Insurance. It's something virtually all of us need, but most of us would rather not think
about. That's because insurance is a product that generally comes into play only when we
suffer a catastrophe, a loss so bad that overcoming it would strain our personal financial resources.
But neglecting to get the proper insurance can be a costly mistake. In this program,
we'll try to help you determine what coverage you need and how to get it at the lowest cost.
This is a special edition of the Nightly Business Report, the NBR guide to buying insurance,
featuring Paul Kangas and the NBR team. NBR is made possible by Digital Equipment Corporation,
solutions that deliver the freedom to choose, the power to use, the open advantage. The
$50 billion Franklin Group of Funds, helping nearly 2 million investors reach their financial
goals since 1947. Franklin funds are distributed nationwide by investment professionals. A.G.
Edwards, member of the New York Stock Exchange, serving the investment needs of individuals
and businesses through more than 400 offices nationwide, and is produced in association
with Reuters, the world's largest electronic publisher, which provides NBR with news, market
data, and communication services worldwide. An important factor to keep in mind is that
while insurance performs a vital service, it's still a business, and insurance companies
don't make money by simply selling policies. They're in a very scientific game that involves
playing the odds and successfully managing risks. What does that mean? It means that
those of us who are identified as bad risks in any category are likely to pay more for
insurance protection, if we can get it at all. It also means that insurance companies
can and do go out of business. Insurance is also a competitive business, but since companies
are selling something you can't touch and may never use, the consumer is at a distinct
disadvantage. To help get you through the obfuscation and fine print that have become
so associated with insurance, it helps to know a few basic terms. First, an insurance
policy is the basic contract between the insurance company and you. It states what is and what
is not covered, and is usually a highly detailed document. The premium is the payment you make
to the insurance company, usually annually, to keep your insurance policy in force. When
you have a loss that's covered by insurance, you file a claim with the company. Often,
you will have to absorb a minimum loss before your insurance kicks in. That minimum loss
is known as the deductible. Now think for a moment. What's your most valuable possession?
The answer is probably your life, and if your demise would leave your family in a financial
bind, you may want to think about buying life insurance. For more on that, let's turn to
Jeff Reisman in America's life insurance capital, Hartford, Connecticut.
Nearly 70% of all adult Americans have some form of life insurance. Life insurance is
a critical part of any financial planning. Life insurance very basically is a contract
that an insurance company makes with an individual agreeing to provide a specific sum of money
in the event of the individual's death payable sometime in the future.
There are primarily two types of life insurance. One is term insurance, providing protection
for a limited and specified amount of time. Term coverage can be relatively inexpensive,
especially for younger people. However, premiums usually increase each year, becoming prohibitively
expensive in older age. Term is basically payment upon death, and should the policy
holder reach old age and drop the policy, there is no cash value and no payment. An
alternative to term is permanent or whole life insurance. With whole life protection,
premiums start higher than term, but generally level off, and cash values are built up, which
can be accessed later. Life insurance can provide not only a death
benefit, but cash value that accumulates as well. Cash value that can be used in the future
for things like college education, retirement, purchase of a home, what have you.
Universal life is a form of permanent insurance. However, Universal is somewhat more flexible
because it offers adjustable premiums and a cash buildup that accumulates at fluctuating
market interest rates. Similar to Universal is variable life, which offers more investment
options for the cash buildup. So, female, age 37, for $50,000.
In addition to the face amount of the policy, insurance companies examine a number of factors
when determining who will be insured and for how much.
Premiums determined by age, face amount, whether one is a smoker or a nonsmoker, and then the
type of policy that you're purchasing. Other factors considered include an individual's
physical condition, health record and habits, as well as family history and even occupation.
This is where the actuarial work is done. Today's modern insurance company, looking at the numbers
and determining the risks. For consumers wanting to buy life insurance, a similar review is
recommended.
The best way to determine how much life insurance is needed or what the life insurance needs
are is to really sit down with a life insurance professional.
Here in Hartford, Connecticut, the nation's insurance capital, you find many of the biggest
names in life insurance. There is a recognition at these companies and others that life insurance
options need to keep pace with changing customer needs.
Traveler's customer service, this is Kieran.
Competition in the industry is intense. There's more competition than existed 25 years ago.
Consumer knowledge of insurance is greater than it ever was.
When purchasing life insurance, experts say it should be done in much the same way as
other major life decisions, with patience, careful planning and consumer awareness.
Jeff Reisman, NBR, Hartford, Connecticut.
And more on life insurance. Joining us now from Boston is James Hunt, the former insurance
commissioner of the state of Vermont, who is also the author of How to Save Money on
Life Insurance, the books available from the National Insurance Consumer Organization in
Alexandria, Virginia.
