pay a set percentage of the total cost, often 30%.
Health Maintenance Organization (HMO)
An HMO offers a limited number of doctors and hospitals that you can choose from. You’re also required to choose a PCP. If you need to see a specialist, your PCP must provide a referral. You may have a small co-pay, but there’s no deductible to meet. Most have no or very limited out-of-network coverage. Premiums are usually lower than those of a comparable PPO because of the limits.
Point of Service (POS)
POS coverage combines an HMO and a PPO. You choose a PCP, but pay no deductible for care provided by the PCP. Most plans require referrals if you need to see specialists. They may also provide limited out-of-network coverage.
How to Choose an Individual Health Insurance Plan
When choosing a family or individual health insurance plan, first review the coverage offered by different plans from a few different companies. You should also check with the state insurance commissioner’s website to see how each plan rates in your area. None of the reviews will be great, but some are better than others.
Note: if you have a pre-existing condition, you will probably be charged a higher rate, regardless of how minor it is. My husband had a hospitalization as a result of a car accident and one insurance company offered a ridiculously high rate because it had been within the past year, never mind that he wasn’t at fault and didn’t plan to repeat the injury.
You should also compare the various deductibles. Most have a medical deductible and a prescription deductible. If you add dental coverage, expect to find a third deductible. If all you need are semi-annual cleanings, skip the insurance. The premium costs more than paying the dentist directly.
When my husband and I got married, we didn’t have employer-provided coverage. We combined our individual health insurance plans into a family plan, and opted for a PPO with a $2500 deductible because the premium was $100 a month less than the plan with a $1500 deductible. Paying an extra $1,200 to save a possible $1,000 didn’t make sense to us.
If you can, deposit the premium difference between the lower deductible plan and the plan you choose into a savings account. That way you’ll have the money to cover the deductible if you need it, but the money is yours to keep if you don’t need it.
How to Apply for Individual Health Insurance
Most applications can now be completed online. Although it’s tempting to leave out some conditions, past surgeries, or other factors that might increase your rate, don’t do it. If you intentionally exclude information, your insurance could be cancelled just when you need it most. In addition, they will probably find out anyway, so lying only makes you more likely to be declined.
You usually have to submit the first payment with the application, and the money will be refunded if you’re declined.
When to Apply for Individual Health Insurance
You should apply for insurance the moment you discover you will soon be without it. If you’re leaving your job and your new job has a waiting period before your coverage is active, see if you can buy COBRA coverage for the gap.
If you don’t qualify for COBRA, and only need coverage for a few months, you can apply for a short-term plan. If you don’t know how long you’ll need coverage, buy an annual individual health insurance plan. You can pay annually, semi-monthly, or monthly, so choose the payment plan that works best for you.
Whatever you do, don’t risk going without insurance. My parents’ friends decided they could do without coverage for three months, but the husband had a major heart attack one month after their coverage lapsed. Fortunately, he was a valuable enough employee that his new employer paid for his car, but don’t count on your new employer doing the same. Unlike renter’s insurance or auto insurance, everyone eventually needs to use their health insurance.
May
8
Why You Need Renter’s Insurance
Filed Under Insurance | 3 Comments
Most of my friends who rent don’t have renter’s insurance, for one of three mistaken reasons:
- They think it’s too expensive
- They think their landlord’s policy covers them
- They think their stuff isn’t worth much.
If you rent, then you do need a renter’s policy. It’s actually very affordable - it’s usually less than $20 a month. $12 a month is the national average. I pay $20 where I live in California, and that buys me $20,000 in coverage with a $500 deductible.
What Renter’s Insurance Covers
Rather than the structure, renter’s insurance covers your possessions. Your landlord’s policy will only cover the structural damage. If your stuff is ruined due to a leaking pipe or collapsed ceiling, you might be able to sue your landlord, but a renter’s policy will cover you with less hassle.
In most cases, insurance policies protect your personal property from loss due to fire, theft, vandalism, water, and other similar damage. Most policies also cover a limited amount of liability if you injure someone or if they’re injured in your rental property.
Some policies will also cover theft of your property when you’re away from home. For example, if you’re traveling and your suitcase is stolen, your renter’s policy may cover the loss of your clothes.
What Renter’s Insurance Doesn’t Cover
Renter’s insurance, like homeowners insurance, doesn’t cover everything. If you live in a flood zone or earthquake country, you may need a supplemental policy. My insurance agent recommends against earthquake insurance for renters because the deductibles are high and the coverage is low. It’s mainly designed for structural damage incurred by owners.
