Wednesday, December 5, 2007
9 Ways To Lower Your Auto Insurance Costs
1. Shop Around
Prices vary from company to company, so it pays to shop around. Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department may also provide comparisons of prices charged by major insurers. (State insurance department phone numbers and Web sites can be found here.)
You buy insurance to protect you financially and provide peace of mind. It's important to pick a company that is financially stable. Check the financial health of insurance companies with rating companies such as A.M. Best (http://www.ambest.com) and Standard & Poor’s (http://www.standardandpoors.com/) and consult consumer magazines.
Get quotes from different types of insurance companies. Some sell through their own agents. These agencies have the same name as the insurance company. Some sell through independent agents who offer policies from several insurance companies. Others do not use agents. They sell directly to consumers over the phone or via the Internet.
Don't shop price alone. Ask friends and relatives for their recommendations. Contact your state insurance department to find out whether they provide information on consumer complaints by company. Pick an agent or company representative that takes the time to answer your questions. You can use the checklist on the back of this brochure to help you compare quotes from insurers and on the same coverage.
2. Before You Buy a Car, Compare Insurance Costs
Before you buy a new or used car, check into insurance costs. Car insurance premiums are based in part on the car’s sticker price, the cost to repair it, its overall safety record, and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft. These include daytime running lights and anti-theft devices. To help you decide what car to buy, you can get information from the Insurance Institute for Highway Safety (www.iihs.org).
3. Ask for Higher Deductibles
Deductibles are what you pay before your insurance policy kicks in. By requesting higher deductibles, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more. Before choosing a higher deductible, be sure you have enough money set aside to pay it if you have a claim.
4. Reduce Coverage on Older Cars
Consider dropping collision and/or comprehensive coverages on older cars. If your car is worth less than 10 times the premium, purchasing the coverage may not be cost effective. Auto dealers and banks can tell you the worth of cars. Or you can look it up online at Kelley’s Blue Book (http://www.kbb.com). Review your coverage at renewal time to make sure your insurance needs haven’t changed.
5. Buy your Homeowners and Auto Coverage from the Same Insurer
Many insurers will give you a break if you buy two or more types of insurance. You may also get a reduction if you have more than one vehicle insured with the same company. Some insurers reduce the rates for long-time customers. But it still makes sense to shop around! You may save money buying from different insurance companies, compared with a multi-policy discount.
6. Maintain a Good Credit Record
Establishing a solid credit history can cut your insurance costs. Insurers are increasingly using credit information to price auto insurance policies. To protect your credit standing, pay your bills on time, don't obtain more credit than you need and keep your credit balances as low as possible. Check your credit record on a regular basis and have any errors corrected promptly so that your record remains accurate.
7. Take Advantage of Low Mileage Discounts
Some companies offer discounts to motorists who drive a lower than average number of miles a year. Low mileage discounts can also apply to drivers who car pool to work.
8. Ask about Group Insurance
Some companies offer reductions to drivers who get insurance through a group plan from their employers, through professional, business and alumni groups, or other associations. Ask your employer and inquire with groups or clubs you are a member of to see if this is possible.
9. Seek Out Other Discounts
Companies offer discounts to policyholders who have not had any accidents or moving violations for a number of years. You may also get a discount if you take a defensive driving course. If there is a young driver on the policy who is a good student, has taken a drivers education course or is at a college out of the area without a car, you may also qualify for a lower rate.
Tips on Buying the Right Insurance:: Part 1
In India, insurance is broadly divided into life and general insurance. Life insurance covers a family against the financial implications of the death of the insured.
In addition, it may also provide certain survival benefits, in case the policyholder survives the policy term. Life insurance policies are broadly termed as "benefit policies".
General insurance is a broad term encompassing protection in several areas such as health (For some strange reason, it is not treated as a part of the life insurance sector), property, professional liability among others. These are usually "non-benefit" covers. They will only reimburse losses suffered and not confer any additional benefits to the policyholder.
We shall discuss individual heads of insurance and the products therein in greater detail in later articles.
Before deciding whether you require insurance or not (although all of us certainly require it in some form or the other), take the following into consideration:
The probability and impact of an event:
Assess the probability of an event and its financial impact on you, before zeroing in on a policy. Of course, an element of intuitiveness, is contained in the estimation but it is preferable to a random choice.