And in our New York studios, Alan Press, general agent for the Guardian Life Insurance Company.
He's a past president of the National Association of Life Underwriters and co-editor of Probe,
a life insurance industry newsletter.
Gentlemen, welcome to the Nightly Business Report.
First, let me ask you the basic question on the mind of anyone who's thinking about buying
life insurance.
Who needs it and how much coverage is enough?
Two good questions, Paul.
As to who needs it, anybody who thinks that they've got a financial obligation to somebody
else that will continue in the event of their death and who does not have the ready resources
to honor that obligation, were they to die immediately?
And as to how much, that's a difficult question because everybody's needs are different.
There are a couple of rules of thumb that you can use, and that is anywhere from five
to ten years of earnings.
But much better advice would be to sit down with a competent agent who can plan out your
needs and show you how, within your budget, to obtain the coverage that you need.
Jim Hunt, in Boston, anything to add to Alan's comments?
Well, I would say that five to eight times is our rule of thumb, and the lower number,
if you have, say, three times of group life at work, otherwise the higher number.
And I would also say that while agents, some agents, are well-trained to analyze needs,
that does not follow for all agents.
We like to see people do it themselves, and so I'm not sure that in every case one should
consult an agent for that advice.
Thanks, Jim.
Now, earlier, Jeff Reisman told us about some of the various forms of life insurance.
A lot of people are probably thinking, if I buy term insurance and live to a normal
age, I'll probably receive nothing, despite all the years of premiums I've paid in.
Whereas, with the permanent or cash value insurance, at least I'll have built up a
nest egg when I'm ready to retire.
Now, is that the right way to compare the two?
For most people, that's an absolutely accurate description of the way it works.
For some people who can buy term and invest the difference very successfully, that too
can be a very attractive option.
Again, it depends on the individual, his risk tolerance, his investment ability, and more
than anything else, where he's comfortable.
Both are very viable alternatives.
Whole life insurance, or as we might call it, cash value life insurance, has some important
tax advantages and can be an excellent investment.
The rule that you must keep in mind is that unless you're prepared to keep that policy
15 to 20 years, it is not going to be a very good investment.
If you drop that policy within the first five years, say, it's going to be an awful investment.
I might add that something like 50% of the buyers of whole life insurance drop their
policies within the first seven to eight years.
So a lot of money is lost buying whole life insurance.
Whole life insurance is forever in terms of the commitments you must make.
And I would add one more thing.
Term life insurance is extremely competitive.
It is possible, for example, for someone age 30 to get a quarter million for about $300.
And at age 40, it might only cost $350, a person who doesn't smoke and is in good health.
And you should be aware that buying term life insurance, like buying fire insurance, it
serves its function, and you really can't lose if you buy it, whereas you can with whole
life.
Well, on the other hand, the reason it's so cheap at age 30 and 40 is because very, very
few 30- and 40-year-olds die.
Most Americans, 80% of Americans, live beyond age 65.
And that's when the term insurance gets to be very, very expensive to the point by age
70, it's often no longer available, and people don't want to give up their life insurance.
Okay.
Good point, Alan.
Thank you.
Now, gentlemen, besides basic life insurance, the consumer is often pitched to buy specialty
forms of life insurance, such as mortgage life insurance, which pays off your whole
mortgage if you should die.
There's also insurance tied to death resulting from travel or in an accident.
Are these good coverages to have for everyone?
There's no reason whatever to buy travel accident insurance if you've got an adequate amount
of insurance, and if you don't have an adequate amount of insurance, then you should have
it and spend the money on that.
Mortgage insurance is just another form of term insurance, and the fact is that when
you sit down with an agent who can help you plan your needs and the coverages you need
to fill them, the need to cover a mortgage is just one of the many needs that you can
review with a competent agent.
Now, it's fairly easy to obtain life insurance for a young person, as we discussed, especially
if he's in good health.
Now, is it important to get a policy with guaranteed renewability in case your health
situation should change?
Jim?
Well, we recommend only annual renewable term life insurance in the case of term life insurance.
Renewable to at least age 70 and convertible to whole life if you wish, at least through
age 65.
So of course, whole life itself is renewable by definition.
Okay.
Alan, anything to add to that?
I think that was a superb answer.
Okay.
We leave you gentlemen in a great agreement, and I'm glad that's the way, and I want to
thank you very much, Jim Hunt in Boston and Alan Press in New York.
Thank you very much, gentlemen.
Thank you.
Thank you very much.
