On average, Americans pay thousands of dollars annually on insurance policy premiums. If you’re a married couple, both employed with three kids, you would have to pay for: home insurance, health insurance, life insurance, disability insurance, car insurance, and plenty of other insurance policies.
This is on top of your living expenses, mortgage, car loan payments, groceries, utility bills, school, baby raising expenses, etc. The parents definitely need to learn how to budget in order for the total income coming into the house to fulfil everything that needs to be paid for.
Here, we will focus our attention to one budgetary aspect in particular: insurance premiums. What’s the average cost that Americans pay for all their insurance plans? And what are the things that your insurance agent could be hiding from you? Read on to find out.
Quick Stats About Americans & Their Insurance Plans
Before counting down the top ten things that your insurance agent won’t tell you, let us first take a quick look at some insurance statistics:
- In 2004, the average employee contributed around $300 per month on monthly insurance premiums, while families had to pay almost $800 per month.
- In 2008, the average cost of coverage for a family of four amounted to $1,000 per month or around $13,000 per year.
- In 2010, 83.7% of all people in the United States had some kind of health insurance. 13.4% is without health insurance. In actual numbers, there are 271.44 million Americans with health insurance; 107.58 million with government health insurance; and 4.5% of people insured by military health care.
- In the US, the leading health insurance group in the US by market share is WellPoint, Inc.
- The net health insurance premium of life insurers in the US is $175.08 billion.
As you can see, those supposedly small payments for insurance plans would add up to a lot over the course of a year, so you really need to know which ones you should splurge and scrimp on. For this, it would definitely help if you can learn about the things that your insurance agents won’t tell you so that you can maximize the benefits you are getting from your policies, without paying any more than you have to.
Top 10 Things Your Insurance Agent Won’t Tell You
Insurance plans give you financial protection in case something unfortunate happens – be it to your car, your home or your health. As an insurance policy holder, you should know your rights so that you will not be taken advantage of by your insurer. There are definitely a lot of things that providers will try to get away with if you know nothing about insurance policies, so it pays to be informed.
To get you started, here are the top ten things that your insurance agent will not tell you, and the truth behind them:
1. There is such a thing as too much life insurance.
Yes, you could be paying too much on life insurance instead of allotting your hard-earned bucks for other expenses. So how will you know if you are overpaying on life insurance? A good rule of thumb to follow is to have a policy that’s sufficient enough to cover the paying off of the mortgage. Other than that, all that your immediate family needs is an amount to provide help when paying for daily living expenses, as well as long-term financial goals like college and retirement.
2. You can get free legal advice from an insurance law expert.
Nobody understands the legal mumbo-jumbo which are usually indicated on legal contracts like insurance policies. Before you even need to make a claim, you can actually get free legal advice from insurance law experts if you have questions about clauses on the contract. When making consultations, see to it that you are talking to a lawyer who is an expert at insurance laws, which can actually vary from state to state.
3. Nobody is actually entitled to a loyalty discount.
There’s actually no such thing as a loyalty discount. If an insurance agent offers you such, it simply means that they know you enough to put you in a different rating group than their other customers. You might get a few perks here and there for staying with the same company, but policy holders who are entitled to the same coverage pay pretty much the same premium every month.
4. All you really need is term life insurance.
According to the American Council of Life Insurers, Americans bought more than $1.7 trillion individual life insurance coverage for 2012. Out of this, 64% are whole life or endowment policies – which means that death benefits and a savings mechanism are combined. Whole life is typically more expensive than term insurance, and you only really need the latter to give your family the protection they need in the event of your death.
5. Your kid does not really need life insurance.
The main purpose of a life insurance is to fill that gap of a loss in a household’s income in the event of the death of a bread winner. The likelihood that a family will have a financial need for the death of a child is very low, so there’s no need for you to pay the extra amount. Instead, you can bump up your contributions towards the parents’ life insurance so that the kids can get the financial support they need in case something unfortunate happens.
6. A variable annuity is just like a pricier mutual investment fund.
A variable annuity is a financial product that combines the advantages of death benefits, mutual funds investments and retirement funds. In 2013, almost $143 billion was spent on the sale of fixed annuities, according to the Insured Retirement Institute, a trade group in the US. This is a quite complex financial product and if you do not know how it works, there’s really no need for you to buy into it. Basically, it’s a pricier mutual investment fund so you are better off spending your money elsewhere.
7. Life insurance offers a huge tax shelter.
As compared to other kinds of insurance policies, life insurance plans are tax-free. In fact, there are some policies which offer cash values that also grow on a tax-free basis. According to a survey by Limra, 11% of life insurance policy buyers purchase the plan in order to enjoy the tax savings. Another 22% said that transferring wealth on a tax-free basis is their main purpose for purchasing the policy. For the year 2011, the Tax Foundation estimated that the tax exemption on certain life insurance plans added up to a total of $1,69 billion. Majority of these policies are owned by people who are earning an average income, so the one thing that your insurance agent will tell you is that the tax savings on life insurance plans are pretty significant.
8. You don’t really need credit life insurance.
No matter which insurance plan you are trying to buy, insurance agents will tell you that you need an extra credit life insurance. These are small policies designed to pay off specific debts in the event of your death, and the cost varies per state. These credit life insurance plans can actually be more expensive in the long run if you already have a life insurance policy. For those who do not have life insurance, these policies do meet a need – but it is still recommended that they read the fine print on the agreement before signing their name on the dotted line.
9. Any ambiguities in your insurance plan should be interpreted to favor the plan holder.
Again, this is all about the legal mumbo jumbo that insurance providers include in their contracts. The less clear a clause is, the more chances they can get away with not paying you the premium that you deserve. Remember that any ambiguities in your insurance plan should be interpreted in your favor as a policy holder. When filing a claim, get legal representation if necessary and show that a clause on the contract is vague or unclear. If it is, the coverage must be provided and your claim should be paid.
10. An insurance provider who tries to rescind your policy coverage could be violating the law.
To rescind is to eliminate, repeal, withdraw, overturn, quash or void. If you did not read the fine print on your insurance policy, you might simply skip on the clauses with these words included – but you should definitely not do so. Typically, insurance companies will try to rescind your policy once you have made a claim. They will say that there was a misrepresentation on your insurance application, or they could come up with a number of reasons to get out of paying a claim that you are due.
As an insurance policy holder, you can prevent this from happening by knowing that the provider could be violating the law in case they try to get out of paying your policy. The reasons, legalities and circumstances could be quite complicated so if you think that you’re in way over your head, you might want to seek legal representation.
Another thing that you can do as an insurance policy holder is to read the fine print before signing the contract. If an insurance company tries to rescind, do not fall for the bluff. As long as you were straightforward with your circumstances before signing the contract and while filing for a claim, you are on the right track. Also look out for periods of incontestability, where the provider can no longer rescind the policy for alleged misstatements on your application.
By learning as much as you can about the plan that you signed up for, you can prevent yourself from being victimized or short sighted by unscrupulous insurance providers.