For instance, a shopowner in Mumbai can consider an earthquake as an event, which will occur infrequently but may still opt to insure against it, as the financial damage in case of an earthquake, could be significant.
Also, if the event occurs infrequently, the premium charged by an insurance company is also low. If an event occurs very frequently (like earthquakes in Japan), the premium will be high. Of course in the case of life insurance, although death is a certainty, the financial impact of death will vary with age, and the number of dependents.
Will I be adequately insured?
Merely having a cover is not enough. Take care to ensure that the cover is adequate for you. Too small a cover is virtually pointless, considering that it will not serve yours or your family's purpose.
Too much insurance will mean wastage of precious money towards payment of premiums. There are certain techniques to help you estimate the right quantum of cover. We will discuss these later.
Tips on Buying the Right Insurance:: Part 2
Can I afford it?
We should take care that insurance premiums do not eat into a huge chunk of our income. This is especially important in case of long-term contracts such as life insurance. This may mean working backwards, and calculating the size of the cover, based on the premium afforded by you.
Beware of agents who try to hard sell you high-priced insurance covers, as they may be detrimental to your long-term finances.
Two of the most common mistakes committed by customers in the case of life insurance are:
Income tax-led decisions:
While contributions towards life insurance premium of up to Rs 100,000 can be reduced from "gross total income" under section 80 C, there is no need to be guided solely by this consideration. Also, do not wake up to the need for insurance only in the final quarter of the year.
By doing so, you are only playing into the hands of agents who will exploit your urgent need to save tax and sell you policies that are not really suited to your needs. Let tax saving be incidental to choosing a cover, not the sole force behind it.
Bundling insurance and investments:
Unfortunately, globally, over the years insurance products has been sold more as an investment tool rather than a 'protection' vehicle. The nomenclatures change (endowment policies, money back policies, and unit-linked plans) but the underlying principle remains similar.
Agents often succeed in their efforts owing to the following factors:
• Providing rosy illustrations of future investment returns, conveniently side-stepping the basic question of whether the coverage amount contained therein is adequate or not.
• Stressing that an insurance-cum-investment policy compels the policy holder to be disciplined in their savings program and this aids in long-term wealth creation.
Several studies have proved that unbundling of the insurance and investment aspects lead to better overall results. Of course this will call for investing discipline on the part of the policyholder, but that is another story altogether.
I feel that apart from insurance agents, consumers too are responsible for the so-called mis-selling. Against this backdrop, we will look into specifics of different policies from the next article onwards.
TOP TIPS FOR HOME INSURANCE
There are several things to remember about insuring your new property:
=> Building insurance - This is usually paid in advance of moving, at contract exchange stage
=> Household contents insurance - The premium for this type of insurance is likely to change when you move - you may have more or less items or may be moving to an area with a different insurance rating. You will need to adjust the coverage before moving.
=> Car insurance - do not forget to inform the insurers of your car of a change of address
Some mortgage company deals tie you into buildings insurance. While this is not common, it is always worth shopping around to find the best insurance deals before making a final choice. The same applies to household and car insurance. You may find that your new area is cheaper with another insurance company than with your current one.
=> Building insurance - This is usually paid in advance of moving, at contract exchange stage
=> Household contents insurance - The premium for this type of insurance is likely to change when you move - you may have more or less items or may be moving to an area with a different insurance rating. You will need to adjust the coverage before moving.
=> Car insurance - do not forget to inform the insurers of your car of a change of address
Some mortgage company deals tie you into buildings insurance. While this is not common, it is always worth shopping around to find the best insurance deals before making a final choice. The same applies to household and car insurance. You may find that your new area is cheaper with another insurance company than with your current one.
Sunday, October 14, 2007
Health Insurance
Health insurance is a is a form of group insurance, where individuals pay premiums or taxes in order to help protect themselves from high or unexpected healthcare expenses. Health insurance works by estimating the overall "risk" of healthcare expenses and developing a routine finance structure (such as a monthly premium, or annual tax) that will ensure that money is available to pay for the healthcare benefits specified in the insurance agreement. The healthcare benefit is administered by a central organization, which is most often either a government agency, or a private or not-for-profit entity operating a health plan. [1]
Market-based health care systems such as that in the United States rely heavily on private and not-for-profit health insurance.
History and evolution
The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance.[2]. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.[3] Patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.