Now, when you buy a life insurance policy, one of the things you're counting on is that
the company issuing it will be around longer than you.
But as we noted earlier, insurance companies can and do go out of business.
To insure against the possibility of that happening and the financial havoc that it
could mean, you should check out the financial situation of a company before you buy its
policy.
As New York correspondent Scott Gurvey reports.
With the failures of such major insurers as executive life, there's a new factor for the
buyer of insurance to consider, the safety of the company that stands behind the policy.
I think until recently, insurance companies or insurance products were pretty much viewed
as risk-free, which in fact they're not.
So I think the first hurdle people had to get past was the notion, well, that there
is some risk here.
And I think the initial impact of that realization has been unfortunately a relative quickness
on the part of some people to kind of panic if they see signs of any kinds of problems
with companies.
But state insurance officials say consumer concern should not turn into consumer panic.
Switching from an established cash value policy can be expensive, and the fact that a company
has problems does not always mean it cannot meet its obligations.
And while there is no federal insurance as there is for bank accounts, many states have
funds to help protect policyholders if a company does fail.
It's important to note now that in every jurisdiction except the District of Columbia, we have guarantee
funds in place that provide a fairly healthy level of protection for most policyholders.
Nebraska's guarantee fund is fairly typical.
We have $100,000 in coverage for cash values of annuities and of life insurance policies
with $300,000 protection in death benefits.
Still, the experts say being with a financially strong insurer is advisable.
A good place to start checking out your insurance company is by reading ratings reports at
your local library.
Ratings are issued by raters like AM Best, Standard & Poor's, and Weiss Research.
And with the insurance companies now stressing security and safety in their advertising,
they should be willing to furnish you with their annual reports and ratings.
Look for such things as the percentage of assets a company has put into risky investments,
like junk bonds and distressed real estate.
You should also look at all available ratings reports and pay particular attention to downgrades
of a company's rating.
And because rating services often don't agree, it's a good idea not to rely on a single one.
The rating should be your starting point.
It shouldn't be considered the end-all decision-maker for you.
They're your personal factors to consider.
And if you can, it's a good idea to go out and get still more information, ratings from
other services, the background behind the ratings, to understand why the rating agency
made this particular decision.
In many states, insurance regulators provide information about companies to consumers.
But regulators say they must be careful about revealing a company's weaknesses, because
that act alone can cause policyholders to withdraw cash, which can itself turn a troubled
firm into a failed firm.
Once they say that that's so about a company, they may actually cause it.
And of course, companies which are fundamentally sound and solvent could be put into stress
by the mere fact that the public would think that there'd be a problem.
Diversification is a term familiar to most investors in stocks and mutual funds.
But most insurance policy buyers have not thought of spreading their insurance dollar
between companies.
That is changing as policyholders learn to view their insurance as another investment
vehicle with some amount of risk.
Scott Gurvey, NBR, New York.
Like an insurance company's financial condition, a person's physical health is also subject
to change.
And because a serious illness can result in enormous medical care bills, health insurance
is one of the most essential forms of personal financial protection, as Karen Ryan reports.
Six years ago, George Garcia almost died in a car accident.
After an eight-hour operation, his father, Juan, got the word that his son was going
to be okay.
But it wasn't a totally happy ending because the family had no medical insurance.
Juan had dropped his policy from his previous job, but was still in the 30-day waiting
period for a new one when the accident occurred.
I realized how stupid a decision was to stay with a big family like mine for 30 days without
insurance.
I thought it was a short risk, and I realized it was a big risk.
The medical bill was $50,000.
Juan's short risk ended up costing him 12 years of monthly payments.
But getting medical insurance isn't always easy, and the chances of finding insurance
are especially difficult for those who don't work full-time for a large company, have hazardous
jobs or chronic illnesses.
It is becoming more difficult for people to qualify medically in order to get health insurance
because the companies are being more and more stricter regarding the health conditions that
they will accept.
And all it takes is a few employees with chronic health problems to raise the cost for everyone.
We were facing a potential 82 percent rate increase.
Our insurance carrier had told us that since we were a loss to them, it was time to either
make a change or get our group stabilized.
In an effort to cut costs, many insurers are going to a system called managed care.
This approach includes the Health Maintenance Organization, or HMO, and Preferred Provider
Organization, or PPO.
Under the HMO, doctors are generally limited to those on the insurance company's list.
While in the PPO, the patient is generally given the option of going to physicians off
the list if he or she is prepared to pay a higher price.
The important thing to remember is that any coverage is better than no coverage.
And if you leave your job, an important protection is the COBRA law, which says that your employer
must give you the option to continue your group medical insurance for 18 months.
