Personal Finance and Investing

No matter what you think of scientists, there seem to be changes in the weather. There’ve been more violent hurricanes and storms, some devastating tornados, and more flooding than anyone might have expected. Looking around the world, there’s massive flooding across large parts of Asia and don’t forget the earthquakes. First New Zealand and then Japan got hit, followed by a tsunami. When you put it all together, it’s enough to make you think no amount of insurance is ever enough. Guess what? Because you think that, the insurance industry has been bringing out an all-singing-all-dancing package of different policies. If you can think of a way of losing money, the insurance industry has a policy to sell you. The only question is how much insurance should you buy?

This is about paranoia. When you add in the recession, there’s a perfect storm with everything going wrong in the world. The marketers trade on this so, when you see a company offering to sell cover against the value of your home falling, you’re tempted. You see the homes being repossessed around you. Perhaps your own mortgage is underwater. What’s not to like about policy that pays out if your home loses yet more value? Then there’s the company selling insurance against you losing your job. In theory, it pays out your take-home pay if you suddenly pick up a pink ticket. This looks good because, even though you can’t pay off the mortgage, you can at least make the monthly payments. At least, you think you can until you read all the small print and find out just how difficult it is to make a successful claim. Yes, it’s natural to want to protect your family and keep a roof over their heads, but this is not the right time to panic.

Let’s start with the standard policy for the home. You’re insuring the cost of repairing or, if the damage is too extensive, completely rebuilding. To that, add the value of the contents. Depending on the policy, this is the amount necessary to replace like-with-like rather than new-for-old. All this should be reviewed when renewing because the cost of labor and materials keeps on rising even though the resale value of the home may be dropping like a stone. Remember you’re not insuring the land. You’re just replacing what was lost, assuming that’s possible. If your home was to drop into a sinkhole or the plot disappeared in a landslide, rebuilding might be impossible. In that case, you pick up an agreed cash sum.

So, when you’re planning how much insurance to buy, focus on the standard policies and make sure you have everything set up properly so that, if the worst happens, you can make a claim and have it paid. Home insurance cover is not rocket science. Whether it’s good value depends on what the insurer has excluded. Read the policy and do your “homework”. If your research says this is a good deal, go for it. Although it may make you feel more comfortable if you spend your money on some of these more exotic policies, nothing is likely to offer the same value as a traditional home insurance policy.

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One of the major problems for families has been the age of their children. No matter whether the parents were on private or an employer plan, there was always an age cut-off so that older teens or young adults were forced out of cover. For those who went on to college, this was slightly less of a problem because most of the better-run colleges and universities offer subsidized cover for their students and, in some cases, their alumni. But for those not pursuing higher education, the threat of larger health bills was always in the back of minds when looking for work. In the boom years, it was reasonably easy for young adults to find employment and, in many cases, this gave access to a health plan. But following the recession, the national rate of unemployment has stayed over 9%. For young adults, the rate of unemployment varies from state to state, but it’s often 20% or higher with no immediate prospects of employers looking to hire from among the young unemployed. Although education is not for everyone, this really is the best time to wait out the bad years in school or college, picking up all the qualifications possible. It’s going to be difficult to find work for some time to come.

The Affordable Care Act of 2010 is somewhat controversial, but there are one of two good outcomes. One allows those under age 26 to stay on their parents’ plan as dependents. As a result, about one million more young adults have been able to obtain cover or stay covered. The total number of adults without any access to insurance cover, which includes Medicaid and Veterans’ cover, is around 52 million. Of these, the percentage of uninsured young adults has dropped to 30%. Currently, that means there are about 9 million young adults without any healthcare cover. Indeed, the Centers for Disease Control recently carried out an survey and estimates young adults are the most likely group to be uninsured. That the number of insured young adults has increased given the appalling unemployment numbers is encouraging.

