INSURANCE

The facts on life insurance Health Insurance Whether your employer provides you with a group medical plan or you need to buy coverage on the individual market, understanding how health insurance works is the best way to get your money's worth.   1. If your employer offers insurance, take it. Group coverage, particularly when it's employer-subsidized, is almost always a better deal than anything you can get on your own, even if you're young and healthy. If you're NOT young and healthy, it's definitely a better deal. 2. Comparing plans is  necessary. Benefits and costs vary widely from plan to plan. If you have choices, you'll have to examine each one closely to find the best deal. 3. The lowest premium isn't always the cheapest plan. What your insurance covers is just as important as, and sometimes more important than, what you pay up front. Ultimately, the cheapest plan is the one with the best price for the benefits you're most likely to use. 4. Even good coverage can have big loopholes. You can count on your health insurance to cover you for a hospital stay. Most policies cover doctor visits, but benefits for mental health, prescription drugs and dental care are strictly optional. Plans with the most comprehensive coverage at the lowest out-of-pocket cost require you to use a specified network of hospitals, doctors, labs, and other providers. The more flexibility you demand, the more you'll pay, in either premiums or co-payments. 5. You can check out networks before signing up. A growing number of public and private sources compile information on the track records of individual doctors, hospitals, and health plans. 6. You can keep your insurance if you lose your job. State and federal regulations protect you from losing your health coverage just because you lose your job. Unfortunately, they offer little protection from high premium costs. 7. Working couples have more to think about. If you and your spouse both get health insurance at work, you must sort out whether it makes more sense to have two policies or for one of you to cover the other. If you have kids, you need to decide who's going to cover them. 8. Tax breaks can help. Ordinarily medical expenses, including insurance premiums, are not tax deductible until they exceed 7.5% of your income. However, if you're self-employed or your employer offers a flexible spending account, you can get a tax break without meeting the threshold. Which plan is right for you? If you get coverage through your job, your employer picks your insurance and you may or may not have very many choices about it. If you buy your own, you're in charge, but your choices are limited by the plans available to individual purchasers, as well as by how much you can afford to spend. Unfortunately, there's no such thing as standard coverage. Details vary enormously from one plan to another. The best value is not necessarily the plan with the cheapest premium or the one with the most benefits. It's the plan that covers the health services you want and need for the lowest out-of-pocket expense (see "types of insurance"). In essence, differences among plans come down to three intertwined elements: benefits, costs, and restrictions. Benefits: Every insurance plan will cover you for doctor and hospital bills, with various limits, discussed below under "costs." Virtually everything else, including prescription drugs, glasses, psychotherapy and preventive care, such as immunizations and screenings, may or may not be covered, depending on the specific plan. To figure out how well a plan suits your needs, first make a list of the health services you and your family normally use. For each plan, note the amount of coverage for each of those services -- for instance, "100 percent," "80 percent," "not covered." Once you've got a handle on how fully each plan covers your health needs, you can evaluate cost differences. Costs: If you don't use many medical services, your primary cost for indemnity coverage will be the premium. If you do use a lot of services, it will be hard to gauge your actual costs, since you must factor in the deductible, co-payments, and any excess charges or uncovered services. In contrast, cost is easy to gauge with a true HMO -- a managed-care plan with no out-of-network option. Once you've paid your premium, nearly everything will be covered and you'll be liable only for small co-payments. Estimating the cost of a managed-care plan with an out-of-network option is tricky, because your ultimate cost depends on whether or not you actually go out-of-network. If cost considerations make you lean toward a managed-care plan, read its literature thoroughly to decide whether you can live with the restrictions it imposes. Restrictions: Generally speaking, a managed-care plan will limit your choice of providers and require you to get pre-approval for services. If your pediatrician shuns HMOs or you have a difficult health problem, you may decide that you can't abide limits like these. Keep in mind, though, that indemnity insurance also comes with limitations in the form of deductibles, co-payments and uncovered services. These financial roadblocks can inhibit freedom of choice as much as any managed-care bureaucracy. Another worry is that many consumers equate freedom of choice with medical quality. They're not entirely wrong. If you receive poor treatment in a managed-care plan, it's hard to vote with