How it works
A Health insurance policy is a contract between an insurance company and an individual. The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health plan are specified in advance, in the member contract or Evidence of Coverage booklet. The individual policy-holder's payment obligations may take several forms[4]:
• Premium: The amount the policy-holder pays to the health plan each month to purchase health coverage.
• Deductible: The amount that the policy-holder must pay out-of-pocket before the health plan pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health plan. It may take several doctor's visits or prescription refills before the policy-holder reaches the deductible and the health plan starts to pay for care.
• Copayment: The amount that the policy-holder must pay out of pocket before the health plan pays for a particular visit or service. For example, a policy-holder might pay a $45 copayment for a doctor's visit, or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
• Coinsurance: Instead of paying a fixed amount up front (a copayment), the policy-holder must pay a percentage of the total cost. For example, the member might have to pay 20% of the cost of a surgery, while the health plan pays the other %80. Because there is no upper limit on coinsurance, the policy-holder can end up owing very little, or a significant amount, depending on the actual costs of the services they obtain.
• Exclusions: Not all services are covered. The policy-holder is generally expected to pay the full cost of non-covered services out of their own pocket.
• Coverage limits: Some health plans only pay for health care up to a certain dollar amount. The policy-holder may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some plans have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.
• Out-of-pocket maximums: Similar to coverage limits, except that in this case, the member's payment obligation ends when they reach the out-of-pocket maximum, and the health plan pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.
Prescription drug plans are a form of insurance offered through many employer benefit plans in the U.S., where the patient pays a copayment and the prescription drug insurance pays the rest.
Some health care providers will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn't pay, as the insurance company pays according to "reasonable" or "customary" charges, which may be less than the provider's usual fee.
Health insurance companies also often have a network of providers who agree to accept the reasonable and customary fee and waive the remainder. It will generally cost the patient less to use an in-network provider.
Health Insurance companies are now offering Health Incentive accounts (HIA)[7], to reward users for living healthy and making healthy choices, like stop smoking and/or losing weight, may get you funds added into your Health Incentive Account, which may lower your out of pocket costs. The health incentive accounts also carry over from year to year but once you leave the program you lose those benefits in the HIA.
Inherent problems with private insurance
Any private insurance system will face two inherent challenges: adverse selection and ex-post moral hazard.
Adverse selection
Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year and it costs $250, that's much better than making monthly insurance payments of $400 (example figures).
The fundamental concept of insurance is that it balances costs across a large, random sample of individuals (see risk pool). For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. Adverse selection upsets this balance between healthy and sick subscribers by leaving an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.
Because of adverse selection, insurance companies use a patient's medical history to screen out persons with pre-existing medical conditions. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who present a large financial burdens are denied coverage or charged high premiums to compensate.[5] One large U.S. industry survey found that roughly 13 percent of applicants for comprehensive, individually purchased health insurance that go through the medical underwriting process were denied coverage. Declination rates increased significantly with age, rising from 5 percent for individuals 18 and under to just under a third for individuals aged 60 to 64.[6] On the other side, applicants can get discounts if they do not smoke and are healthy.[7]
Starting in 1976, some states started providing guaranteed-issuance risk pools, which enable individuals who are medically uninsurable through private health insurance to purchase a state-sponsored health insurance plan, usually at higher cost. Minnesota was the first to offer such a plan; 34 states now offer them. Plans vary greatly from state to state, both in their costs and benefits to consumers and to their methods of funding and operations. They serve a very small portion of the uninsurable market — about 182,000 people in the U.S. as of 2004,[8] but in best cases allow people with pre-existing conditions such as cancer, diabetes, heart disease or other chronic illnesses to be able to switch jobs or seek self-employment without fear of being without health care benefits.[9] Efforts to pass a national pool have as yet been unsuccessful, but some federal tax money has been awarded to states to innovate and improve their plans.
Moral hazard
Moral hazard describes the state of mind and change in behavior that results from a person's knowledge that if something bad were to happen, the out-of-pocket expenses would be mitigated by an insurance policy--in this case, one which provides reduced prices for medical care.
Other factors affecting insurance prices
A recent study by PriceWaterhouseCoopers examining the drivers of rising health care costs in the U.S. pointed to increased utilization created by increased consumer demand, new treatments, and more intensive diagnostic testing, as the most significant driver.[10] People in developed countries are living longer. The population of those countries is aging, and a larger group of senior citizens requires more medical care than a young healthier population. Advances in medicine and medical technology can also increase the cost of medical treatment. Other factors that increase utilization and therefore insurance prices are lifestyle-related: increases in obesity caused by insufficient exercise and unhealthy food choices; excessive alcohol use, smoking, and use of street drugs. Other factors noted by the PWC study included the movement to broader-access plans, higher-priced technologies, and cost-shifting from Medicaid and the uninsured to private payers.[10]
Common complaints of private insurance
This section is missing citations or needs footnotes.
