Families Taking Charge: Insurance

Recommended by Irene Leech, Extension Specialist, Consumer Education, Virginia Tech. Adapted from University of Wisconsin-Extension.

Publication Number 354-093, June 1996

Introduction	Health Insurance
Life Insurance	Automobile Insurance
Homeowner's Insurance	Conclusion

Introduction

When your income changes, review your insurance coverage. If your income decreases because of a layoff, illness, disability or premature death, your family may find it extremely difficult to pay insurance premiums. If you are not able to make a payment, determine your minimum needs for insurance. Then, call or write the company to check into a different payment plan that allows you to keep your coverage. Or, investigate plans with lower premiums. 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.

For some risks, you may decide to accept or share the risk. That means you pay for all or part of any loss yourself. Savings or maintenance contracts could be used instead of insurance to pay a variety of unexpected expenses such as burial expenses or 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 isn't 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 don't drive during bad weather to reduce your chances for liability in an accident.

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Health Insurance

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

Group policies may allow you to continue coverage for a limited time following job termination. For example, you may be covered for an additional 30 days after your last working day. If you find a new job within 30 days, you could have continuous group coverage. Talk with the person responsible for employee benefits at your former place of employment about your coverage.

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 you to coverage through his or her employer. Many employers or other groups have limited "open enrollment" periods.

Contact your employer about continuing or converting your group health policy to an individual policy. If you have group insurance for at least three months, you may continue the group coverage up to 18 months by paying the premium. After that, the insurance company may require you to convert to an individual policy. As long as you continue to pay the entire premium and are not eligible for similar coverage under another group policy, the group coverage will continue for 18 months. You are eligible to convert if you lost your job because of a lay-off, dismissal or resignation, not because of misconduct.

Investigate buying insurance through another group such as a fraternal or other 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, comparison shop for the best deal. 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 self-insure against routine medical expenses and buy major medical insurance to cover unexpected, costly illnesses or emergencies. Avoid purchasing single disease or overlapping coverage. For more information, see Publication 354-020, "Health Insurance -- Important Financial Protection" and Publication 354-021, "Disability Income Insurance" available from your Extension Office.

If you don't have health insurance or can no longer pay the premiums for health insurance, there are limited health services for the elderly, disabled, children and pregnant women. Check with your local health department to learn about health care programs provided at little or no cost. These may include immunization programs, well-baby clinics, blood pressure tests and screening programs.

Medical Assistance is available to families who receive Aid to Families with Dependent Children (AFDC), Supplemental Security Income (SSI) or qualify as medically needy. A "medically needy" person must also fall into at least one of the following groups: age 65 or older, under age 18 (or under 21 and living in an intermediate care facility, skilled nursing facility, or in-patient psychiatric hospital), or a woman who is pregnant and not caring for any minor children and who would be eligible for AFDC after the child is born.

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Life Insurance

Life insurance protects your dependents against loss of income or expenses because of your untimely death. If you have life insurance, try not to let it lapse if others are financially dependent upon you. Your policy could be expensive to replace later. If you no longer have dependents and have no major debts that would need to be paid upon your death, you may want to cash in your whole life policy or decrease or drop other life insurance when your income decreases.

You may have group term life insurance through an employer. This is pure protection without a cash value of saving or savings feature. If you lose your job, you are uninsurable elsewhere and need insurance, 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.

Owners of whole life insurance policies can borrow against the 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 also be used for other expenses. Remember that a loan reduces the value of the policy should you die before repaying it.

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. To get the most for your life insurance dollars, see Publication 354-019 , "Life Insurance -- Choosing the Right Protection Plan," available at your local Extension Office.

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Automobile Insurance

Most people cannot assume the financial burden of a major automobile accident. Therefore, no one should drive without adequate insurance. Otherwise you are risking financial disaster. 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 coverage for damage to your vehicle, such as collision, fire or theft.

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 or if the repairs will cost more than the car is worth.

The minimum limits for liability in Virginia are: $25,000/ $50,000/$20,000. This means $25,000 for each person in an accident and $50,000 total bodily injury liability for each accident with a $20,000 property damage liability for each accident. If your policy has higher limits and you can't pay the premium, consider cutting back to the minimum temporarily. Remember that if you have an accident for which costs are more than the minimum, you will have to pay for the additional amount 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 special categories considered good risks such as non-smokers, driver education training for young drivers, and good driving records. For more information, get a copy of Publication 354-018, "Automobile Insurance -- How Much Coverage do I Need?" from your Extension Office.

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Homeowner's 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, theft or snow, 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. 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. You generally aren't fully protected even for partial loss, however, unless 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. If a mail carrier is bitten by your dog, for example, the liability portion of your insurance covers the medical costs.

Renter's policies cover the replacement cost of the contents of your home as well as liability protection. If you try to save money by lowering premium costs, beware of underinsuring. Check your policy to see that it will replace your possessions at today's prices. For more information, get a copy of Publication 354-016, "Household Insurance -- How Much Do I Need?" from your Extension Office.

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Conclusion

Estimate your needs, shop around, talk with several agents and select coverage that will fit your budget. Don't overinsure. Insurance needs should be reviewed periodically, particularly when income changes.

References
"Buyers' Guide to Auto Insurance."
"Buyers' Guide to Health and Disability Income Insurance."
"Buyers' Guide to Homeowner's Insurance"
"Brief Guide to Tenants' Insurance."
"Fact Sheet on Continuation and Conversion in Health Insurance Policies."
University of Idaho, Cooperative Extension Service. "Protecting Against Financial Risks: Insurance." Moscow, Idaho.

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Families Taking Charge is a multi-part series for individuals and families experiencing financial stress as a result of difficult economic times.