But that coverage can be expensive, since you must pick up the share of insurance costs
that your employer had been paying.
At 65, everyone is entitled to have medical coverage under Medicare.
But if you assume that all your medical needs will be taken care of, you're in for a big
surprise.
As some seniors here in Sunrise, Florida, told me, the cost of their medical benefits
are going up, and the quality of their care is going down.
I love when they say to you, instead of being in the hospital, we know you would want to
be home.
And we know that you would rather have care at home.
No, if I'm sick, I want to be taken care of by qualified nurses.
Like many retired Americans, the Kirchenbergs say Medicare doesn't go far enough, so they
have purchased supplemental insurance, commonly known as Medigap.
But it doesn't come cheap, in their case, almost $2,300.
When it comes to Medicare or group health insurance, consumers' choices are becoming
increasingly limited.
However, knowing what your policy covers and what it doesn't could save you hundreds and
even thousands of dollars.
Karen Ryan, NBR, Miami.
As Karen noted, it can be more difficult to obtain health insurance if you don't qualify
for group coverage.
So what are your options if you're about to lose your group health policy?
Linda O'Brien asks Linda Jenks of the Health Insurance Association of America.
Specifically, if you lose your coverage through your employer, the first thing that you should
do is look for what we call a conversion policy.
In fact, most of the states now require that as a matter of state law, so that you should
go to your present insurer that you presently have with your employer and specifically ask
that company if you can have a conversion policy.
The second option that's available is to shop around.
I mean, although 90% of private policies that are sold today are sold through the employer,
we still have a very active and a very good individual insurance market.
In fact, there are several hundred companies that are involved and my suggestion would
be either call the insurance department or through the various magazines and what have
you, you will certainly find the names of many, many reputable companies.
In fact, I represent over 300 and I'm here to tell you all are good.
So check with them to see what they have in terms of an individual policy.
But won't an individual policyholder have to pay a great deal more than someone as part
of a group policy?
Well, that is the rule, if you will, of insurance.
I mean, the broader the risk pool in many cases, you know, the lower the price.
If an individual is given the choice between taking an indemnity policy or an HMO or a
PPO, how should he or she go about deciding which coverage to take?
I think the most important thing is to look at what your own medical needs will be as
well as your own pocketbook needs.
Those policies can be suited to any individual, all are good and my suggestion would be just
shop around and read the policy benefits, you know, before you purchase it.
Most of these policies do have with them a buyer's guide.
Most group plans offer a major medical policy which picks up all expenses after the individual
has paid a certain amount of out-of-pocket costs.
Many of these policies carry an upper limit of $1 million and, of course, that sounds
like a lot, but with surgery often costing in the six figures, is it really enough?
Oh, we happen to think so in the vast majority of cases.
I mean, even take your most complicated transplant cases and those may be running $200,000.
So a million-dollar policy is, in fact, a very, very good one on today's market.
We've noted that Medicare coverage for the elderly doesn't cover everything and that
many people over 65 may want to consider a so-called Medigap policy.
However, this area has been subject to a lot of abusive sales tactics, leading people to
purchase duplicative coverage or to overpay.
What should a person look for in this kind of coverage?
Well, number one, Linda, duplication is now forbidden by federal law.
We worked with the federal government to assure that these new consumer standards would absolutely
forbid any company or agent from selling a duplicate policy.
The other key thing would be there is a buyer's guide that is available through insurance
departments and through insurance companies, and I strongly recommend that individuals
look at this buyer's guide before purchasing a Medicare supplemental policy.
There are many that are of excellent value, and we together with the federal government
have standardized the product to really put 10 good options in the marketplace today.
The area that Medicare doesn't cover is that of nursing home care for the chronic illnesses
in most cases, and that's led to the creation of long-term care insurance.
But the magazine Consumer Reports recently reviewed long-term care policies and said
it couldn't find any that it could recommend.
So where does the consumer go from there, and why is it so difficult to obtain this
coverage?
Well, it shouldn't be at all, and I'm here to say that we think Consumer Reports did
the public a tremendous disservice.
After the Medicare catastrophic law was passed and repealed, the public became painfully
aware that Medicare did not provide a long-term care benefit, and as a result, our companies
working through minimum standards that the National Association of Insurance Commissioners
developed began putting very cost-effective policies in the marketplace.
We have seen an exponential growth, and here, too, there are consumer protections that are
included in these minimum standards bills, and one is the provision there again that
the purchaser be given a buyer's guide, in addition to which, we are seeing more employers
offer a long-term care benefit as a part of the employee benefits package.
