Sammarusich Blog

2009 turns into 2010, the winter ice and snow has been particularly hard this year. It even affected Florida which shows how climate change is related to local weather patterns. Needless to say, the number of traffic accidents has been at an all-time high. No-one is ever ready for ice on the roads. Yet, all round the country, ice is coming through the mail boxes. The insurance companies are sending out notices chilling our desire to drive – premium rates are being hiked. And this time, it’s not just a few percent. In most states, it’s averaging at around 10%. So we are not talking peanuts. This is serious money while the US is in recession and millions of people are out of work. What’s the result? If it comes down to a choice between food on the table and an insurance policy, food wins every time. Everyone has to eat and everyone needs a vehicle – even in the bigger cities, public transport is a joke. So, when push comes to shove, more people will drive uninsured. That’s bad news for the rest of us. Our premiums will rise with fewer policy holders sharing the rising costs of claims. If only the insurers would hold the premiums steady, more people could pay, and rates would stay lower for longer. If only…

So why are insurance companies hiking the rates? There are two common issues. The first is the broken healthcare service. Whenever there’s a more serious traffic accident, most people go to hospital. The obvious injuries are treated. Bodies are examined to ensure there are no other injuries. Except, the moment anyone steps through the door of a hospital or clinic, the medical expenses meter starts to run. Despite the recession, the drugs industry and healthcare service suppliers have been increasing their prices. There have been some high-profile disputes between insurers and hospital groups in CA and CO. The current fight is between the Continuum Health Partners of New York and United Healthcare. The hospitals have agreed pay increases with the labor unions, new technology is expensive to instal and operate. They want more money. The insurer is looking for a reduction in charges of between 7 and 10%. It’s sad to admit but, in this fight, the insurers are actually protecting us policy holders.

The second problem is equally easy to explain. When we claim, the insurer should have the money to pay. This money comes from cash reserves and all the different state Insurance Departments monitor the amounts held to ensure there’s always sufficient set aside. It’s standard for insurers to hold this money on investment so, when the recession came, they were slow to move out of stocks and bonds, and all the larger insurers lost a slice of their capital. Commissioners are offering their local insurers a choice. Either reduce the number of people holding policies or add more to your cash reserves. This forces companies to raise premiums and so, sadly, it’s getting more difficult to find affordable auto insurance. Even with the use of this site’s excellent search engine, it’s hard to find policies with lower rates. When you get the multiple auto insurance quotes, check through to find those with lower premiums. For good terms, look at the discounts available from these companies. Think about accepting a higher deductible. Using the auto insurance quotes as a starting point, negotiate directly with the insurers. Affordable policies are out there. You just have to work harder to find them.

Let’s start off with a simple explanation of why fraud costs us all money. Insurance companies employ math-geeks called actuaries. They spend their time estimating how many traffic accidents there are likely to be and how much all the claims will be worth in a year. That total is divided among all the policy holders as the premium. It’s all guesswork but they are good guessers. Except that, when thousands of people make false claims, the insurers suddenly find themselves short of money to pay out. The result? Premium rates go up for all.

How bad is the problem? In New York, the number of suspected cases of fraud has risen by one-third from 2007 through 2009. Across the state, the insurers identified 13,433 probable cases of fraud in 2009 alone. To pay for this, the premium rates rose by an average of 6.3% in 2009. The most common frauds are staging an accident to claim medical expenses. This has caused the average value of each claim to rise to more than double the national average. That’s millions of dollars paid out and millions of dollars that have to replaced in the capital reserves. This problem is not, of course, unique to New York. It has become a well-recognized way of raising cash as the recession has deepened. So, if people find their household budgets under pressure, they can report their vehicle stolen or become the victim in a phantom hit-and-run. Ah, but you are saying all this needs support from attorneys and physicians prepared to push claims knowing or suspecting their clients are faking or exaggerating. Well, let’s keep this real. The FBI and local law enforcement agencies regularly run undercover sting operations to catch the fraudulent. In Philadelphia, for example, a recent operation resulted in long jail terms for an attorney and thirty-four individuals falsely claiming millions based on fake medical evidence. In Santa Clara County, California, the police recently prosecuted more than twenty body shops for supplying false estimates to insurance companies. An undercover officer driving an undamaged Honda Civic explained he had reported the vehicle vandalized to pay for a new paint job. The body shops supplied an estimate under $3,000 – insurance companies do not inspect damage for “small” claims.

