Finance Tips

According to the Insurance Institute for Highway Safety, if you collect one speeding ticket, there’s a significant rise in the probability you will be involved in an accident in the next three years. This is not opinion. It’s a statistical fact that the chances of an accident rise by 50%. If you have two speeding tickets, the chances of an accident double. Since insurance companies set their premium rates according to these risk assessments, there’s an automatic linkage between a traffic citation and your premium rate. Depending on who you are, the rate can rise just a little or triple. For example, a wife rushing to her husband’s hospital bedside will be penalized less than a young man out street racing. The reality of the insurance market is that, according to the statistics, you get the premium rate you deserve. Since this is going to make the difference between potential discounts for being a safe driver with no claims and no tickets, and rate hikes worth several thousand dollars over the next three or four years for picking up a ticket, it can be worth fighting traffic tickets.

Obviously, it’s better to drive safely and within the law. It’s just as important to protect your reputation. Every few years, spend a few bucks at your state’s Department of Motor Vehicles (DMV) to ensure your driving record is accurate. If there’s a mistake, have it corrected. This could save you big dollars on the premium rates overnight. Now, let’s face the worst. You get pulled over. Remember never to admit guilt to the officer. Just be polite. Upsetting the officer could result in the addition of “ND” to the citation. That’s a note to the prosecutor not to do a deal, but to push for the maximum penalty. OK, so now you are in the system. What should you do? Don’t ignore the ticket. In many states, the police issue an arrest warrant. The first step is talking to your local DMV. Many states have programs in place to help drivers. For example, some will defer judgment and, if there are no violations in the next six months, the ticket is dismissed. Other states have driver safety courses. For minor offenses, attending a course on driving wipes the conviction from your record. You still have to pay the fine and the tuition fees, but this is less than the premium rate increases.

If you cannot prevent this from coming to court, go to court. Often challenging a ticket persuades the court to reduce the ticket to a moving violation which is not penalized by the insurers. If you show but the officer does not, this can persuade some courts to dismiss the ticket – check your local state’s rules. In the end, politely raising any kind of reasonable objection to the ticket is usually rewarded by the court – getting angry in a courtroom is not recommended. Of course, all this takes time and effort. Should this be too expensive, remember you can be saving several thousand dollars on premium instalments, so paying an attorney up to one thousand can be good value. All of this should encourage you to drive safely. It’s better not to get caught. Your car insurance quotes will come in lower and lower the longer you keep your record clean. If defensive driving fails to keep you safe, fight to avoid the conviction. It’s going to show up in the car insurance quotes over the years to come unless you get the ticket dismissed or reduced to a moving violation.

As with every group of businesses, there’s an association for the insurance industry. It’s called the Insurance Information Institute. When individual insurers fear adverse publicity, the III usually gets the job of making general announcements. That way, the news comes out with less damage to the member companies. So, for example, when there was flooding because of the melting snow and then the torrential rains, it was left to the III to warn people that the majority of policies do not cover damage caused when sewers back up. That’s not the most reassuring of news. Making equally bad reading was a report that premium rates for property insurance were likely to rise by an average of 3% this year. This reflects both the aforementioned bad weather and the rise in the costs of repairs. You might not have noticed it yet, but builders have been steadily increasing their charges. The price of gas has been rising, labor costs are up, replacement materials are more expensive – it’s all bad news even though there’s supposed to be a recession.

So why might you have a heart attack when your renewal notice hits the mailbox? Although the politicians may not have accepted the reality of climate change, the insurance industry is watching the statistics and reassessing weather risks state-by-state. There’s been tornadoes and major storms across the southern states. Their premiums will be rising faster. The other common reason flows from the insistence that you all shop around for your next policy. In the days of habit, you picked an insurer and bundled your auto and home policies. This earned you a discount and everyone was happy. As more people use internet search engines to find the cheapest auto insurance, they are breaking the bundle and the rate for the remaining home policy goes up sharply. You should always look at all your policies together and not deal with separate policies.