In fact, the average age of sign-up is 42.
We think this is an excellent way to begin providing for your retirement needs.
But much of this coverage is very expensive for the average consumer.
The average annual price of a long-term care policy is just a little over $1,000, and we
happen to think that's a very good investment against the future.
In this current environment of skyrocketing costs, is there anything the average person
can do to keep his or her health insurance costs down?
No doubt about it, and this is something that we all as individuals should be working on,
and it's simply called healthier lifestyles.
Another option, as I mentioned before, is to look at the use of higher deductibles or
copays that will certainly bring the cost of the premium down.
And then I think we together as a nation must work on just getting the cost of health care
down for everyone.
Buying health insurance only deals with the medical costs resulting from an illness.
What many people overlook are the other bills that must be paid when one is laid up and
unable to work for an extended period of time.
To cover that possibility, a different form of insurance is available, disability insurance.
And as Darren Gersh reports, it can be a vital form of coverage.
I never figured I would be up more than a couple weeks.
I'm too young and healthy to come down with a major illness.
Chuck Hines signed up for disability insurance at work a few weeks before he came down with
Guillain-Barre syndrome.
It's a neurological disorder that weakens the muscles.
Now at 32, he's learning to walk again.
Before his illness, Hines never gave much thought to disability insurance, which helps
to pay the bills that keep coming after your paycheck stops.
Being young and healthy, I didn't really think that I need the coverage.
In fact, if you are over 21, there is one chance in three you'll be disabled for a period
of time before you retire.
But most recent figures show that only 13 percent of Americans with private insurance
have a long-term disability policy.
Many people think they have adequate disability coverage from the insurance they get through
work.
But Chuck Hines found out the hard way.
That isn't always the case.
His work policy provides $225 a week, half his former salary.
With a new baby and associated bills piling up, that's not enough.
I am making, barely making ends meet, but as soon as the savings run out, I don't think
that I will be.
To avoid that situation, financial planners say workers with disability coverage may want
to consider a supplemental policy.
To determine if you have adequate disability coverage, the experts say you should consider
three factors.
First, there's the income you'll need if you become disabled.
That's usually 65 to 80 percent of your gross income.
But keep in mind, employer-provided benefits may provide less than you think, because they
are often subject to taxes.
Next, decide how long you can wait to receive benefits.
A 30-day waiting period costs more than 90 days or six months.
Finally, decide how long you want your policy to last, until age 65 or just for a few years.
Also, the definition of disability in a policy can be crucial.
Make sure that you're getting a disability policy that covers you if you can't do your
current work rather than any work.
Chuck Hines hopes to return to work soon.
He says his disability insurance allowed him to keep his home, and that has made it easier
for him to work on the job at hand, getting stronger.
Darren Gersh, NBR, Washington.
If you drive a car, you're exposing yourself to significant financial liability.
That's because you could kill or injure someone in an accident or get seriously injured yourself.
And of course, there's always the potential for causing significant damage to cars and
property.
And don't think it can't happen to you.
Statistics show that 75 percent of all drivers will have an auto accident within the next
three years.
So the question isn't whether to have auto insurance, but how much or what kind you need,
as Leslie Nichol reports from Chicago.
Fender benders like this may not look like they would cost a great deal of money to fix,
but sticker shock is hitting the insurance companies that foot the bills.
People who repair cars blame much of the increased costs on new technology.
Cars have become lighter, more fuel efficient, they're more easily damaged.
The engine technology, when you get in a front end accident, has created a lot of damage
to a greater extent than they used to be.
These additional costs, coupled with inflation, have sent auto insurance premiums skyrocketing
in recent years.
But according to the Insurance Information Institute, many motorists may be overpaying
because they are buying more types of insurance than they really need.
Actually, auto insurance is a package of six different kinds of insurance.
The first type is bodily injury liability.
It covers you if you cause an accident and another person is injured or killed.
Property damage liability covers you if you damage someone else's car or property.
The third type, collision insurance, covers repair costs when your car is damaged after
an accident with another car or a run in with an object, say a street sign.
Injury of insurance comes into play if your car is damaged by something other than an
auto accident.
The fifth type, medical payments insurance, pays medical bills for you or your family.
And the last coverage, uninsured motorists insurance, pays for injuries if you are hit
by someone who does not have insurance.
Some of these coverages may be mandatory depending on what state you live in and whether it has
a no-fault law.
No-fault insurance means you collect directly from your own insurance company if you're
involved in an accident.
Besides which state you live in, there are many other variables used to determine auto
insurance premiums, factors such as your age, marital status, neighborhood and driving record.
