My Personal Finance Blog

Perhaps this is an unnecessary statement of the obvious, but the point of insurance is to give people a financial safety net. Should an emergency or disaster strike, money you would struggle to find is paid out by your insurance company. But the squeeze has been on for the last decade as medical costs and the prices of essential drugs have been rising fast. In fact, so fast that the insurers cannot pass on all the increases to their policyholders. It was hard to raise premium rates while the economy was doing well. It became impossible to raise premiums when the recession hit without there being investigations by each state’s Commissioners for Insurance and complaints from everyone else. There comes a point when the insurer cannot get any more blood from the stone and has to sacrifice profits. This has left the medical profession, the hospitals and clinics in a winning position, while the pharmaceutical industry’s profits have continued to rise despite the recession. At the other end of the spectrum, the patients are the losers. There are some who discover the small print in their policies denies cover for the very illnesses they have. There are others whose savings are not enough to pay the deductibles and co-payments. And then there are those whose policies are cancelled when they make a claim for a chronic disease or disorder.

There is a new piece of research from the Commonwealth Fund, an independent, non-profit body. In 2007, it carried out a detailed survey among 2,600 people aged between 19 and 64. When their coverage was analysed, 20% were found significantly underinsured. Why was this happening? Because they were already spending more than 10% of their income on health coverage, whether as premiums, deductibles or both. When the underinsured were added to the uninsured, this represented 42% of adult Americans. Like the uninsured, this forces the underinsured to think twice before they have treatment with more than half either refusing treatment or struggling with debt because of treatment.

In the push for healthcare reform, the focus has been on the uninsured. But this fails to recognize the injustice suffered by the underinsured. No one should be forced to choose between refusing needed treatment and potential bankruptcy. It is therefore going to be an interesting year in prospect as the reform slowly comes into force. Both the poor and the middle class need access to cheap health insurance with reasonably comprehensive coverage. This will further squeeze the insurance industry because it will be denied the right to refuse coverage to those with pre-existing conditions and will be forced to establish group health insurance for those who have struggled to find affordable plans. In all of this, the key to success will be the ability of government and the insurers to impose more control over costs. President Obama has negotiated with the pharmaceutical industry and there is some agreement to hold down prices for those in Medicare and Medicaid. The for-profit healthcare industry also sees some self-interest in moderating its price increases and has given undertakings to the Administration. If some of the pressure is removed from the insurance industry, premium rates will stabilize and the reforms should offer a more fair system to all with a health plan. We can only hope for the best while we wait and see what happens.

Urban sprawl never used to be an issue. Even though the latest development might be miles from where you work or the nearest shops, this was never a problem. Most families owned two vehicles. Some three or more. No-one walked. Everyone just jumped in the nearest vehicle and off they went without a second thought until the price of gas rocketed up. Now we have the credit crunch and a recession just bottoming out. Car ownership has become an expensive proposition. Too expensive for some who have been reborn as a one-car family to cut their losses. The first step in crisis management is to find out which of your vehicles is the cheapest make and model to insure. Now balance that against the likely costs of maintenance and repair over the next twelve months. And which will sell for the highest price? When you know which vehicle you are keeping, maximize the number of discounts on the policy, including bundling auto and home together with the same insurer. Except, one vehicle for a busy family may not be practical. What are the options?

Many families talk to their neighbors and work out a carpool. This is reasonably easy to organize for routine journeys. But there is one slight problem. If you are going to carry passengers, you should have insurance to pay their medical costs should they be injured in an accident. It is not safe to drive your neighbors around on the state’s minimum liability cover. Then we come to the always difficult question of sharing the costs of the gas. If the passengers always pay something towards the cost of the journey, many insurers treat this as a business arrangement and require the vehicle owner to take out a commercial policy as a taxi. Needless to say, this turns a friendly social service into an expensive excuse to argue with your neighbors over prices. Of course, you could all agree to lie about the arrangement. But the stories can change rapidly if everyone ends up in a hospital and big bills are presented.

