Say What? People Don't Understand Insurance

By Ryan Hurlbert on May 1st, 2010
Auto Insurance

A recent survey by the National Association of Insurance Commissioners (NAIC) shows that Americans are making financial decisions about insurance coverage without knowing very much about insurance. Of the 1,000 adults who took the survey, only 45 percent felt confident making insurance decisions and more than sixty percent of respondents couldn't correctly answer basic questions about insurance coverage.

According to the NAIC survey:

  • 63 percent of Americans don't understand how insurance covers the theft of items stolen from their cars
  • In states where credit scoring is allowed, 54 percent don't know how their credit score affects their insurance rates
  • 86 percent of Americans do not know what the numbers mean in their liability coverage

Theft from Vehicles

If your vehicle is broken into, your auto insurance policy does not cover personal property stolen from your vehicle. Your homeowners or renters insurance policy covers personal property in the event of theft. Therefore, you must file the personal property theft claim under your homeowners policy. Any damage to your car caused by the theft would be covered by the comprehensive coverage on your auto insurance policy.

Repairing the damage to your car and replacing stolen personal property would be treated as two separate claims with two separate deductibles. Odds are that the deductible on your homeowners policy is more than the value of the property stolen from your car, and you may not recover much through your claim--if anything at all.

In order to prevent the theft of personal property from your car, you should take your CDs, MP3 player, laptop, phone, dry cleaning, tools, and whatever else you have in there out of your vehicle. Power cords and mounting brackets for GPS units signal that there are valuable things stuffed in the center console or glove compartment, so put them away. Remove temptation, or at least reduce the value of the take should your car be broken into.

Credit Scores and Insurance

According to the NAIC survey, 54 percent of respondents in states where credit scores can be used in premium calculations were not aware of the effect poor credit had on premiums. In many states, insurers are allowed to use your credit history to help determine rates. If you have good credit, this can be an advantage. But if your credit is a little bruised, it can cost you.

When your credit improves, request a re-rate from your carrier, and shop around again. Cut-off points vary among insurers, so the same credit score can net drastically different rates from competing insurers.

Other factors that can influence your auto insurance premiums are:

  • Driving Record: A clean record is best, but one minor ticket in the past three to five years may not hurt your wallet much. Add a second ticket, and your premiums may skyrocket
  • Type of Car: The Highway Loss Data Institute publishes an online guide to claim losses in six categories for most cars. Fewer losses generally equates with lower premiums, so your choice of car could have a serious impact on your premiums
  • Deductibles: Your deductible is your share of the loss on a comprehensive or collision claim. Raising your deductible reduces your premium, but not just because you pay more for a claim. For an insurance company, a higher deductible may mean that you will file fewer claims, and that is where the real savings for your insurer come in. Remember to balance premium savings against the additional risk you are assuming with a higher deductible

Just What Do the Numbers 100/300/100 Mean?

Have you ever been confused by the series of numbers, such as 100/300/100 or 15/30/5, in your auto insurance policy? Well you're not alone; 86 percent of NAIC survey respondents did not know what the numbers designating liability coverage limits meant. In the above example, 100/300/100 indicates that there is $100,000 per person in bodily injury liability, with a maximum of $300,000 available for any one accident, and the last 100 indicates $100,000 in property damage liability coverage.

Think You Know Medical Insurance?

With all the talk about health care reform, consumers have been inundated with coverage terms such as Medicare and Medicaid. According to the NAIC survey, 86 percent of survey respondents said they do not understand all of the terms being used in the health care reform discussion. Other sobering statistics include:

  • 55 percent of Americans do not understand what a pre-existing condition is, or how it affects their choice of health care coverage
  • 40 percent do not know when they are eligible for Medicare
  • 53 percent think they are unable to change the group health care elections made during open enrollment periods, no matter what

Pre-Existing Condition

According to the NAIC, a pre-existing condition is an injury or illness for which you receive medical advice, diagnosis or treatment within a certain time frame before the enrollment of coverage. A pre-existing condition may be the reason you are denied coverage. If you are able to obtain a health insurance policy, the coverage may include a pre-existing condition exclusion rider that restricts coverage of your pre-existing condition for a specified period of time or as long as you maintain the policy.

Each state has specific rules that determine pre-existing condition exclusions, as well as how far back an insurance company can look for pre-existing conditions. Check with your state's insurance department to find out the pre-existing condition rules that apply in your state.

Medicare Begins at 65

At 65 years of age, most people become eligible for Medicare. This age usually coincides with the retirement age of many Americans--when you lose your employer-provided health coverage. Before you retire, it may be a good idea to spend some time to learn about Medicare plans and options. That way, when you do retire or qualify for Medicare, you can make an informed decision about your health care options.

Significant Life Events

Congratulations, you just got married or had a baby! Did you know that significant or life-changing events trigger your ability to make changes to your health care coverage? Marriage, divorce, and birth or adoption are considered life-changing events, and such life-changes give you the right to alter to your employer-provided benefits.

Get Insurance Smart

Consider raising your insurance IQ so that you have more control over some of your most critical financial decisions. The NAIC has the following tips to increase your insurance knowledge:

  • Take the Quiz: Find out what you know, and what you may not know, by taking the Insurance IQ quiz at www.insureUonline.org
  • Fill in the Knowledge Gaps: The NAIC website www.insureUonline.org is an excellent resource designed to help you get a handle on all kinds of coverage
  • Shop Around: Once you've learned the insurance basics, shop around for insurance coverage. Get several quotes from a few different companies for the coverage you need
  • Use State Resources: Your state's insurance department keeps a record of insurance companies licensed to do business in your state, and complaints filed against them. If you are unsure of a company you are about to do business with, look them up. Many state insurance department Web sites also have online tools to help you make informed decisions when purchasing insurance
  • Review Your Policy: If you don't understand any part of your insurance policy, contact your agent and ask for an explanation. If the coverage is not right, get it fixed right away

NAIC Chief Executive Officer (CEO), Therese M. (Terri) Vaughan, said, "Consumers today are being forced to make difficult decisions about their insurance coverage--decisions that could have a profound impact on their financial future. At the same time, they are being overwhelmed with new and sometimes conflicting information about changes to our nation's health care policies. By doing their homework and brushing up on the facts, they can improve their Insurance IQ, which will ultimately enable them to make the best decisions for themselves and their families."

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