But while there may not be much you can do about those factors, insurance experts say
there are steps you can take to bring down your premium costs.
After the car becomes fully depreciated, after five years you might even want to consider
dropping collision coverage altogether because the car is fully depreciated at that point
and if the car is totaled in an accident you're really only going to recover the depreciated
value and it's not even going to be worth your while.
Insurance agents say another way to lower premiums is to raise the deductible on your
policy.
As an example of how deductible size can vary payments, take a 1991 Infiniti.
To insure an Infiniti with all six coverages and pay a $100 deductible, the premium cost
would be $687 every six months.
With a $250 deductible that would go down to $631 and a $500 deductible brings the premium
down to $570.
If you can afford $500 out of your pocket, then a $500 deductible is probably the best
buy.
Other ways to save money include getting a car equipped with an airbag or a burglar alarm
and then the type of car itself can also make a big difference on how much money you ultimately
spend for auto insurance.
Leslie Nichol, NBR Chicago.
For more on auto insurance, joining us now from Washington D.C. is Mark Rosenberg, Vice
President of the Insurance Information Institute.
Mark, welcome to the Nightly Business Report.
It's a pleasure to be with you, Paul.
First, is there a certain base of insurance every driver should have?
We believe every driver should be carrying liability insurance to protect themselves
and others in the event that they cause injury to another driver, to a pedestrian, to another
vehicle.
There's no limit to the amount that you could be sued or held responsible for, and so you
need that liability insurance just because it's a dangerous world that we live in.
And there are minimum coverage levels required by most states, and if so, do you think those
are adequate, the minimums?
They cover a wide range.
There are some states that have what are called financial responsibility laws in which you
don't have to have insurance, but you have to be able to pay the bill if there's an accident.
In other states, there are requirements that you must have insurance, and then the state
sets a minimum level, and oftentimes that level is much lower than we would recommend
for the average driver.
There's a political compromise between requiring that people buy insurance and making sure
that the level isn't too high for some parts of the population.
Well, of course, one factor that can really drive up the cost of auto insurance is having
a teenage driver in the house.
Now, short of forcing that teenager to move out, is there anything a parent can do to
lower the household's auto insurance bill?
The first thing that anyone should do is to comparison shop.
There are dramatic differences in price as you go from one insurance company to another.
This reflects a variety of circumstances, but basically, first thing you do is shop
around for price.
Second, we would certainly recommend that any new driver, whether it's a teenager or
an older driver, should have a driver training course.
Many insurance companies offer a discount for that.
Others won't even consider you for insurance if you haven't had that training.
Thirdly, look at the cars in the household.
If the teenager is going to be driving a car that is solely or almost solely for his or
her use, you may be able to get a lower rate by assuring the insurance company that the
teenager is driving only that lower value automobile.
Good point.
If you're involved in an accident, what should you do to maximize your chances of getting
your claim paid?
At the scene of the accident, obviously, you should obtain as much information as you can.
The names of witnesses, clearly the information about the other driver, any information that
the police have obtained.
You should be in contact with your own insurance company as soon after the accident as possible.
The fresher the information, the more useful it is to you and to the insurance company.
Finally, Mark, what about the collision damage waiver and other supplemental coverages offered
by auto rental companies?
Is it a good idea to spend an extra $10 or $20 a day for these things?
Generally, it is not a good idea, Paul.
Most automobile insurance policies sold today provide the same coverage for a person in
a rental car as they have at home in their own car.
The only circumstance that you really need to be careful about is if you have a relatively
low value automobile at home where you may have dropped the collision or dropped the
comprehensive coverage and then you get to the airport and they give you a brand new
late model automobile.
Right.
You've got a clunker at home and yet you're driving this brand new automobile.
Okay, that's a good point.
Mark, our time has run out, but I want to thank you very much and most informative.
Thanks.
Well, the saying goes, a man's home is his castle.
And since an individual's home is also likely to be his or her largest single investment,
little question that it should be insured.
Another reason for homeowners' insurance is that a house can be subject to all kinds
of unforeseen disasters, as Rodney Ward reports from Charleston, South Carolina.
We lost at least a third of the house, you see.
It's been an ongoing experience and it hasn't stopped.
Just recently have I been able to really sit back and think about what has happened.
Two years after Hurricane Hugo ripped through Charleston, South Carolina, Ethel Ripley's
house is still in pieces.
She has finally received payments on claims made for hurricane damage and can begin rebuilding
her home.
She is one of the fortunate ones.
Her home and most of its contents were fully covered, but many Charleston residents found
after the disaster that they were underinsured.