Most policies offer only limited coverage for the following items. If you have any of these, you should ask about a special rider to cover them:
- Cash
- Business equipment
- Jewelry
- Furs
- Firearms
How Much Coverage You Need
The level of coverage you need depends on the value of your personal property and the cost of replacing it. The more stuff you have, the more you’ll need to cover. State Farm has a handy estimator as part of their quote tool.
According to their tool, I would need a policy worth $40,000 to cover the entire contents of my 4.5 room apartment in a total loss (that’s two bedrooms, a living room, and a kitchen with dining room.) My policy is only $20,000, but I didn’t factor in replacing all of our books, CDs, and DVDs. I estimate that it would cost right around $20,000 to replace the following items if we shopped carefully:
- Clothing
- Bedroom furniture
- Linens
- Personal care items
- Luggage
- Computers
- Entertainment center
- Desks
- Living room furniture
- Dining room furniture
- Cookware
- Dinnerware
- Flatware
- Glassware.
To determine how much you need, write an inventory of your home or apartment, along with the current value or replacement cost of the items you could/would replace. As I said, I wouldn’t replace all of my books or CDs, just some of them. I’d look at this as a chance to get only what I really needed, rather than to replace the odd collection of kitchen utensils I’ve amassed over the years.
After you’ve completed your inventory, put the list and photos or a video of your belongings in a safe place off the property. I don’t have a safe deposit box (it’s been on my “to do” list for a year now), so I gave them to my parents and they gave me theirs.
How to Buy a Policy
If you have auto insurance, contact your insurance company to see if they offer renter’s insurance. If you can combine your policies, you’ll probably get a discount on both. If your insurer doesn’t offer it, then go online to find it. You may need to contact an insurance agent. When I bought my policy, State Farm was the only company offering it, but there are now numerous companies offering policies.
Compare quotes from a few different companies and check them out with the state insurance commission. You should also compare the levels of coverage they each offer. Most will offer actual value coverage, but spend a little extra to get replacement value coverage if it’s available.
Unlike my auto policy, I’ve never had to tap my renter’s insurance policy, but I’m glad I have it every time I turn on the news and see an apartment building engulfed in flames. Don’t be so cheap that you avoid insurance to save $20 a month. Anything can happen. If you’re not insured, Murphy’s Law guarantees it will.
May
7
Homeowners Insurance Basics: What Kind of Policy Do You Need?
Filed Under Insurance | Leave a Comment
Like car insurance, a homeowners insurance policy is a necessity for every owner. Not only will it protect you in the event of theft, fire, or other disaster, but it offers protection if someone is injured on your property. Unfortunately, many people discover too late that they’re underinsured. Use my basic guide to determine how much insurance to buy and which policy elements to look for.
Policy Types
If you have a single family home, then you will most likely need an HO-3 policy, which covers the structure, contents, and liability. If you have a condo, then you’ll need an HO-6 policy. It covers the contents, structures in the section you own, and possibly some liability. The building’s insurance, purchased through the homeowner’s association takes precedence for most structural claims. Your HOA bylaws can guide you in buying condo insurance.
Additional Policy Elements
When shopping for a policy, make sure the following elements are included, or at least discussed, before you make a decision about which policy is best.
Replacement Coverage
Replacement coverage covers the actual replacement cost in a total loss. Any other form of coverage may not be enough if local building costs have risen since you bought the home. If you can afford it, buy 100% replacement coverage. 90% coverage is a minimum. Contact a local custom contractor to get an estimate of the replacement cost for your home. Some insurers cap replacement coverage at 100-120% of the current value, but look for one without a cap in case building costs rise faster than values.
Inflation Guard
An inflation guard increases your policy annually based on the local inflation rate so that your coverage stays current with the value.
Ordinance-and-Law Coverage
If your home is more than ten years old, it’s probably not fully compliant with current building codes. Ordinance-and-law coverage will cover the cost of bringing the home into compliance.
Liability
Some liability coverage is included in the basic policy, but you can choose to add more. Liability covers you if there is accident on your property.
Displacement
Displacement insurance covers the costs you incur if you have to live elsewhere while your home is rebuilt after a fire, floor, or disaster. Usually the minimum coverage is sufficient.
