Insurance Coverage

When your income changes, review your insurance coverage. If your income decreases because of a layoff, illness, disability or premature death, your family may find it extremely difficult to pay insurance premiums. If you are not able to make a payment, determine your minimum needs for insurance. Then, call or write your agent to check into a different payment plan that allows you to keep your coverage. Or, investigate plans with lower premiums.

Insurance is the primary way you protect yourself against financial loss caused by illness, accidents and other destructive or damaging events. Through insurance, you pool your risk with others. You pay a premium to an insurance company that in return pays for the damaging effects of a large loss if it occurs.

You may decide to accept some risks and share others. Savings, instead of insurance or maintenance contracts, could be used to pay a variety of unexpected expenses such as burial expenses and repair of major equipment. Using deductibles (the amount of money you agree to pay per claim before the insurance company pays for a loss) is a way to share risk. If you are married, another way to share risk is to make sure both spouses are employable so your family isn't dependent on only one income.

Consider minimizing your risks. Although you cannot eliminate risk from your life, you can postpone, minimize or control some losses. For example, wear your seat belt and use more caution or don't drive during bad weather to reduce your chances of an accident.

Health Insurance

You may rely on group health insurance through an employer or an organization you are a member of to ease the burden of medical costs. If you no longer have a job, some alternatives exist. Under a federal law, (the Consolidated Omnibus Budget Reconciliation Act of 1985, known as COBRA), group health insurance plans sponsored by employers with 20 or more employees are required to offer continuation of coverage for you and your dependents for 18 months. Under the same law, following an employee's death or divorce, the worker's family has the right to continue coverage for up to three years. If you wish to continue your group coverage under COBRA, notify your employer within 60 days. You will have to pay the entire premium, but it may be less expensive than a non-group policy.

If COBRA does not apply in your case, you may be able to convert your group policy to individual coverage. Contact your employer and the insurance company for your options. An advantage of converting policies is that you may not have to pass a medical exam. A disadvantage is that benefits may be reduced and premiums will probably be higher.

Another option on health insurance is to take out a short term or interim policy which is typically written for six months or less. Shop around to compare prices.

If your spouse is employed, check out the possibility of being covered on your spouse's group health insurance. See if and when your spouse could add family coverage through his/her employer. Many employers or other groups have limited "open enrollment" periods.

Investigate buying insurance through another group such as an agricultural or civic organization, or a health maintenance organization. Group coverage is almost always cheaper than coverage by individual policies.

If individual coverage is the only alternative, compare several policies for the best coverage. Individual health insurance is very expensive. Generally, it is wiser to choose a large deductible in order to lower premium costs. It is better to self-insure against routine medical expenses and buy major medical insurance to cover unexpected, costly illnesses or emergencies. Avoid purchasing single disease policies or overlapping coverage. If you are unable to buy insurance due to your health status, call the Texas Department of Insurance at (800) 338-2227 for information on the Texas Health Insurance Risk Pool, authorized by the Texas Legislature in 1989. The pool is intended to provide health insurance to persons who are unable to obtain health coverage through traditional insurance markets or employee health benefit programs, and who are not covered under Medicaid, Medicare, or other government programs.

If you don't have health insurance or can no longer pay the premiums for health insurance, there are limited health services for the elderly, disabled, children and pregnant women. Check with your county public health department to learn about health care programs provided at little or no cost. These may include immunization programs, well-baby clinics, blood pressure check and other screening programs.

Medical assistance is available to families who receive Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI). The Texas Department of Human Services coordinates the Medicaid Spend-Down program that helps those who can afford to pay some but not all of their medical bills. Contact your nearest TDHS office to get instructions for determining if your family "medically needy."

The Division of Emergency Management in the Texas Department of Public Service coordinates all disaster response planning for Texas. To find out if your county has been declared a disaster relief area for drought, contact your local Farm Service Agency (FSA) listed under U.S. Government in your local telephone directory. The declarations of disaster allow family-size farm operators in the affected counties to seek FSA low-interest emergency loans. FSA considers each application on its merit, taking into account the extent of losses, security available, repayment ability and other eligibility conditions. Deadlines for loan applications vary by county. Contact the nearest FSA for information about disaster and other programs they have available to help agriculture producers recover from hardship.

Life Insurance

If you have life insurance, try not to let it lapse if others are dependent on your income or wage earning capacity. Your policy could be expensive or impossible to replace later. Owners of whole life insurance policies can borrow against the cash value or use accumulated dividends to pay the premium to keep the insurance in effect. The cash value of a whole life insurance policy may be used for other expenses. This loan reduces the face value of the policy.

Life insurance protects your dependents against loss of income and helps to pay expenses because of your untimely death. If you no longer have dependents, you may want to cash in your whole life policy when your income decreases. If possible, place the money in savings for unexpected expenses that may cause your tight budget to be overloaded.

You may have had group term life insurance through an employer or through an individual policy. This is pure protection without a cash value or savings feature. If you are uninsurable elsewhere, you may want to convert your former employer's group plan into an individual policy. Check with your employer about converting the policy.

