 Insurance - Managing Risks
Living on a reduced income creates a stressful environment for most families, and research indicates that when one experiences stress one is more likely to encounter an accident or develop an illness. This possibility would further threaten your financial condition. Consequently, this is no time to let insurance coverage lapse.
Insurance premiums can be difficult to manage when living on a reduced income. But it is possible to maintain or increase coverage while cutting premium dollars by becoming a knowledgeable consumer. This is accomplished by analyzing your needs, determining how much coverage is necessary, deciding how much you can afford to spend, and comparison shopping for the best price.
Since most people are over-premiumed and under-insured, the purpose of this publication is to help you purchase adequate insurance coverage at the lower cost. Life, disability, health, property, and casualty insurance will be discussed. When shopping for insurance, consider the following:
- Don't buy insurance based upon what the salesperson tells you that you need. Use personal knowledge to make your decisions.
- Purchase insurance to cover catastrophic losses, not small losses.
- Generally, one comprehensive policy is better than a number of small ones.
- Never drop essential insurance coverage until another policy is in force.
- Always shop for a policy which is guaranteed renewable and non-cancelable.
- Buy insurance from a company rated A or A+ by A.M. Best. You will find these ratings in Best's Insurance Guide at your local library.
Begin to analyze your current insurance coverage by completing the record sheets at the end of this newsletter. Use this information to determine if your coverage is adequate. Decide how much money you can spend on premiums. Then comparison shop for the best coverage at the lowest cost using the following suggestions.
Life Insurance
The two types of life insurance are cash value insurance and term insurance. There are many kinds of cash value insurances though most people generally have a whole life, universal and/or a single premium policy. They all provide protection against loss of life as well as a savings (investment) feature. Term insurance provides pure protection and no savings feature.
Financial experts, who generally recommend that consumers not mix their savings with the purchase of insurance, feel that term insurance offers the most coverage for the lowest price.
Buy life insurance only if you need it, generally just when you have someone dependent upon you. There is seldom another reason for you to purchase life insurance.
Always comparison-shop for the least expensive coverage. If you recently left your job, don't assume that you are getting the lowest premmium by taking advantage of your company benefit conversion privilege. Sometimes it is more expensive. Shop for the lowest price by contacting a life insurance clearinghouse. When calling these 800 numbers, ask them if there is a fee for the service. Some clearinghouses charge the consumer the fee; others charge the insurance company if a policy is purchased.
- Insurance Information 800-472-5800
- Insurance Quote 800-972-1104
- Select Quote 800-343-1985
If you have a cash value policy and extensive debt, consider a policy loan to pay your bills. You won't be required to repay the loan, though you will have to pay a relatively low interest rate annually. But, should you die before repaying the loan, your beneficiary will not receive the full face value of the policy. The policy loan amount will be deducted from the settlement.
Disability Insurance
Disability insurance covers earnings while you are employed and is needed more than life insurance since statistics indicate that workers are more likely to become disabled for an extended period than to die at a young age.
Consider buying a policy that will cover 50 to 60 percent of your income. Choose one with a long waiting period to cut premium costs. The waiting period decreases the premium by functioning like the deductible in an auto insurance policy.
If you currently hold a policy and are unemployed, contact your insurance company to discuss policy options.
Health Insurance
- Health care costs are very expensive so you can't afford to be without health insurance.
- But there are ways to cut your insurance costs. If you lose your job, you have a number of options.
- It's important that you find out exactly how long your health insurance will remain in effect after your last day at work before you lose your job. Some employers allow your insurance to remain in effect for 30 days or longer depending on the employer's insurance policy.
- You may be able to continue your group coverage. If you worked for a business with 20 or more employees, the Consolidated Omnibus Budget Reconciliation Act (COBRA) entitles you and your dependents to continue coverage for a considerable period of time under your former employer's plan.
- COBRA requires that you pay 102 percent of your group insurance premium. If your employer was paying a portion of the premium, you will have to assume that cost in addition to what you were already paying, plus an extra 2 percent. If a company was covering the entire premium cost this could be quite expensive for an employee who has just lost a job.
- If you are not eligible for COBRA coverage, or it runs out, check into converting your group coverage into an individual or family policy, or shop for individual coverage. If you convert your existing coverage, your premiums will increase, while your benefits may decrease. The benefit of conversion policies is that insurers must make these policies available to you regardless of health.
- If you want more complete protection than the conversion coverage offers, or a conversion's not an option, you should consider buying an interim or short-term comprehensive major medical policy. Buy a policy that covers all health care costs whether from an illness or accident. Shop for one with a short, if any, waiting period. These policies generally provide coverage for 2 to 6 months. Beware of a policy that doesn't cover preexisting illnesses.
- Look for a policy with a large deductible and stop-loss feature. A $1,000 deductible and a $5,000 stop-loss feature is suggested. This cuts the premium by more than 50 percent. The premium dollars saved due to these features should be set aside in savings to apply towards the $1,000 deductible if needed.
- Be sure to comparison shop for cost and coverage. Premiums vary widely. So does the amount and type of coverage.
- If your spouse is employed, it may be possible to obtain coverage through his or her company policy.
- In addition, you may be eligible for Medicaid if you meet certain income and asset guidelines. Your tax dollars have paid for this program, so don't hesitate to take advantage of it when necessary.
Property and Casualty Insurance - Automobile and Homeowner (Renters) Policies
Don't drop essential property and casualty coverage. Contact the insurance companies to find ways to cut costs when you can't pay premiums. The company representative may suggest dropping unnecessary coverage, increasing deductibles or taking advantage of policy discounts.
Policies to Avoid
Many insurance policies, although surprisingly popular, should be avoided. They tend to be very profitable to the insurance companies that peddle them, but a real loss for customers. Among them are extended warranty insurance; burial (funeral) insurance; children's life insurance; credit life or disability insurance; single disease (cancer) insurance; hospital indemnity or income insurance; vacation insurance; accident, dismemberment, and loss of sight insurance; credit card insurance; flight insurance; moving insurance; and rental car insurance.
Avoid life or health insurance sold by slick television or direct mail advertisements, especially those sold to people age 50 to 80. These policies are expensive, offering limited coverage the first few years. Policies that provide coverage to select groups such as veterans are generally not wise purchases. The insurance companies offering these policies often misrepresent them as being associated with the government.
Remember that you can save hundreds, even thousands of dollars by comparison shopping for the best insurance price and coverage and in many instances you will increase your coverage as you cut your costs.
For further information on how to purchase insurance, contact your local county Delaware Cooperative Extension office. In addition, read the chapters on insurance in the book Financial Self-defense: How to Win the Fight for Financial Freedom by Charles J. Givens. You will also find the book Family Insurance: Complete Guide for the 1990s by Les Abromovitz very helpful. These books can be found at your local library.
Adapted for Delaware by:
Maria Pippidis,
Home Economics Educator,
University of Delaware
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