How to keep premium rate increases to a minimum? First remember CLUE. The Comprehensive Loss Underwriting Exchange is another insurance industry body that stores information about every claim you make. If you propose changing insurers, the first thing new companies check before giving you a quote is whether you have recently made a claim. If so, you will be quoted a higher premium. The moral of this story is not to claim unless you are looking at a really big loss. Then there’s the recession and its effect on your credit score. Most insurers include the score in their formula to decide whether you are a responsible person. The assumption is that people with good credit records will also take care of their homes. Before you start shopping around, do whatever you can to improve your score. For useful advice, try www.myfico.com and www.whatsmyscore.org.

In other words, no matter how great the temptation to track down cheap home insurance using the internet, think carefully about bundles, the claims you have made, and your credit score. These are factors under your control and, unlike blindly increasing your deductible which is you deciding to insure yourself, will produce long-term savings on your homeowners insurance quotes. Remember, it’s better to get quality home insurance at an affordable price than cut-price insurance that fails to cover you when your sewers dump their contents in your kitchen.

The easiest way to understand how an insurance policy works is to think about gambling. You are about to drive your vehicle out on to the public roads and you make a bet with the insurance company. If you can do this without having an accident, you lose the premium. If you have an accident, the insurance company pays your losses. So, as with a field of horse about to set off round the track, the bookmakers check the records of each horse. How many times has it run and placed. This gives them a basis on which to set the odds. In theory, everyone has access to the same information so you decide whether to place the wager depending on the fairness of the odds quoted. Well, it’s exactly the same with drivers. The insurers make a risk assessment of you as a driver. What make and model are you driving? How many miles a year do you drive? How many years of experience? How many tickets and claims? This profiling gives them the odds of an accident and the company sets the premium rate to quote you. You also know your own track record and have a good basis on which to decide whether to pay the premium.

Unlike a conventional bet, you can decide to self-insure a part of the potential liabilities. This is done through the so-called deductible where you pay the nominated amount before the insurer has to contribute. So if the claim against you is for $800 and you have a deductible of $1,000, you pay the whole of the $800. But if the claim is for $1 million, you only pay $1,000 and the insurance company loves you like a brother. The majority of traffic accidents are minor fender benders and the repair costs are usually low. If no-one is injured, self-insurance is a cost-effective option, i.e. the amount you save on the premium covers the likely payments of claims. But you should consider the issues carefully before accepting the maximum deductibles. Suppose you have a bad run of luck and, in the space of a year, you are involved in three accidents where the claims exceed the deductible. Now you have to find the deductible multiplied by three as a cash sum and your premiums will go up because you have proved yourself a bad risk. Can you afford the pay this lump sum without breaking the bank? Given your premiums are going to rise, do you still want to pay the maximum deductibles in the future?

Planning is all about the worst case scenarios and hoping for the best. There are good discounts for increasing the deductible. There are also good discounts for insuring more than one vehicle or combining both car insurance with home insurance. Because you cannot guarantee you will never have accidents, you should decide what discounts you can find and how much you are prepared to pay if the worst happens. Do not simply buy the cheapest car insurance you can find. In many cases, these policies do not give a good value-for-money cover against liabilities. Shop around and buy the policy that gives you the best protection at a price you can afford.

The distinction made by the insurance industry is between term and permanent life insurance. So you either buy a policy for a fixed term of years which then expires, or the policy is “permanent”, i.e. it usually stays valid and enforceable during your life. The other elements of permanence cover the premium rate which can remain the same throughout your life and the terms of the policy which continue to apply regardless of any change in your health or other circumstances. Never liking to leave anything really simple and straightforward, the industry then divides policies into three basic types. The first is the so-called whole life policy which many consider the most appropriate because the insurers tend to offer minimum guarantees. Why are guarantees useful? For someone aged in their twenties, it is difficult to predict what will happen over the next fifty years (allowing for the average life expectancy). Despite the fact that stock markets have shown steady growth over time, this is partly due to inflation. The buying power of the dollar today will be worn away by price increases, so the numbers representing stock values have to keep rising to keep pace. This is not an increase in real values. It simply prevents a loss of value. So, if an insurer today guarantees you a minimum rate of return over your lifetime, and that rate is better than inflation, it looks a good deal to take it. Better the known than the unknown.