The second option is the new rental plans which site vehicles for rent by the hour in local garages. You book what you want over the internet, travel to the garage for the pick-up and drop it off at the same garage when your time is up. The cost per hour on the standard plans are attractive and, assuming you do not want a vehicle more than an average of one hour every day, you will save money on car ownership. But you do need to look carefully at the insurance offered in the standard plans. Some have poor cover of medical expenses for you as the driver and passengers. Others do not include the loss of use charge if the vehicle is off the road being repaired. Always read the small print. Summing up, finding insurance for a single vehicle means getting multiple car insurance quotes and finding the one that works for you. If you are going to use your car to drive neighbors around, you also need to get car insurance quotes to cover the additional liabilities. If you use one of the new rental plans, consider paying extra for LDW which gives more comprehensive protection against loss.

Those who own a mobile home often ask if there’s a type of insurance that is something between home and car insurance and is suitable for covering their property. The answer is positive, as there is a special type of insurance products designed to cover mobile homes, and they are relatively inexpensive, with premiums of about $250 per year. And if you really want to make sure that your mobile home will be paid for if it gets damaged, it’s not a big price to pay for certainty and some peace of mind.

This type of insurance coverage makes part of general liability insurance coverage. Claims filed under this type of insurance usually deal with medical costs, lost income, trauma and sometimes property damage. Typical mobile home policies have the same aspects of coverage as ordinary home protection, including the actual replacement and repair costs of the house, injuries sustained by other people (besides you and your family members) on your property, living expenses if you have to dwell in another location due to repair, and the items contained in your home. The main difference here is that the same coverage applies while your house is on the move, too. And as with any other type of insurance, the rates vary significantly from one company to another.

Home insurance whether it’s a mobile home or a typical house is first and foremost used to protect your property from such hazards as fire, storm, and theft, acts of vandalism, natural calamities, explosions and technological calamities. The items contained within your home will also be covered, including furniture, equipment and valuables such as jewelry (to an extent).

And just like with ordinary houses home insurance quotes for mobile homes can vary significantly from one provider to another. The Insurance Information Institute strongly suggests having at least three quotes from different providers before buying a policy. However, the more quotes you have the higher are the chances that you will find a suitable policy for a low price. This is especially useful if you are new to the whole insurance market and don’t know where to start.

Still, mobile home coverage has certain peculiarities that set it apart from the usual home insurance you would purchase for your house. The main feature is that you can benefit from free continental travel coverage, which protects your mobile home financially regardless of where your home is located in the country at the moment.

However, the hidden catch with mobile home coverage is that in most cases it is based on actual cash value of your home, which puts a strong emphasis on depreciation that lowers the replacement cost of your mobile home with each year passing. Still, the policy will cover all the equipment and special features that were initially installed in your mobile home. Read your policy careful before signing it in order to learn which particular items and situations are covered and which are not.

Most mobile home owners neglect the importance of insurance for their homes, believing that it’s not mandatory and taking account the rare use of it. But even if you do not use it quite often and it stays near your house most of the time it doesn’t mean that nothing can happen to your property, and losing something costly due to own negligence is not the smartest thing to do.

It’s clear that insuring your home is a must if you are worried about your house and want to protect your property against different situations. Getting your home insured gives you some peace of mind and certainty that is particularly welcome in situations like fires, storms, floods, theft and other unpleasant accidents. However, most insurance buyers don’t quite know what exactly their policy covers, how much coverage they can expect and how to cut their insurance costs if they feel that the policy is too expensive for their wallet.

How much insurance coverage do I really need?

There are two main factors you have to consider when trying to answer this question:

• Replacement costs of your house. This is the amount of money you would need to restore or rebuild your house if it were damaged or destroyed. The best way to learn this is to multiply your square footage over the current local construction costs. Try asking different construction companies to determine the latter.
• Replacement costs of your property. The most effective way to learn the exact replacement costs of your belongings is to make an inventory of all the items in your house with the exact purchase value of each item. This inventory will be particularly useful when filing a claim, so try to make it as accurate and detailed as possible.