your feet. Know your provider Whether you choose indemnity insurance or managed care, it's wise to check up on your providers in advance. One way is via state insurance department Web sites. Florida, Maryland, Massachusetts, New York, and Rhode Island, for instance, post lists of local doctors who have been disciplined for poor patient care or, in some cases, criminal conduct. New York and New Jersey rate local hospitals and doctors on how well they care for cardiac patients. Florida, New Jersey, New York, Maryland, Texas, and Utah rate local managed-care plans. Nationally, the Joint Commission on Accreditation of Health Organizations is the major rating group for hospitals, the National Committee for Quality Assurance rates managed-care plans, and thehealthpages.com lists surveys and other data on selected health plans and health services. If the insurance plan you prefer seems unaffordable, check the money-saving strategies in the next section to see if there's a way to reduce your costs. Home Insurance Things to know 1. You're a statistic. To an insurer, you're not a person; you're a set of risks. An insurer bases its premium (or its decision to insure you at all) on your "risk factors," including your occupation, who you are, what you own, and how you live. 2. Know your home's value. Before you choose a policy, it is essential to establish your home's replacement cost. A local builder can provide the best estimate. 3. Insurers differ. As with anything else you buy, what seems to be same product can have different prices from different companies. You can save money by comparison shopping. 4. Don't just look at price. A low price is no bargain if an insurer takes forever to service your claim. Research the insurer's record for claims service, as well as its financial stability. 5. Go beyond the basics. A basic homeowners policy may not promise to entirely replace your home. 6. Demand discounts. Insurers provide discounts to reward behavior that reduces risk. However, Americans waste some $300 billion a year because they forget to ask for them! 7. At claims time, your insurer isn't necessarily your friend. Your idea of fair compensation may not match that of your insurer. Your insurer's job is to restore you financially. Your job is to prove your losses so you get what you need. 8. Prepare before you have to file a claim. Keep your policy updated, and reread it before you file a claim, so there are no surprises. Why insurance is costly? To an insurance company, you are a collection of risks. Your sex, your age, your marital status, your neighborhood and your claim history all contribute to an insurer's prediction of whether you'll file a claim. If, for example, you are a homeowner who lives in a coastal area prone to storms, or a rural region far from fire stations, you are judged to be a higher risk because people in those situations have tended to file more, and more expensive, insurance claims. The good news is that all insurers don't price the same risks identically. While insurers are highly regulated in many states, they still operate as competitive businesses, focusing on certain markets and avoiding others. What's more, some operate their businesses more efficiently than others, passing on the savings to consumers. That means you may be able to save hundreds of dollars a year by shopping regularly, even if your insurer rewards long-time customers. A great quote from a new carrier may trump the loyalty card. In the following sections, we'll look at some sensible ways to find the best coverage, whether you live in a mansion or studio apartment. How much insurance to buy First, you need to determine the cost of rebuilding your home. Insure your home for its replacement cost -- that is, the amount it would cost to rebuild it if it were totally destroyed. That means determining the average local building cost in your region, and applying it to your home's size, style, and quality of construction. Your best resource for this is a builder. For a flat fee, you may be able have a local contractor go through your home and provide an estimate. Try to find someone who builds individual, custom homes that don't benefit from the economies of scale that tract homes offer. If you want the same antique moldings, stone fireplace, and plaster-and-lathe walls as before, make sure the builder takes that into account. Otherwise, the estimate may reflect less costly modern materials. Picking an insurer First, check what's out there. Get quotes from at least four carriers. Try a free database such as InsWeb, which offers quotes from up to 8 insurers, or Quicken InsureMarket, which provides up to 16 quotes. The larger the database, the better. Try these options. Companies like State Farm and USAA that deal directly with consumers without using independent agents are called "direct writers". In theory, they can pass on their savings by eliminating the middleman. Read your junk mail. Direct marketers like Geico and Progressive Insurance Co. save on overhead -- and pass on the savings -- by marketing by phone, mail, or the Internet. Let your state be your guide. Most state insurance departments offer on-line shopping guides for homeowner's insurance. Your state's guide may identify little-known companies with competitive rates. Insure.com can link you to your state guide. Look at service No discount in the world will make up for slow claims processing, so