The skeptics among you will argue there are many other reasons why the number of uninsured young adults should fall. You will deny any benefit could come from the hated Obamacare. Unfortunately, the percentages of uninsured has stayed constant in all the other age groups. This suggests the change in law is the reason for the drop. For the record, all the health plans were required to change their eligibility criteria as from September 23, 2010. All plan renewals after that date have accepted young adults. So we have had this law in operation for a year and, allowing for the fact not everyone will have taken up the offer yet, there’s still scope for more young adults to come on to their parents’ plans.

Because younger people tend to be in better health, the health insurance quotes for adding young adults as dependents should be relatively low. Perhaps the more interesting outcome affects employment. In the past, young adults have been chasing jobs with health insurance plans on offer. If these people can stay on their parents plans until 26, this improves their choices of employment. Hopefully, people will recognize this benefit and think better of Obamacare.

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In most states, all drivers have to carry key documents with them so that, if stopped by the police while driving, they can prove a license to drive, that they are insured and that the vehicle is properly registered. In California, you need all three to be legal on the road. Yet here’s an oddity. In California, no one can apply to register their vehicle unless they have insurance. So if someone proves ownership of a vehicle and has paid for an insurance policy, the Department of Motor Vehicles will accept the registration. This will be so even though the owner can’t legally drive, say, because the license has been revoked or suspended due to traffic violations. This produces the odd statistic that about 12% of unlicensed drivers in California are actually fully insured. Drivers may not care whether they break the law on licensing, but they do care whether someone might invite them to pay if there’s an accident.

This is not a secret. Indeed, many of the smaller insurers actively advertise this possibility and have found quite a substantial market of unlicensed drivers who do not want to risk their savings or credit limits should they get into an accident. This bends a more common rule used by some insurers to avoid payment. If an unlicensed driver fails to disclose the fact no license is held, this makes the driving illegal and insurers can cancel the policy. But if the Californian driver is honest to the insurer, all claims will be met even though the police might impound the car for driving it without a license.

More generally, it points to the fact the Californian insurers know which drivers are on the road illegally. Yet the police, the Department of Motor Vehicles and the insurers never talk to each other. Just think how easy it would be to enforce the mandate on holding a license and liability insurance if the three key players shared a database. Then the police could scan every tag as vehicles pass through a checkpoint and detect which are unregistered, whether the drivers are licensed and if there are valid policies of insurance in place.

As an example of how data sharing might help everyone, let’s move down to the border between Mexico and Arizona. One company is selling short-term insurance to drive on the US roads, ignoring whether the Mexican drivers have valid licenses. This company also offers to share all their data on Mexican drivers and vehicles with US law enforcement agencies. This is self-interested. The more uninsured drivers who are caught, the more Mexican drivers will be motivated to buy the short-term policies. But, in a state like Arizona which is deeply suspicious of immigrants, this will make it quick and easy to take uninsured drivers off the road. Now all we want is the same approach applied to US drivers.

Car insurance quotes will fall for all drivers if the mandate to carry liability insurance is properly enforced and the number of uninsured drivers falls. It’s actually the same for health insurance but that’s another article. The general rule is that, if all the affected parties pay their insurance premiums, everyone pays less. Only if people ignore the mandate does car insurance cost more.

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Go back thirty years and vehicle theft rates were rising steadily every year. It seemed almost anyone with a wire coat-hanger and a screwdriver could open a car door and drive it away in under sixty seconds (if you believe the movie). Then there was a slow revolution as electronic keys and alarm systems came to be standard, fitted by the factories and released into the wild. Then as the GPS satellites were launched, it become possible to fit tracking devices that would enable the owners or law enforcement agencies to track a vehicle and recover it (assuming it had not already been broken for spares. The final development was the fitting of immobilizers. These devices added to the protection offered by electronic keys so that even if potential thieves accessed the wiring systems, they still could not drive the vehicle away. The results have been the steady fall in vehicle theft rates. Although some makes and models remain relatively easy to steal, the majority are now only vulnerable to the more professional thieves.