Using inline citations helps guard against copyright violations and factual inaccuracies.
Some common complaints about private health insurance include:
1. Insurance companies do not announce their health insurance premiums more than a year in advance.[citation needed] This means that, if one becomes ill, he or she may find that their premiums have greatly increased (however, in many states these types of rate increases are prohibited).
2. If insurance companies try to charge different people different amounts based on their own personal health, people may feel they are unfairly treated.[citation needed]
3. When a claim is made, particularly for a sizable amount, insureds may feel as though the insurance company is using paperwork and bureaucracy to attempt to avoid payment of the claim or, at a minimum, greatly delay it.[citation needed] One large industry survey suggests that claim processing times improved between 2002 and 2006. More claims are being submitted electronically; however, 29 percent of claims were not received by the insurer until more than a month after the date on which medical care was provided. The percentage of claims being adjudicated on an automated basis is also increasing. 14 percent of claims are "pended" by the insurer while additional information is requested or the information on the claim is verified. On average, pended claims are delayed by 9 days. Over 95 percent of the remaining "clean" claims are processed within 30 days; 57 percent are processed within one week.[11]
4. Health insurance is often only widely available at a reasonable cost through an employer-sponsored group plan and online for individuals.[citation needed]
5. In the United States, there are tax advantages to Employer-provided health insurance, whereas individuals must pay tax on income used to fund their own health insurance, although a small number of pre-tax health plans exist.[citation needed]
6. Experimental treatments are generally not covered.[citation needed] This practice is especially criticized by those who have already tried, and not benefited from, all "standard" medical treatments for their condition.[citation needed]
7. The Health Maintenance Organization (HMO) type of health insurance plan has been criticized for excessive cost-cutting policies in its attempt to offer lower premiums to consumers.[citation needed]
8. As the health care recipient is not directly involved in payment of health care services and products, they are less likely to scrutinize or negotiate the costs of the health care received.[citation needed] The health care company has popular and unpopular ways of controlling this market force.[citation needed]
9. Some health care providers end up with different sets of rates for the same procedure. One for people with insurance and another for those without.[citation needed]
10. Unlike most publicly funded health insurance, many private insurance plans do not provide coverage of dental health care, or only offer such coverage with additional premiums and very low dollar-amount coverages.
11. Insurance Companies can influence the type or amount of treatment that the insured receives by setting limits on the number of visits, types of treatment, etc., it will cover.
Health insurance in the United States
Main article: Health care in the United States
According to the United States Census Bureau, approximately 84% of Americans have health insurance. Some 60% obtain health insurance through an employer, about 9% purchase it directly, and various government agencies provide coverage to about 27% of Americans (there is some overlap in these figures).[12] In 2006, there were 47 million people in the U.S. (16 percent of the population) who were without health insurance for at least part of that year.[12] About 37% of the uninsured live in households with an income over $50,000.[12]
Private: employer-sponsored
Health insurance paid for by business entities generally on behalf of their employees and other immediate stakeholders. Broadly classified as "Traditional/Indemnity" and "Managed/Preferred Provider." Most private health coverage in the U.S. is employment based, and the employer typically makes a substantial contribution towards the cost of coverage.[13]
Costs for employer-paid health insurance are rising rapidly: since 2001, premiums for family coverage have increased 78%, while wages have risen 19% and inflation has risen 17%, according to a 2007 study by the Kaiser Family Foundation.[14]
According the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees.[15] Although much more likely to offer retiree health benefits than small firms, the percentage of large firms offering these benefits fell from 66% in 1988 to 34% in 2002.[16]
Many small employers provide employee health insurance, but the percentage offering is not as high as it is for larger employers. The types of coverage available to small employers are similar, but they do not have the same options for financing their benefit plans. In particular, self-insuring the benefits (see Self-funded health care) is not a practical option for most small employers. [17]
Private: individually purchased
Policies of health insurance obtained by individuals not otherwise covered under policies or programs elsewhere classified. Generally major medical, short term medical, and student policies. Fewer Americans are covered by individually purchased medical expense insurance than by employer-sponsored coverage. The range of products available is similar, however. Average premiums are generally somewhat lower than those for employer-sponsored coverage, but vary by age. Deductibles and other cost-sharing is also higher, on average, and the individual consumer pays the entire premium without benefit of an employer contribution.[18][8]
Private: long-term care insurance
Long-term care (LTC) insurance is growing in popularity in the U.S. Premiums have remained relatively stable in recent years. However, the coverage is quite expensive, especially when consumers wait until retirement age to purchase it. The average age of new purchasers was 61 in 2005, and has been dropping.[9]
The shift to managed care in the U.S.