The truth is there’s an epidemic of fraud and it’s not only established criminals or those on the fringe of legality like street racers. But, sadly, it’s also becoming a mom-and-pop crime. Why? Because the cost of investigating every claim as possible fraud is too expensive for the insurers. It’s cheaper to pay out all the smaller claims and absorb the losses. This is one of the main reasons why it’s getting harder to find cheap auto insurance. The volume of fraud is driving up the premium rates for everyone. But there’s a secondary problem. Outside California, insurance companies still use zip codes in setting rates. Where the levels of fraud are high in some areas, the rates reflect this. So, those who live in the Bronx and Brooklyn pay more than other parts of New York because there are more fake claims. This does not mean it’s impossible to find cheap car insurance. You just have to work harder, using a site like this, to identify those insurance companies offering good discounts. As another self-help step, you could report all those you know are making false claims. If the police and FBI cannot stem the flood of fraud, it’s up to every law-abiding citizen to step up to the plate. The result will be lower premiums for all.

The biggest financial decision you are likely to make is buying a home, closely followed by less expensive must-haves like a vehicle. But the one deal you should aim to get right is the decision on life insurance. This is the difference between leaving your dependents with an adequate amount of cash to see them through the times of economic hardship after your income is lost, and leaving them with nothing. In this, the decision on term as against permanent insurance is the key. Put the wrong key in the lock and you open a door into real financial hardship. So what’s wrong with term insurance? Think of this as like a bet. If you die within the term, your dependents are the winners. If you prove healthy and live too long, you lose the premiums you paid and your dependents get nothing. Now, when it comes to permanent insurance, this builds up a cash value. The longer you have the policy in place, the more valuable it comes as the premiums you pay attract investment returns. During your own life, you can take some of this money back or borrow using the fund as collateral. When the sad day finally comes, the benefits are paid out to your dependents less whatever drawings or borrowings you have made.

From these short sentences, you will immediately suspect the other difference between the products. Term life insurance is the cheap option. It gives you security in the amount of the benefits for the number of years you select. If you buy one term policy after another, the premiums are higher each time because your life expectancy is less on each renewal. Permanent insurance premiums are higher because a percentage of what you pay is invested on your behalf to generate the cash value. So your fund receives the benefit of the interest, dividends and other returns the investments generate. This makes the total of the cash value the key factor. Do you want a higher rate of return on the premiums? This can be for your own benefit should there be an emergency during your life. Or it can build up over the years for your dependents. If the answer is yes, you must be prepared to pay more to start off the policy – the first year’s premiums often disappear into a black hole representing set-up costs and the selling agent’s commission. But the amount you pay stays the same throughout the lifetime of the policy. So, with inflation, what starts out a struggle slowly grows easier to pay.

The real problem is the uncertainty of the future. Who knows how inflation may affect different aspects of life. What may be cheap now, may be expensive tomorrow and vice versa. So here are a few simple rules. If all you want is cover over the next few years (no more than ten), get life insurance quotes for a term policy. Ten years is not a long enough period of time to build up a worthwhile cash value. Estimate what benefits might be needed, e.g. your daughter will need $50,000 to cover her college tuition fees, and the total will set the amount of the insurance. If you are looking at a period of at least twenty years, you should think seriously about permanent insurance. Again, get life insurance quotes but you should also take advice on the different types of policy available and create or review your estate plan. Between ten and twenty years is a gray area and whichever way you decide is not going to be wrong.

This might sound strange to you if you have spent the money on putting an insurance policy in place, but there are times when you should consider not making a claim. It really can protect you from greater losses if your premium rates suddenly rocket up or, worse, the insurance company decides it would prefer you to take your business elsewhere. So let’s take it one step at a time. Almost every policy imposes a duty on homeowners to make claims either within a set time or a “reasonable” time. If you miss out on a time limit, you have no right to claim. When is a claim made on a “timely” basis? You will be expected to notify the insurer of a theft or vandalism within days. Reports of serious damage will be expected within two weeks and certainly never longer than 30 days. This can put you under pressure if the policy requires you to get estimates from local contractors, but no-one ever said a policy was going to be worded in your favor. So, if you have reliable estimates of the amount lost and/or costs of repair, now comes the big decision.