If you are healthy, insurable and need coverage, you may benefit from purchasing individual term life insurance. This insurance usually provides maximum protection at the least cost. It insures your life for a fixed period of time-usually 5, 10 or 15 years. Benefits are paid only if you die within that time period. Shop around; there is a big difference in term policy prices.

As with all insurance, review your needs before talking with an agent. Evaluate your spouse's income (if any), potential Social Security payments, interest or other income, your debts and your family's living expenses. To get the most for your insurance dollars, call the Texas Department of Insurance at (800) 252-3439 for shopper's guides on life, health and other insurance.

Automobile Insurance

A general principle for buying insurance is to insure only for potential large losses. One of the largest potential losses is to be sued for liability for an injury or loss someone else experiences as a result of your driving or your automobile being involved in an accident. Liability coverage in an auto policy is stated in one of two ways. Most auto policies have "split limit liability." This covers three types of coverage, usually described in three lines on the policy. The first two lines refer to bodily injury liability and the third refers to property damage liability The dollar amount on line one is the most the insurer will pay each person if the insured person is found liable. The amount on line two is the most the policy will pay everyone injured in the accident. The amount in line three is the amount the policy pays for repair to the auto or other personal property in the automobile damaged as a result of the policy owner's negligence. Texas requires a minimum split liability coverage of $20,000 per person, $40,000 per accident and $15,000 for property damage. If you carry only the minimum, the most the policy would pay is $55,000.

Some auto policies have a single liability limit in place of these three separate coverages. Such coverage known as "combined single limit," is the most an insurance company will pay for an accident not matter how the money is divided up between personal injury or property damage. Single limit coverage is better than split limit coverage because coverage is more flexible. See if your company will write single limit coverage. Premiums should be the same for either type of coverage.

Other coverage for collision, medical, personal injury protection, uninsured motorist, emergency services and rental car reimbursement are optional. Perhaps the most valuable of these is uninsured motorist. It pays for medical expenses your or any passengers in your vehicle incur when an uninsured motorist injures you or your riders. If you have excellent medical insurance, you may not need this coverage.

One way to reduce automobile insurance premiums, if your car is not new, is to increase the deductibles for comprehensive and collision or drop these coverages. Consider dropping collision coverage if the car's value is so low you could assume the loss yourself. Minimize your automobile insurance premiums by checking rates among companies, selecting a higher deductible, purchasing less expensive coverage, and insuring all family cars with one company. Check special categories considered good risks such as non-smokers, driver education training for young drivers, use of anti-theft devices, automatic seat belt or air bag, good grades for student drivers, and good driving records such as no accidents or moving violations in three years. When planning to purchase a different vehicle, be sure to check insurance rates as they vary considerably by make and model.

Homeowner's Insurance

Most homeowners' policies protect you from loss of property and legal liability. If you experience a loss because of fire, storms, explosions, vandalism, theft or snow, most homeowners' policies reimburse you for loss or damage to the house and its contents. It is best to buy coverage for at least 80% of the cost of replacing the entire structure. Coverage should be based on current replacement costs rather than actual cash value.

Liability protection covers individuals injured on your property, your damage to someone else's property and medical payments for the injured.

A renters' policy covers the replacement cost of the contents of your home as well as liability protection.

The best way to lower premium costs is to carry the largest deductible you can cover if you experience a loss. Beware of trying to lower premium costs by reducing coverage. Check your policy to see that it will rebuild your house and replace your possessions at today's prices. For example, if your 10-year-old television is stolen and your insurance only pays what the television set is now worth, you will have trouble replacing it at current prices.

To Texas Department of Insurance produces a Homeowner's Insurance Rate guide for each area of the state. It gives basic consumer information to help with policy comparison and gives typical rates charged by licensed insurers in your area of the state for each type of housing structure. If rates you are quoted by an agent are considerably higher, ask why. Factors such as access to fire hydrants or fire stations can be a factor. It pays to compare the costs for similar coverage from different insurers in the area. To receive a copy, call (800) 599-SHOP (7467).

Conclusion

Estimate your needs, shop around, talk with several agents and select coverage that will fit your budget. Don't over-insure. Avoid duplicating coverage such as medical coverage for yourself and family members in personal injury sections of automobile and homeowners policies, or credit life and personal life policies. Insurance needs should be reviewed periodically, particularly when income or family situation changes occur. With all insurance, make sure the company has a very high rating with the insurance rating services; check with your insurance agent. Friends and relatives can share experiences of companies' payments on claims.

References

Boelter, L. Managing Between Jobs - Setting Spending Priorities, University of Wisconsin - Extension, 1994.

Crawford, C. and L. E. Smith. Getting Through Tough Times - Setting Spending Priorities, University of Illinois Cooperative Extension Service, 1994.

"Consumer Handbook on Adjustable Rate Mortgages." Federal Reserve Board, Washington, D.C.

"Guide to Single Family Home Mortgage Insurance." U.S. Dept. of Housing and Urban Development, Washington, D.C. 1990.

Wysocki, Joseph. "Insuring Your Home." C1261, University of Illinois Cooperative Extension Service. 1986.

Hafstrom, Jeanee L., Krein, Sheila Fitzgerald, Dunsign, Marilyn M. "Life Insurance and Family Protection." C1206, University of Illinois Cooperative Extension Service. 1984.