Through the 1990s, managed care grew from about 25% of U.S. employees to the vast majority.
Rise of managed care in the U.S.
Year Conventional plans HMOs
PPOs
POS plans
HDHPs
1998 14% 27% 35% 24% ~
1999 10% 28% 39% 24% ~
2000 8% 29% 42% 21% ~
2001 7% 24% 46% 23% ~
2002 4% 27% 52% 18% ~
2003 5% 24% 54% 17% ~
2004 5% 25% 55% 15% ~
2005 3% 21% 61% 15% ~
2006 5% 20% 60% 13% 4%
[10]
New types of medical plans in the U.S.
One approach to addressing increasing premiums, dubbed "consumer driven health care," received a boost in 2003, when President George W. Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act. The law created tax-deductible Health Savings Accounts (HSAs). An HSA is a private bank account which is un-taxed and only penalized if spent on non-medical items or services. It must be paired with a high-deductible insurance plan. HSAs enable mostly healthy people to pay less for insurance and bank money for their own health care expenses.[19] HSAs are one form of tax-preferrenced health care spending account. Others include Archer Medical Savings Accounts (MSAs), which have been superseded by the new HSAs (although existing MSAs are grandfathered), Flexible Spending Arrangments (FSAs) and Health Reimbursement Accounts (HRAs). FSAs and HRAs are typically used as part of an employee-benefit plan.[20]
Limited Medical Benefit Plans pay for routine care and do not pay for catastrophic care. As such, they do not provide equivalent financial security to a major medical plan. Annual benefit limits can be as low as $2,000. Lifetime maximums can be very low as well.
Common health insurance terms
• Annual Limit - A benefit may be limited to a certain dollar or utilization limit (example: chiropractic care may be limited to 20 visits per calendar year).
• Alternative Funding Arrangement - A hybrid funding arrangement that features benefits of both self funding and fully insured arrangements (ASO, Minimum Premium, et. al.).
• Birthday rule - many insurance companies have adopted this rule to determine which parent is primary payer when both parents cover the same dependents. Who ever has the earlier date of birth, excluding the year, is designated primary insurance carrier. Exceptions to this rule usually arise when there is a court order for one of the parents to be the primary carrier.
• Co-insurance - Generally expressed as the percentage that you pay of any covered medical services after you have paid the deductible and co-pay.
• Co-insurance limit - The dollar amount you have to pay with Co-insurance before the insurance company begins paying your bills at 100% for the remainder of the plan year.
• Co-ordination of benefits (COB) - How your plan pays when it is coordinating with another plan. There are three principle methods in US health plans.
• Co-pay - A fixed fee you pay for services rendered. Most plans cover 100% after the co-pay for services rendered, however this can be adjusted to any amount depending on how the plan is set up.
• Deductible - The fixed amount you have to pay before your insurance starts to pay.
• Deductible carry-forward - Amounts for benefits incurred in the previous year may be subject to the prior year's deductibles.
• Employee Assistance Plan - a health-related benefit for non-medical, work-place issues or employees that commonly develop into medical issues such as marital counseling, absenteeism, suicidal ideation, etc.
• Experimental/Investigational - Most insurance companies will deny coverage for any procedures or tests which have not been medically verified by clinical trials conducted by recognized bodies of physicians or scientists. Many medical providers use tests which they believe in but have not been clinically validated.
• Fully Insured - The insurance company collects the premiums and pays claims from its own money.
• Incurred But Not Paid (IBNP) - under insurance based accrual accounting, a liability for claims that have not been paid, but may or may not be received. Incurred But Not Reported (IBNR) plus Reported But Not Paid (RBNP) equals IBNP. IBNP is a significant balance sheet item for insurers.