As a general rule, you should only make claims if the amount is greater than the deductible. If you are going to pay out of your own pocket in any event, silence will benefit you in most cases. However, be careful if there is a third party liability element involved. Suppose the wind lifts two or three roof tiles and one blows down into the street, hitting someone on the sidewalk. The cost of repairing the roof may be small but the risk of a major claim for personal injuries cannot be ignored. Always make a claim when you cannot put numbers on a possible third party claim. Now comes the difficult part. Every time you make a claim, it’s recorded in a national database called the Comprehensive Loss Underwriting Exchange (CLUE). If you make multiple smaller claims, or one or two large claims, this will stay in CLUE for seven years and may deter other insurers from writing a policy for you or encourage them only to quote high premiums. You should therefore consider absorbing losses up to $3,000. You may be lucky – the insurer pays your claim in full and does not raise the premiums. But suppose you have a deductible of $1,000 and the insurer raises your premium for $500 for the next two years. You never know the real costs of the claim until after the event but setting a higher minimum amount for a claim gives you a margin of safety. You should at least break even on the smaller claims.

Dealing with claims shows the homeowners insurance companies at their best or worst. The best pay and do not try to recover their losses by increasing your premium. The worst immediately deny your claim and fight you on technicalities. Never forget every state has a Department of Insurance to deal with complaints against insurance companies. If you think your company is unreasonably denying your claim, make a complaint. There are also attorneys who specialize in insurance matters and, if the claim is for a big amount, it may be worth getting formal legal advice on your rights. Homeowners insurance is not “cheap” and you are entitled to fight to recover the costs of repairing or replacing your home so long as the damage falls within the defined perils.

This is the word you see most often when insurance companies talk about the best way to get a reduction in your premium rates. All you have to do, the smooth voice says, is increase the deductible and we’ll give you a 10% discount. And, it’s a fact. It sounds like a good deal. So why are insurance companies so keen for you to increase the deductible? The answer could not be more simple. Whatever deductible you sign up for is the amount you pay if you are involved in a traffic accident or incur a liability of some kind connected with your ownership of a vehicle. That means you pay and not the insurance company. For insurer this is a cool idea. You insure yourself. All the premium pays for is cover in case your losses amount to more than the deductible. This is really great. The insurer collects a premium and you pay the first however many dollars of the claim. Since the majority of claims are for small amounts – fender benders rarely cost that much to repair – the insurer is on a winner. In fact, the bigger the deductible you sign up to accept, the better off the insurance company is. OK, the company does give you a discount, but it’s rarely an adequate amount.

Let’s see how it works out. Suppose you opt to pay the first $1,000 of every claim and the insurer gives you a 10% discount, are your savings $83 a month? If they are and you are unlucky enough to have an accident at the end of the year, you will have broken even. Your $1,000 in savings just got paid out as a lump sum at the end of the year. Except, of course, there’s a Parkinson’s Law of money in operation – spending wipes out money available. In other words, we usually spend what we have. This leaves you without savings and so that cash sum has to go on your credit card with interest until you can pay it off. In reality, most people end up out of pocket if they have to pay the deductible on one accident. Now imagine the case if your luck is really bad and you have two accidents in the same year. Do you really have $2,000 lying around on the off chance of two insurance claims?

Now before we get all depressed, there are a range of other ways in which you can save money on your premiums without increasing the deductible. Use the online search engine on this site to get auto insurance quotes from as many companies as possible. Explore the different options. If you have the cash or can borrow, think about changing to a make and model of car that’s cheaper to insure. If there’s no chance of trading to a less expensive vehicle, look at the options of driving less, building up a driving record with no moving traffic violations and no claims, bundling your home insurance with the same company, and so on. All the companies offer different discounts and savings. By getting multiple auto insurance quotes, you can judge which discounts will give you the best overall savings. You should only increase the deductible if you can genuinely afford to pay out that initial sum and you are feeling lucky. If there are no other discounts or savings, and you are desperate, then playing with the deductible will reduce your premium. Once committed, it’s all down to the power of prayer to keep you financially safe.