We're standing in a city that took a direct hit from one of the major hurricanes of this
century.
The question that citizens need to ask themselves is, can I withstand the economic damage of
such an occurrence if I don't have insurance?
The hard lessons learned by Charleston residents weren't brought on just by Hurricane Hugo.
Consumer advocates say most people don't know how to shop for the best insurance coverage.
You do have to ask questions and make sure that you understand what it is you're buying
because it's not a cookie cutter approach to protecting your home.
So what do consumers need to look for when buying homeowners insurance?
Typically, the standard homeowners policy covers the damage to the dwelling and the
owner's living expenses if the home is uninhabitable.
In addition, the home's contents are usually insured for up to half the value of the homeowners
policy.
For example, if you have a policy worth $80,000, household items like appliances and furniture
will be covered for $40,000 unless you take out additional personal articles insurance.
However, even with that protection in place, coverage on jewelry, furs, fine art, and silver
is typically limited, jewelry usually to $1,000.
Additional floater coverage on these items can be purchased through your insurance agent.
And while homeowners insurance generally protects against a wide range of catastrophes, there
are certain exclusions.
One such exclusion is flood damage, as many people in Charleston found out too late.
They have homeowners insurance, they did not have flood insurance.
If you're near an area where there's possibility of flooding due to high rains or from the
ocean from hurricanes, you definitely need to be looking into the question of flood insurance.
Failure to do that could subject many citizens to tremendous losses that are simply not going
to be covered under their basic homeowners insurance.
Earthquakes are also excluded from all policies.
Special earthquake coverage can be purchased directly from your agent.
Experts say your homeowners policy should be for replacement value rather than actual
cash value.
Replacement value will allow you to replace items at today's prices.
Original cash value will only pay a depreciated amount of the item's original cost, which
in the case of a stereo or TV would be far less than the cost of a new one.
To get the most effective use out of your policy, you must read and understand what
the policy covers.
Don't wait until disaster strikes to find out you're underinsured.
Remember, a few minutes now could save you thousands of dollars in the future.
Rodney Ward, NBR, Charleston, South Carolina.
Joining us now is Barbara Taylor Burkett, the author of How to Get Your Money's Worth
in Home and Auto Insurance, published by McGraw-Hill.
She's also a consumer's affairs consultant to the Insurance Information Institute.
Barbara, welcome to the Nightly Business Report.
Thank you, Paul.
Now, almost all banks, as we know, require a certain amount of homeowners insurance on
mortgage that they issue.
Can the homeowner assume that that's enough coverage to meet his or her needs?
The homeowner should not assume that, 96% of homeowners are insured because the mortgage
lender, the bank, requires it.
However, the bank is interested only in its own coverage to protect itself.
The homeowner has to think about possessions, about what would happen on liability to others
with an accident.
There are a lot of variables there.
People need more coverage than what the bank would require.
Now, you say that a homeowner's policy isn't something you can just file away in an old
cabinet up in the attic and forget.
Why is that?
Don't do it, because that's the worst thing you can do if there's a fire or a hurricane
or something that destroys your home.
Your policy and all of your receipts and that sort of thing will go up in smoke.
You won't know whether you're covered.
Not only that, having a policy on hand means that you really should review it, know what
its contents are, so that if you have that disaster, you won't be looking at your coverage
for the first time.
Well that makes good sense.
Now, you say it's best also to insure your house for its replacement value, and how does
that differ from its market value, and how do you figure what it would cost to rebuild
your house?
Okay, insurance is personal for each of us.
What's good for you isn't necessarily good for me in terms of coverage.
The market value of your house is what you could sell it for on the real estate market.
That means the land, where it's situated, perhaps in a nice neighborhood with a lake.
Those things give value to the property and you could probably sell it for quite a bit.
What you want to look for in insurance is the amount of money it would take to rebuild
the house in the event of a disaster.
So you need an appraisal, an appraisal of what the building costs are in your area.
What evidence must you present when you make a claim?
You have to present receipts for something you've purchased, photographs would do, videotapes
are good.
You could even write out a description of it if you don't have a receipt, but you must
show proof.
Your word alone isn't good enough.
You have to have some evidence of the purchase price of your goods.
So before your VCR is stolen, you should maybe have a camcorder that you could actually take
pictures of what you own.
Many of the companies will accept a videotape as proof.
And you know, Paul, when you sit in your kitchen on a Saturday morning trying to figure out
what you have in your living room, you may find that you've forgotten half of your belongings.
Taking an inventory and keeping receipts is the best way to get back the full value for
your goods.
Of course, we hear a lot about liability insurance, which protects you against lawsuits for bodily
injury or property damage that you might cause to other people.