Home Business Rider
If you operate a business out of your home, you need a home business rider to cover your business equipment. If you see clients in your home, you should also get a separate business liability policy.
Valuables Riders
In most cases, computers, electronics, instruments, artwork, and jewelry aren’t covered by your basic policy. Have artwork or jewelry appraised and buy a rider for that amount. You can rely on receipts for coverage of computers, electronics, and instruments (assuming you don’t have a Stradivarius violin.)
Flood
Even if you don’t live in a flood plain, you may want to buy flood insurance. Although most homeowners policies will cover water damage due to wind-driven rain, they may not cover the damage if that rain causes a landslide or ground flooding. If you live in a flood-prone region, you can buy flood insurance from FEMA.
Earthquake
If you live in California, you need earthquake insurance. You’ll have to buy it from the California Earthquake Authority, but you can usually do so through your homeowners insurance company.
Wise Homeowners Insurance Use
Shop Carefully
Before you buy insurance, investigate several companies with your state insurance commission and shop around for competing offers. The cheapest may not be the best - it could indicate stingy coverage or slow response times.
Double-Check the Fine Print
Before agreeing to the policy, ensure that the above elements are included. You should also verify that it covers the replacement cost of the contents, rather than the depreciated value.
Keep Good Records
Save receipts for big-ticket items, a home inventory, and photos or a home inventory video in a safe-deposit box. Update it annually.
Avoid Making Claims
Avoid making small claims, especially if they’re lower than your deductible. Your insurance could be cancelled if you make more than two claims in three years.
Don’t Buy a Big Dog
Due to bites, some insurance companies will cancel policies or refuse to cover owners of certain dog breeds. Before you buy this kind of dog, make sure your policy will still cover you.
Your homeowners insurance policy is designed to help you recover from theft or the loss of your home. If you use it wisely, you won’t have to worry that your policy will be cancelled. If you keep careful records and shop carefully to find a good insurance company, you’ll also have an easier time making a claim when the time comes. Although it’s tempting to skimp, buy the best policy you can. You don’t want to discover you don’t have enough coverage if your home is wiped out in a fire.
May
6
A few months ago, I talked about life insurance. Now it’s time to discuss car insurance. Auto insurance is a requirement in order to drive in most states. Most states have coverage minimums, but those minimums may not offer enough protection in a serious accident. For example, California requires 15/30/5 liability coverage. If I were to hit a motorcyclist, that wouldn’t even begin to cover it. To protect yourself, use the following recommended coverage limits when buying a car insurance policy.
Auto Liability
Liability policies offer protection for the person you hit when you’re at fault. They are described as a set of three numbers, for example 15/30/5. That’s injury coverage of $15,000 per person, with a total of $30,000 per accident. The last number is the limit for property damage per accident.
If you’re a renter without assets and an income below $75,000, then a 50/100/50 policy is ample coverage.
If you’re a homeowner, a high-earner, or have assets, then opt for 100/300/100 coverage. In addition, your homeowner’s policy may offer some coverage. If you have assets of more than $300,000, you should consider supplementing your coverage with a million dollar umbrella policy, which will usually cost less than $500 a year and cover auto accidents, injuries on your property, a lawsuit, and other possible events.
Personal Injury
The personal injury section of the policy covers you and your family members in an accident. If you have health insurance, then personal injury coverage is usually unnecessary.
Uninsured/Underinsured Motorist
Although it’s optional, you should always include uninsured motorist coverage in your car insurance policy. Many people drive without insurance, or without enough insurance, so you need to protect yourself. Uninsured coverage is usually very reasonable for coverage up to $100,000.
You can also add a collision deductible waiver, which waives your deductible when you claim uninsured motorist coverage. It’s usually about $8 a year, so definitely worth it.
Comprehensive and Collision Coverage
If you have a car loan, then comprehensive and collision coverage are required by the lienholder. Collision covers damage to the car in an accident. Comprehensive covers damage to the car from non-accidents, like a tree limb falling on the hood. You don’t request a limit, but rather the coverage is determined by the value of the car.
Many people continue to pay comprehensive and collision long after it’s stopped being worthwhile. As a rule of thumb, drop comp and collision if the annual cost is more than 10% of the current value of the car. For example, if the coverage is more than $300 a year for a $3,000 car, drop it.
Rental Reimbursement
Rental reimbursement covers all or some of the cost of a rental car if your car is undrivable or in the shop for covered repairs. In most cases, the rental will be covered by the insurance of the person who hit you, but you may need to tap rental reimbursement coverage if you’re at fault or involved in an accident with an uninsured motorist. It’s cheap, but may not be necessary.