• In-Network/Participating/Par Providers - Medical providers who have an established relationship with an insurance company
• Life time maximum - The total your policy will pay out over the life of the contract. Many plans have a yearly restoration amount which will replenish the total so that after the policy money is exhausted there will still be some money in the following plan year for new claims. Life time maximums are easily avoided by switching policies or re-enrolling.
• Self-Insured - Many major U.S. and world corporations hire insurance companies and Third Party Administrators as claims and eligibility administrators to manage a health plan or trust. Many state laws do not apply to these plans due to ERISA exemption.
• Reciprocity - Most insurance plans deal with networks of doctors. If for example you have an HMO plan that allows you to see any HMO provider anywhere in the country, it is called Full Reciprocity, but if it only allows you access to local area networks of providers it is called Limited Reciprocity and if you can only go to select networks that your company has purchased access to, it is called No Reciprocity.
• No-fault - This is generally for automobile insurances, however if your auto policy is no-fault and you are injured, the medical insurance will become a secondary payer and will not be able to process claims until explanation of benefits are received from the auto insurance carrier.
• Out-of-Network/Non Participating/Non-Par Providers - Medical providers without an established relationship with an insurance company.
• Out Of Pocket Maximum - The total dollar amount paid out by a subscriber (deductible plus coinsurance).
• Subscriber - The primary member on the insurance policy. Also, "enrollee", "contractee".
• Reserve - refers to the amount that must be set aside for statutorily required funds for dissolution (terminal liability).
Health Insurance in Canada
Most health insurance in Canada is administered by each province, under the national law that requires all people to have free access to basic health services. Collectively, the public provincial health insurance systems in Canada are called Medicare. Private health insurance in Canada is allowed only for services that the public health plans do not cover; for example, semi-private or private rooms in hospitals and prescription drug plans. Canadians also must use private insurance for elective medical services such as Lasik surgery, plastic surgery such as liposuction, and other non-basic medical procedures. Private health care cannot cover physician fees which are covered by Medicare. Private-sector services not paid for by the government accounted for nearly 30 percent of total health care spending.[23]. In 2005, the Supreme Court of Quebec ruled, in Chaoulli v. Quebec, that the prohibition on insurance for health care already insured by the state constitutes an infringement of the right to life and security. It is yet to be seen if this ruling will change the overall delivery of health insurance across Canada.
Health insurance in Australia
The public health system is called Medicare. It ensures free universal access to hospital treatment and subsidised out-of-hospital medical treatment. It is funded by a 1.5% tax levy.
The private health system is funded by a number of private health insurance organisations. The largest of these is Medibank Private, which is government-owned, but operates as a government business enterprise under the same regulatory regime as all other registered private health funds; the Howard government has announced that Medibank will be privatised in 2008 assuming it is returned to office at the 2007 election. Some private health insurers are 'for profit' enterprises, and some are non-profit organizations.
Most aspects of private health insurance in Australia are regulated by the Private Health Insurance Act 2007.
The private health system in Australia operates on a "community rating" system, whereby premiums do not vary solely because of a person's previous medical history or current state of health. Balancing this are waiting periods, in particular for pre-existing conditions. Funds are entitled to impose a waiting period of up to 12 months on benefits for any medical condition the signs and symptoms of which existed during the six months ending on the day the person first took out insurance.
The Australian government has introduced a number of incentives to encourage adults to take out private hospital insurance. These include:
• Lifetime Health Cover: If a person has not taken out private hospital cover by the 1st July after their 30th birthday, then when (and if) they do so after this time, their premiums must include a loading of 2% per annum. Thus, a person taking out private cover for the first time at age 40 will pay a 10 per cent loading. The loading continues for 10 years.
• Medicare Levy Surcharge: People whose taxable income is greater than a specified amount and who do not have an adequate level of private hospital cover must pay a 1% surcharge on the standard 1.5% Medicare Levy.
• Private Health Insurance Rebate: The government subsidises the premiums for all private health insurance cover, including hospital and ancillary (extras), by 30%, 35% or 40%.
Market-based health care systems such as that in the United States rely heavily on private and not-for-profit health insurance.
History and evolution
The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance.[2]. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.[3] Patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.
How it works
A Health insurance policy is a contract between an insurance company and an individual. The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health plan are specified in advance, in the member contract or Evidence of Coverage booklet. The individual policy-holder's payment obligations may take several forms[4]:
• Premium: The amount the policy-holder pays to the health plan each month to purchase health coverage.