Most homeowners' policies provide some liability coverage, but how do you know if you have
enough?
When does it pay to really take out one of these umbrella policies we hear about?
Most companies would like you to have a basic liability.
Now the norm is 100,000, but most of us will need more than that because liability is if
someone sues you or they're badly injured.
So let's say that you have $300,000 on your home and $250,000 on your car, which is what
a lot of insurers require.
At that point, you will be able to buy this umbrella coverage of about a million dollars.
It doesn't cost very much, but what happens is this, your first $300,000 on your home
would cover your legal fees, for instance, and other incidental expenses.
The umbrella would kick in after that $300,000 was used up.
Now there are ways, obviously, that a homeowner can reduce the cost of his or her coverage.
Name us some of the best ways that you know of.
There are a lot of discounts out there.
The first thing people should do is shop around for a good agent.
They can save money going from one agent to another, giving them the same amount of detail.
That could save them $300 on average.
Other discounts include smoke alarms.
A sprinkler system could save 15 to 20 percent.
Mature homeowners who are around the house more often and could perhaps smell smoke sooner,
they get a discount.
Having your home and your auto with the same company gives a discount.
You have to ask your agent.
Barbara, that's really very useful information.
We thank you so much for imparting it to us.
My pleasure, Paul.
My guest, Barbara Taylor-Burkett, the author of How to Get Your Money's Worth in Home and
Auto Insurance.
Regardless of what type of insurance you're buying, chances are you'll be buying it through
an agent.
There are essentially two kinds of insurance agents, those who work for single companies
known as direct writers, and then there are independent agents who represent a variety
of companies.
There are pluses and minuses to each.
But either way, the agent must undergo a certain amount of professional training and be licensed
by your state.
If your main priority is finding a good life insurance agent, Alan Press offers this advice.
The first thing that a consumer should find out is how well-trained the agent is.
Ask him his background.
What courses he's taken.
Is he a CLU?
Is he working for it?
And then my suggestion is that you not work with only one agent, but interview three or
four agents.
And after you've interviewed them and had them plan your needs, ask them for recommendations.
Give me three or four people that you've worked with in the past and call those three or four
people.
And then after you've worked with a number of agents and gotten their recommendations,
you'll feel which one fits you best.
Like any product, insurance isn't without its problems.
So what do you do when you run into trouble with your insurance company?
Here's Cassie Seifert with some answers.
Most of this program has dealt with how you go about buying insurance.
But what if you try to buy insurance and you're turned down by the company?
Robert Hunter of the National Insurance Consumer Organization says you're probably out of luck.
If you walk into company X and apply and think you're a good driver or think you're a healthy
person or think you need life insurance and think you deserve it, and they say no, there's
basically nothing you can do about it.
There's nothing you can do about it unless you think discrimination has been involved.
Robin Campiano, insurance commissioner of Hawaii, says you should check to see if your
state has laws that protect consumers against some kinds of discrimination.
In many states, an insurance company cannot issue or deny a policy based on the individual's
age or sex or where he or she may live.
Other states' laws may not necessarily have those protections in hand.
If you have trouble getting auto coverage, you may be able to turn to your state's assigned
risk plan or joint underwriting facility, usually available to any driver, but at a
high cost.
Several states also have good driver protection, guaranteeing that if your record is clean,
you can get auto insurance.
In addition, about 20 states have health plans for people who are otherwise uninsurable.
Now let's say you have insurance and you experience a loss.
What if you make a legitimate claim with your insurance company and your refused payment?
What should you do then?
Keep good records.
Make sure you itemize your claim carefully.
Make sure you communicate clearly.
If you think you're getting a run around without passion, write a letter and say so.
And just explain why with facts and figures.
When the insurance company sees you're serious, keeping good records, your chance of getting
a settlement goes up immediately.
But what about the old saying that you get what you pay for?
If you pay a low rate for your insurance, does that mean you may have a harder time
collecting on your claims?
You can find, interestingly, that some of the lowest cost companies have the best ratings
by the consumer.
So you don't have to give up service to get low price.
The experts say if you have persistent problems, call the office of your state's insurance
commissioner.
Every state has one.
If you still aren't satisfied, then you may want to consider talking to an attorney.
Paul?
Now, it's up to you.
Only you can decide what coverage you can afford and how much insurance you and your
family need.
Just remember that in buying any kind of insurance, your objective should not be to come out ahead,
but to simply preserve what you already have, should the worst case occur.
And of course, we hope that never happens.
I'm Paul Kangas.
For all of us on NBR, good night.
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