The Insurance Insider

A common misconception about health insurance is a group insurance policy costs less than a similar individual plan.  Group insurance is generally more rather than less expensive for the following reasons:

Initial Cost: Because the employer typically pays a portion of the employee’s premium (from 25-100%), many believe that group insurance costs less than an individual plan.  While the net cost to the employee may be less than a plan they can find on their own, the actual cost is almost always higher.

Since the passing of the Health Insurance Portability Act, group plans are now required to offer coverage to every member regardless of health. An employee with HIV or terminal illness must be accepted just as any healthy employee. Due to this requirement, the only real option for the insurance company is to charge more for coverage.  This tends to penalize the healthy employee - they pay more to offset the cost of the unhealthy employee.

Renewal Costs: Once a group plan is in force, the insurance carrier no longer has the option to reunderwrite the risk. If a business’s employee develops a severe medical condition, the carrier will not know about it until they present themselves for treatment.  To cover this exposure, almost every carrier will charge more in subsequent policy years. Even if no claims are submitted by anyone in the group, the insurance company will charge more for the renewal premium.

Many people expect that their car insurance rates will go down as long as they don’t have any claims.  It is true that car insurance accidents adversely affect premiums (generally a 20% surcharge on the vehicle to which a driver is assigned for a period of three years). But simply being “claim-free” will not reduce the premiums you pay by itself.

A driving factor in determining car insurance premiums is vehicle cost and repair records.  As you know, inflation automatically increases the cost of all goods and services.  Consider the average cost of a vehicle today vs. the cost for the same vehicle 5 years ago.  Just as the cost of a gallon of milk increases every year, so too does the cost of vehicles. As a result, the amount required to repair them increases as well.

I advise my clients that even if they never have a claim, it is reasonable to expect their insurance premiums to keep up with the cost of inflation (3-5%).  If they remain the same this year or next, count your blessings.

There are time factors that will reduce your premiums:

Youthful operator rates decrease as the driver gets older. The highest rates are charged for 16-year-olds, but these decrease typically at 18-19, 21, 23-24, and again at age 25.

Mature drivers can probably expect a premium reduction at ages 40, 50, 55, and 60. Rates tend to level off at 60 and generally remain constant thereafter.

Almost every new health insurance policy written will contain a “preexisting conditions” exclusion for any medical condition an individual currently has.  Pregnancy would fall in this category.  While it may be nearly impossible to find a standard insurance plan to cover the impending delivery, there are some options that are available.

Most states offer low-cost affordable health insurance for individuals and/or their children (and this includes children within the womb in many cases!). In Indiana, we have a program called Hoosier Healthwise designed specifically for low income families. Pregnant women can be eligible for full coverage or pregnancy coverage depending upon the family’s income and assets.  If you live in any other state, check with your state’s government website (website address is probably http://www.in.gov, just replace the “in” with your state’s abbreviation).

Another consideration might be some type of point of service health program. These programs do not provide insurance “coverage” but reduce the cost of health care services if the individual chooses to utilize the services of a provider in their network. Since they are not insurance products, they may not include an exclusion for maternity.  Discounts range from 20-60%. While this option will not pay entirely for the delivery, it may be a cost effective non-insurance solution. 

Okay, this is a question I get frequently.  Does it matter whether I choose the red Porsche over the black one?

The answer is a resounding “No!” Car color makes no difference in determining car insurance rates.  It’s not a question we even ask our insureds. The car’s vehicle identification number reveals many things, but the vehicle’s color is not one of them.

A more important question would be “is the Porsche your first choice or are you also considering a Ford Taurus?”  While color is not a factor in determining car insurance premiums, the vehicle type does play a role.  I’ve bolded the generally cheaper characteristics below:

Sports car vs. Sedan
2 door vs. 4 door model
4, 6, or 8 cylinders
2 wheel drive vs. 4 wheel drive
Van vs. SUV
Domestic vs. Foreign

The biggest factor is probably the vehicle’s MSRP (Manufacturers Suggested Retail Price). An $8,000 model will always cost less to insure than a $40,000 one. 

But, repair costs play a decided role as well. If it costs more to repair or maintain a vehicle, it makes sense that it will cost the insurance company more to “make you whole” should you have a claim. Lower repair costs = lower insurance premiums.