find out as much as you can about a company's service before you sign on. Consumer Reports periodically publishes service ratings for large insurers. You can also ask a representative about a company's claims turn-around time; a shorter turn-around is an indication of better service. Focus on financials Nine insurers went belly-up following the unprecedented damage wrought by 1992's Hurricane Andrew. The 23,000 affected customers waited at least six months for a check from the state's insurance guaranty fund. For that reason, it's wise to look at the financial ratings of your home insurer. Ask the company for that information, or check out one of the financial ratings services on the Web. An A rating or higher from Standard & Poor's or an AA ranking or better from Moody's Investor Service is a good indicator of strength. Weiss Ratings, the most independent of the ratings services, and arguably the most stringent, publishes a list of the currently weakest homeowners insurers. As a last resort, there's your state Unfortunately, if your home's in a hurricane zone, you may be stuck with just one expensive option, your state-sponsored high-risk pool. But try shopping again a year from now. Private insurers are continually looking for new ways to cut up the market, and one company's black mark is another's business opportunity. Some states provide assistance -- either shopping help or special coverage -- for homeowners who can't find insurance in urban or vulnerable coastal areas. Check with your insurance department for details. Life Insurance Things to know 1. All policies fall into one of two categories. There are term policies, or pure insurance coverage. And there are the many variants, which combine an investment product with pure term insurance and build cash value. 2. Think before you buy. Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured. 3. Life policies are built on assumptions. The returns quoted by the agent come in two forms, guaranteed and non-guaranteed. The guaranteed return is fixed interest added to the policy's cash value, but the non-guaranteed are simply guesses based on projected investment returns -- not reality. And some companies keep these guesses of future returns on the high side to attract more buyers. 4. Keep your investing and insurance separate. There are better places to invest -- and without the high commissions of whole-life policies. 5. Match the term of the policy to your needs. You want the policy to last as long as it takes for your dependents to leave the nest -- or for your retirement income to kick in. 6. Buy when you're healthy. Older people and those not in the best of health pay steeply higher rates for life insurance. So buy as early as you can, but don't buy until you have dependents. 7. Use the Web to shop. Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes, and no pushy salespeople. Types of policies   Whole life policies, a type of permanent insurance, combine life coverage with an investment fund. Here, you're buying a policy that pays a stated, fixed amount on your death, and part of your premium goes toward building cash value from investments made by the insurance company. Cash value builds tax-deferred each year that you keep the policy, and you can borrow against the cash accumulation fund without being taxed. The amount you pay usually doesn't change throughout the life of the policy. Universal life is a type of permanent insurance policy that combines term insurance with a money-market-type investment that pays a market rate of return. To get a higher return, these policies generally don't guarantee a certain rate. Variable life and variable universal life are permanent policies with an investment fund tied to a stock or bond mutual-fund investment. Returns are not guaranteed. The other type of coverage is term insurance, which has no investment component. You're buying life coverage that lasts for a set period of time provided you pay the monthly premium. Annual-renewable term is purchased year-by-year, although you don't have to requalify by showing evidence of good health each year. When you're young, premiums for annual-renewable term insurance are dirt cheap -- as low as a few hundred dollars per year for $250,000 worth of coverage. As you get older, premiums steadily increase. Level-premium term has somewhat higher but fixed premiums for longer periods, anywhere from five to 30 years. How much coverage do you need?   There is no simple answer to how much coverage is enough. Some financial planners say at least five to seven times your gross annual income. Others argue that you need twice as much in face value. That would mean a person making $50,000 a year should have anywhere from $250,000 to $750,000 worth of coverage or more. Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle. Factors to consider include whether the surviving partner will have childcare expenses if one partner is out of the picture. Do you have other assets on which to draw? Will your children be out of the nest soon? These, and many other factors, influence the decision on how much coverage you need. Buying a whole life policy doesn't necessarily mean you are fully insured. Because of the investment component of whole life, the policies are much more expensive than term. Don't simply buy less coverage, as it defeats the purpose of buying insurance in the first place: to cover dependents.