13 smart insurance moves for 2009

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Smart insurance moves are all about minimizing risk.

Take a page from corporate America, some companies are masters of risk management, while others still have a lot to learn.

“We’ve seen, in a dramatic way, how bad things can be for corporate America when they don’t manage risk well,” says Robert Hoyt, professor of risk management and insurance at the University of Georgia and past-president of the American Risk & Insurance Association.

“The lesson for consumers is to manage their own risk well,” he says. “It’s the one thing you really can control directly.”

Here are a few insurance strategies to consider for the coming year:

1. Investigate the financial health of your insurance carriers.“Don’t overreact, because institutional companies should be in pretty good shape,” says Bob Hunter, director of insurance for the Consumer Federation of America and former Texas insurance commissioner. “Do some research.”

Check out the ratings of insurers by A.M. Best, Moody’s, S&P and FitchRatings. It’s most critical for companies with policies where you’re paying over a long period of time for a potentially large future pay-out, like life insurance, long-term disability or long-term-care insurance.

“If they’ve been dropping the ratings, you might be concerned,” Hunter says.

You can often get information from your state insurance department or the company that sold the policy.

“It’s a good time for consumers to ask their agents to share that information,” Hoyt says. And if you’re shopping or re-shopping for coverage this year, the company’s financial health should be one of the factors in your decision, he says.

If what you discover makes you nervous and you’re thinking of changing companies, start investigating the surrender charges — fees for canceling a life-insurance policy, he says.

To make a smart move, “you need to know the price,” Hunter says. And always make sure you have replacement coverage in place before you cancel any policies.

2. Discuss payment options.If it’s difficult to come up with a chunk of money for annual or semi-annual premiums, talk to your company about payment options, says Dave Evans, Certified Financial Planner and senior vice president with the Independent Insurance Agents & Brokers of America. Many will let you pay premiums monthly or quarterly.

And if you have to trim expenses, get advice on changes that would least affect your coverage, he says.

3. Don’t go without health care coverage.When someone loses a job, many times paid or partially-paid health insurance goes out the door.

But going without is risking financial catastrophe. Some options include joining a spouse’s policy, continuing on your former company’s plan through the Consolidated Omnibus Budget Reconciliation Act, or COBRA, or buying individual catastrophic insurance.

COBRA allows employees to keep employer group insurance for a period of time — generally 18 months — after leaving their jobs as long as they pay their premiums. It generally applies to companies with 20 or more employees.

Another option for children is the State Children’s Health Insurance Program, Evans says. Part of a federal program but administered individually by the states, it provides low-cost insurance for kids. Contact your state insurance office to get more details on the program.

4. Don’t cut back on health insurance coverage.Everyone is looking for ways to save money. “(But) health insurance is probably one of the areas where you don’t want to make cuts,” says Chris Farrell, author of “Right on the Money! Taking Control of Your Personal Finances.”

Some policies will offer lower premiums in exchange for meeting high deductibles, although that may not be practical if you can’t come up with the money.

Policies also may exclude certain physical conditions or cover only specific illnesses. And they could set a much lower cap on the total lifetime payout. Such a restriction could be a problem if you or a family member has a catastrophic medical event.

If you have questions, call a few independent insurance agents and talk to them about the features that a quality policy should offer, the coverage you need for your family and the cost in your area.

5. Be alert to changes in your group health coverage.Many employers are looking for ways to cut costs. “Employers will be making tough decisions about health insurance benefits,” Professor Hoyt says.

Read your policies carefully if you’re changing plans or insurers. And even if you aren’t switching plans, watch for any coverage changes year over year with your existing plan.

6. Build your own insurance policy in the form of an emergency fund.If you have money set aside, you can cover a higher deductible on your home or auto policy, which will save you money.

“And you don’t have to do drastic things, like liquidate your retirement account,” Hoyt says.

7. Investigate long-term disability insurance.If you become fully or partially disabled or can’t work full-time for an extended period, you can draw on this policy. The exact details, such as the time period that would qualify as “long-term” and whether the policy pays a set amount or percentage of income will vary with the policy.

“Many people have the opportunity to purchase it through their employers,” says Hoyt. “But it’s an optional coverage that many people don’t take advantage of.”