All this has left one problem. If the vehicle breaks down and the owner leaves the site with the key, how does the repair shop get into the vehicle to return it to the shop for repair? Obviously, it’s also necessary to be able to start the vehicle to diagnose the problem and test whether the repairs have been effective. To make this possible there’s a secure database system open to licensed repair shops, locksmiths, law enforcement agencies and any others who have a legitimate reason for needing to override the vehicle systems. This database contains full details of the all the key and PIN codes to reset the immobilizer and start the engine.

Let’s now move over the Massachusetts which has enacted a law requiring insurance companies to give automatic discounts to all owners who have anti-theft and vehicle-recovery systems in place. At their maximum level, this can reduce the premium rates by 35%. This makes Massachusetts one of the most affordable states in which to insure. On average, local drivers spend less than 3% of their net pay on vehicle insurance. Not surprisingly, the number of uninsured drivers is also low tending to prove the point that, if you make insurance affordable, the majority of people obey the mandate. That said, Massachusetts now proposes to add a “Right to Repair” Bill to its statute books. This would make the currently secure database more widely accessible. All the “authoritative” bodies in the policing and insurance industry are against this proposed law. They believe it will lead to the information about codes falling into the wrong hands and reverse the falling trend of vehicle theft, not just in Massachusetts, but nationally. It seems if the local codes can be studied, it would be possible to deduce a method for cracking the codes in other states.

Fear is now the weapon. Pass this law, the insurance industry says, and the next round of car insurance quotes will be higher. Why higher? Because the rate of vehicle theft will increase and, to cover the claims, the premiums must rise. Who knows which side of the argument is right. The only certain thing is no one wants the car insurance rates to rise.

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If you have ever taken the time to shop around for vehicle insurance you probably know that the rates you will be charged with depend on a wide range of factors. And depending on the data you specify in the quote form the policy you will want to purchase may end up being very expensive or very affordable. So in order to get the best rates possible it is very important to know what affects insurance rates in the first place. It may seem like information without a particular significance however it will certainly help you shop around more effectively and save more money by doing it. So what does affect insurance rates?

Despite the fact that all companies use different methods of calculating their rates the insurers use the same set of factors to determine how much it will cost for a particular driver to insure his vehicle. While some of these factors may seem strange from the customer’s point of view you should remember that the most important thing for the insurer is the risk involved in covering a particular driver. And each factor used by the insurance companies and indicated in the quote form lets the provider asses the risk and set his rates accordingly.

There are two sets of factors that determine the risk for the insurer. The first set concerns all the details of the car being insured: its make and model, production year, modification, safety features and ratings, repair costs, theft rates, potential harm to passengers and damage to other vehicles in the course of the accident, top speed, engine volume and other less significant things. These factors help the insurer determine the general probability of the car ending up in the accident and the approximate value of the claim being filed. For example sports cars are more prone to ending up in accidents than luxury vehicles, yet the latter have more significant costs involved when insuring them. So the company wants to know from the start what will be the cost involved in insuring a particular vehicle.

The second set of factors refers to the person willing to get coverage for their vehicle. These factors help the insurer determine how it is likely for that person to file a claim, since there are many links drawn from statistics that reflect such a risk. So when buying car insurance you will be asked to indicate your age, gender, place of residence, education, driving record, credit rating, marital status and other optional data that is usually used for statistics. All these factors give the insurer a clear idea of whether the person will use car insurance coverage often or won’t need any coverage at all for a long period of time. And the rates will be set accordingly. For example people with higher education are less prone to end up in accidents while people with a poor credit rating file insurance claims more often.

Keep all these things in mind when looking for car insurance. The good news is that each company uses different weight of factors in their formulas. So if there’s a particular factor that isn’t as favorable as you would wish to there are still companies that will pay less attention to it. And your aim will be finding such a provider when shopping around for car insurance.

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