Towing
Geico and a few other insurers offer towing. You’d probably be better off joining AAA for $50 a year because of the additional membership benefits it provides.
Car insurance doesn’t have to cost a lot of money, but you shouldn’t buy the cheapest policy you can find. Instead spend a few dollars more to buy a policy that offers the level of coverage you need. You don’t want to skimp on liability to save a few bucks, and then find your assets drained by an accident lawsuit because your coverage was too low.
Jan
29
In response to my life insurance post, a reader emailed to ask whether I’d recommend life insurance for children. In general, no.
When my husband was a baby, his mom bought a Gerber children’s life insurance plan to cover funeral expenses if he died. He continued to pay for this $10,000 coverage well into his late-twenties, until I pointed out that he’d probably paid more than it was worth. He was able to cash it in and get a little money, but not much.
Why Buy Life Insurance for Children?
There are two main instances when you might want to buy life insurance for your kids:
- Your child contributes income to the family. This is a pretty rare occurrence, but it’s a possibility, especially for child actors, models, and other performers. In this case, you might consider buying insurance to replace your child’s income if you have no other sources of support and are a full-time stage parent.
- You have a strong family history of diseases that make acquiring insurance later difficult. Examples would be Type 1 diabetes and other debilitating, lifelong illnesses. If you buy your kids whole life insurance when they’re young, you guarantee them coverage later in life, as long as you or they continue to make the payments.
Preparing for Funeral Expenses
Unless either of the above applies to you, there’s no reason to buy your child a life insurance policy. If you’re worried about funeral costs, deposit the premium amount into a college savings plan of some kind. You can still access the money if the unthinkable happens, but your child will have additional money for college if it doesn’t.
Jan
23
Lessons from Celebrities: The Importance of Life Insurance
Filed Under Insurance, Marriage and Money, Personal Finance | 1 Comment
Whenever I hear about the deaths of celebrities like Heath Ledger and Brad Renfro, my first thought goes to the children they left behind. I pray that the surviving parents have the strength to help their children through this. I also hope that the celebrities listened to their financial advisors and arranged for trusts and life insurance.
Most of us can only dream of earning the kind of money these celebrities make, but events like these are an important reminder of why every parent, spouse, or adult child with dependent parents needs a solid life insurance plan to cover expenses after their death. Unfortunately, deaths like these are also a reminder that tragedy can strike anyone at any time, famous or not.
Types of Life Insurance
Life insurance is generally available in two types: whole life and term. Your insurance agent is more likely to push whole life insurance because they earn a higher commission, but that doesn’t make it the best deal for you.
Term Life Insurance
For most people, term life insurance is the best bet. When you’re young, term life insurance is very cheap and rates rise as you age. You’re buying a fixed amount of coverage for that term, as long as you continue to pay the monthly premium. At the end of the term, you usually have the option to buy a new term policy. Terms generally range from 5 to 30 years.
Whole Life Insurance
Whole life insurance is usually more expensive, but it contains an investment component. Your premium buys a fixed payout amount, but your payments also build cash-value. Most policies allow you to cash-out or borrow against the policy tax-free, although you usually receive less than you paid in. However, it usually takes fifteen years to build significant cash value. If you’re young and healthy, term is the better option. If you’re over 65, whole life may be your only option, but the cost will be dear.
How Much Life Insurance Coverage to Buy
The general rule of thumb is that you need a policy that covers five to seven years of your salary. So, if you earn $50,000 a year, you should buy a $250,000 to $350,000 policy. If you have very young children, you may way to opt for a policy equal to ten years of salary as a precaution. Although insurance is designed to cover the salary of the working spouse, many advisors also recommend buying coverage for a non-working spouse. They reason that the working spouse will have to pay for childcare, household help, and other assistance that the non-working spouse provided.
How Long a Term to Buy
Again, the general rule of thumb is to buy coverage that will last until your youngest child completes college. For young families, assume a 20-year-term. Many people buy coverage until their retirement age to recover lost income their spouse was counting on. Term life insurance for people over 70 isn’t usually available, or is prohibitively expensive.
Whether or not you’re a celebrity, life insurance is vital to anyone with dependents. Unfortunately, it often requires a tragedy to make us realize that and act upon it. If you don’t have life insurance, research plans today.