The second type of policy is the universal which offers more flexibility, allowing you to vary the amount you pay into the fund according to changes in your financial circumstances. When you are new to the world of employment, pay is low and so you start with a low premium rate. As your pay increases, you increase the premium rate. If there is a family emergency, you can elect not to pay for a period of time. The key difference is that a whole life policy collects and adds dividends to the cash value, whereas the universal simply pays interest on the cash in hand. Despite this, there are minimum values guaranteed but they tend to be lower than the guaranteed amounts in whole life policies. The third type of policy, the variable, appeals to those with a higher risk appetite. It gives you more control over the investments. Some insurers do offer you guidance on investment strategies, but the price of your management is you take responsibility for generating the returns. The insurer does not give anything more than a token guaranteed minimum for the benefits payable to your dependents.

As suggested in previous articles, the promise of growth in cash value, whether through investment or the payment of interest, is something of a smokescreen. When you are going through the life insurance quotes to decide which policy might represent the best buy for you, do not focus on the investment opportunities. Analyze the life investment quotes to find the policies offering permanence on the best terms. What you should consider is the possibility of problems with your employment. Is there a way you can keep the policy in place if you cannot afford to pay the same level of premium? Some allow you to convert the policy to one fully-paid-up, using the cash value to buy future years. Others allow you to suspend payment for a period. Since your main purpose should be protecting the interests of your dependents, keeping the policy in place is the most important factor.

This February, the Department of Health and Human Resources has issued a report identifying an alarming trend for insurance companies to seek premium rate increases. This is not limited to one or two states. This is not limited to one or two percentage increases in the rates. This is all the leading insurance companies asking for the right to significantly higher premiums: in Michigan hikes of 56%, in California hikes of 39%, and so on. If this only affected small numbers of policyholders, it might have passed unnoticed. But, with millions of policyholders affected across the country, these rate increase requests have attracted the full scrutiny of the federal government. Secretary Sibelius has been leading the attack, using the requests to push the reform agenda forward.

Because of the national anger, some companies have paused. WellPoint had proposed the increases take effect from March 1. Any increases, even if approved by the states, will now be delayed until May at the earliest. This decision is partly in response to the summons of WellPoint’s chief executive officer to Washington to justify the requested increases. Insurance companies find themselves in a difficult political situation. Their management teams accept a duty to maximize profits for the benefit of the stockholders. They look around at an America seriously affected by the recession. Increasing numbers of people are unable to afford the premiums, some because of unemployment, others because of a squeeze on credit. More worrying from the insurance industry is that more healthy people are deciding not to insure at all. This means the group of people left holding policies has a higher percentage of those with existing health problems. Without more healthy people in the group paying premiums and not claiming, it becomes more expensive to insure those less healthy people who remain. It is also a verified fact that hospitals and healthcare service professionals have also been increasing their fees and charges. The pharmaceutical companies have increased the price of almost all the most commonly used drugs. The insurance industry is under pressure from both sides. As Secretary Sibelius points out, however, this is not a completely accurate picture. Every year, insurance companies are required to submit reports to all the US states in which they are licensed to sell policies. This data shows many companies actually increased the number of policyholders during 2009.

The market in health insurance plans is complicated by the political situation. Democrats and Republicans are two armies unable to agree a truce long enough for some reform to be made. As it stands, there is no immediate likelihood that medical costs will be controlled. If the costs continue to rise faster than inflation, insurers will have no choice other than increasing their premiums. If they do not, they will not have enough cash in hand to pay out on all the claims. This means, for the average person, it will become increasingly difficult to find cheap health insurance. For those with a pre-existing condition, group health insurance will be the only option but, for those plans, premiums are rising at their fastest rates. For years, it has been obvious that the healthcare industry is broken. It would be ironic if, having come this close to some meaningful reforms, we not only saw the reform bills lost in Washington, but also found every major insurer imposing massive premium increases. That really would be the final nail in the coffin.