And “don’t buy cheap,” says Jack Hungelmann, author of “Insurance for Dummies” and an agent/consultant with Corporate 4 Insurance Agency in Edina, Minn. “Find out who really knows their stuff on long-term disability.”

Look for a policy that will continue to pay benefits whether you are fully or partially impaired, and whether it pays until age 65 and not just for six months. Also, check to see if it includes a cost-of-living adjustment, he says.

Avoid cash-back policies, which refund part of your premium if you never draw on the policy, says Hungelmann. They are usually much more expensive.

8. Raise your property policy deductibles.On home and auto insurance, you can realize a nice savings by setting deductibles somewhere in the $500 to $1,000 range.

“That’s because frequent, low-cost claims are those that are very expensive for the insurance company,” Hoyt says. If you assume some of that risk, you will see a reduction in the premium.

“What you’ll find in insurance pricing is that there’s a point of diminishing returns” where you take on more risk, but don’t realize a significant discount, says Hoyt.

To get the most for your money, have your agent price your policy with several comfortable deductibles. You can then select the highest deductible that meets your comfort threshold and gives you a price break.

But don’t lower the liability or benefit limits, says Evans with the insurance agents and brokers trade organization. That would undercut your coverage if there was a total loss, he says.

9. Falling home values don’t automatically mean that you need less property insurance.Even if your home value decreases, that doesn’t mean you want to lower the amount of coverage.

Chances are, it would be more expensive to rebuild your home now than when you first bought it, Hoyt says. So make sure the amount of your homeowners insurance keeps pace with rebuilding costs, rather than the market value.

10. Understand how your insurance company will replace your loss.Sometimes insurance policy language can be tricky, Farrell says. Verify in writing that your insurance company will pick up the entire cost of replacing your property with new versions of your current home and possessions in the event of a loss.

Too many times consumers believe that’s what they’ve purchased, but find themselves getting an insurance check for pennies on the dollar because the policy covers “fair market value,” which is what your used property would bring if you sold it today.

11. Verify that you’re fully covered for all aspects of a natural disaster.It is especially important if you live in an area that is subject to certain natural disasters (fire, tornadoes, hurricanes, flooding), that you “make sure you have plenty of coverage and that it’s up to date,” Hoyt says.

There are two important questions that you need to ask yourself: Do you have the right type of replacement coverage at the right dollar amount and do you have the right coverage for various kinds of disasters.

And that may mean adding a separate policy for flood insurance, for example. Many homeowners in Florida and Louisiana discovered that their home insurance would protect them from some aspects of hurricane damage, such as wind, but not others like flooding.

12. Revisit your life insurance.You might be able to save money on the same coverage by reshopping your life insurance policy, says Wayne Bogosian, co-author of “The Complete Idiot’s Guide to 401(k) Plans.”

“That term-life insurance policy you bought three years ago is probably cheaper today,” he says. “That might add $25 a month to your pocket, maybe more, depending on the face value.”

Also, in today’s market, you can often get more life insurance for less money with your own independent policy. And if you lose the job, you don’t lose the coverage, says Evans.

And re-examine the amount of coverage. “You should have enough in good times and bad,” says Greg Daugherty, executive editor of  Consumer Reports. “I’d cut back in many places before I’d cut back on that.”

13. Do you want to diversify your life insurance?Much the same way you want to keep bank deposits below the FDIC-insurance level, you can use a similar strategy to protect your life insurance policies, Hoyt says.

Find out at what level of coverage your state insurance department backs life insurance since it varies by state. Then keep policies below that amount, and simply buy several policies from different carriers to give you the desired amount of coverage, he says.

One caveat is that you should keep all the policies in the same place and keep the beneficiaries the same. And make sure everyone in your family knows how many policies there are, where they’re kept and what the total insurance value should be, and don’t forget to keep up with the premiums.

Still, Hungelmann recommends another strategy. He advises buying one large, term policy and ensuring the company is in good shape financially.

“There’s a price discount, and I think it’s better to go with a really strong company,” he says.

Written by
Dana Dratch
Personal Finance Writer
Dana Dratch is a personal finance and lifestyle writer who enjoys talking all things money and credit. With a degree in English and writing, she likes asking the questions everyone would ask if they could and sharing the answers — along with smart money management tips from the experts.