What does homeowners insurance cover?

A standard homeowners insurance policy carries coverage against damage delivered in situations like:

• Hail and windstorms
• Explosions
• Firestorms and lightning strikes
• Burglary and acts of vandalism
• Smoke and plumbing leaks

The policy will also pay for the medical costs if someone other than you or your family member is injured on your territory. And it will cover your living expenses if you have to move to another place while your house is being repaired or rebuilt.

Homeowners insurance may provide coverage against other perils such as floods or tornadoes, but you will have to buy a separate policy in order to get this type of coverage for your house.

How to economize on home insurance?

There are different methods you can use in order to cut down your costs:

• Improve your credit rating and try to keep the record as clean as possible. Those who have poor credit scores pay higher premiums for all types of insurance and homeowners insurance is no exception.
• Opt for discounts. It never hurts to ask your insurance provider about discounts, but it may turn out that they are quite easy to obtain. Most insurance companies provide incentives to those who install security features, fire and smoke alarms, or improve the safety of their houses.
• Raise your deductibles to the amount you can afford to pay upfront. Deductible is the amount of money you have to pay out of pocket before insurance coverage kicks in. The higher the amount of deductible the lower is your premiums. However, make sure you can afford to pay the specified deductible if something happens to your house.
• Shop around to get a competitive offer. Insurance rates for the same house can vary dramatically from one company to another. Try to get as any quotes from different providers as possible before purchasing the actual policy. You will be surprised to learn how different the rates may be sometimes.

Myth: Standard policies will pay for flood damage.

Fact: None of standard insurance policies will cover any damage resulted from a flood. In case you have the need for flood coverage you should purchase it separately or include it as a weaver to your standard policy.

Myth: The medical payment coverage included in the insurance policy will pay for my and my family’s medical costs.

Fact: This type of coverage will pay for the injuries that someone other than you or your family members (guests, neighbors, visitors, etc.) had sustained while being on your property. However, your homeowners coverage won’t take effect if it’s you or someone else from your family. In such a case standard health insurance plans are employed.

Myth: In case my house is devastated the insurance company will pay as much money as I tell them my house was worth.

Fact: If it occurs that your house gets devastated due to a various reasons (explosion, fire, tornado, etc.) the insurance company will only cover your lost items and the house itself if you provide all the necessary information such as purchase price and serial numbers of all the items that were lost. Of course, it’s impossible to provide such information from memory after the house was destroyed. That’s why your insurance agent is likely to recommend you having an inventory of all the items (especially valuable ones or equipment) stored in your house, and having a copy of it in different places. This way you make sure that you will be covered to the right extent and the insurance company assures that there is no fraud with your claim.

Myth: If my house gets robed things like jewelry will also be paid for.

Fact: It is true that such valuables like jewelry are covered with your homeowners insurance. However there are limits to the amounts the policy will cover such things, with most insurance companies putting a cap of $1500 on all the valuables that are lost due to fire or burglary. In case you think that it’s too little to cover the actual value of your jewelry or furs you should buy additional coverage for such items.

Myth: I should lower mu coverage if I want to get cheap home insurance.

Fact: Saving money doesn’t necessarily imply that you have to cut down the most important aspects of insurance coverage. The whole purpose of having an insurance policy is to be adequately covered in case of damage delivered to your house. You can use other more effective methods of cutting your insurance costs such as installing security and fire alarm systems in your house, or getting your home insurance from the same provider as auto or health insurance. This will usually give you great discounts.

Myth: Can I use the purchase value of my house as the dwelling coverage amount when defining the amount of insurance coverage for my policy?

Fact: It’s the most common mistake the homeowners make when purchasing insurance for their house. The main catch is that the purchase value of your home is comprised of both the value of the house and the land it’s built on. And it’s evident that in case of a fire, storm or any other even that might destroy your house, the value of the land should not be reimbursed. That is why you should use the replacement value of your house as the dwelling coverage for the insurance policy. The easiest way to calculate the replacement value is to multiply the square footage by the construction costs in your area.