• Deductible: The amount that the policy-holder must pay out-of-pocket before the health plan pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health plan. It may take several doctor's visits or prescription refills before the policy-holder reaches the deductible and the health plan starts to pay for care.
• Copayment: The amount that the policy-holder must pay out of pocket before the health plan pays for a particular visit or service. For example, a policy-holder might pay a $45 copayment for a doctor's visit, or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
• Coinsurance: Instead of paying a fixed amount up front (a copayment), the policy-holder must pay a percentage of the total cost. For example, the member might have to pay 20% of the cost of a surgery, while the health plan pays the other %80. Because there is no upper limit on coinsurance, the policy-holder can end up owing very little, or a significant amount, depending on the actual costs of the services they obtain.
• Exclusions: Not all services are covered. The policy-holder is generally expected to pay the full cost of non-covered services out of their own pocket.
• Coverage limits: Some health plans only pay for health care up to a certain dollar amount. The policy-holder may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some plans have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.
• Out-of-pocket maximums: Similar to coverage limits, except that in this case, the member's payment obligation ends when they reach the out-of-pocket maximum, and the health plan pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.
Prescription drug plans are a form of insurance offered through many employer benefit plans in the U.S., where the patient pays a copayment and the prescription drug insurance pays the rest.
Some health care providers will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn't pay, as the insurance company pays according to "reasonable" or "customary" charges, which may be less than the provider's usual fee.
Health insurance companies also often have a network of providers who agree to accept the reasonable and customary fee and waive the remainder. It will generally cost the patient less to use an in-network provider.
Health Insurance companies are now offering Health Incentive accounts (HIA)[7], to reward users for living healthy and making healthy choices, like stop smoking and/or losing weight, may get you funds added into your Health Incentive Account, which may lower your out of pocket costs. The health incentive accounts also carry over from year to year but once you leave the program you lose those benefits in the HIA.
Inherent problems with private insurance
Any private insurance system will face two inherent challenges: adverse selection and ex-post moral hazard.
Adverse selection
Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year and it costs $250, that's much better than making monthly insurance payments of $400 (example figures).
The fundamental concept of insurance is that it balances costs across a large, random sample of individuals (see risk pool). For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. Adverse selection upsets this balance between healthy and sick subscribers by leaving an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.
Because of adverse selection, insurance companies use a patient's medical history to screen out persons with pre-existing medical conditions. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who present a large financial burdens are denied coverage or charged high premiums to compensate.[5] One large U.S. industry survey found that roughly 13 percent of applicants for comprehensive, individually purchased health insurance that go through the medical underwriting process were denied coverage. Declination rates increased significantly with age, rising from 5 percent for individuals 18 and under to just under a third for individuals aged 60 to 64.[6] On the other side, applicants can get discounts if they do not smoke and are healthy.[7]
Starting in 1976, some states started providing guaranteed-issuance risk pools, which enable individuals who are medically uninsurable through private health insurance to purchase a state-sponsored health insurance plan, usually at higher cost. Minnesota was the first to offer such a plan; 34 states now offer them. Plans vary greatly from state to state, both in their costs and benefits to consumers and to their methods of funding and operations. They serve a very small portion of the uninsurable market — about 182,000 people in the U.S. as of 2004,[8] but in best cases allow people with pre-existing conditions such as cancer, diabetes, heart disease or other chronic illnesses to be able to switch jobs or seek self-employment without fear of being without health care benefits.[9] Efforts to pass a national pool have as yet been unsuccessful, but some federal tax money has been awarded to states to innovate and improve their plans.
Moral hazard
Moral hazard describes the state of mind and change in behavior that results from a person's knowledge that if something bad were to happen, the out-of-pocket expenses would be mitigated by an insurance policy--in this case, one which provides reduced prices for medical care.
Other factors affecting insurance prices
A recent study by PriceWaterhouseCoopers examining the drivers of rising health care costs in the U.S. pointed to increased utilization created by increased consumer demand, new treatments, and more intensive diagnostic testing, as the most significant driver.[10] People in developed countries are living longer. The population of those countries is aging, and a larger group of senior citizens requires more medical care than a young healthier population. Advances in medicine and medical technology can also increase the cost of medical treatment. Other factors that increase utilization and therefore insurance prices are lifestyle-related: increases in obesity caused by insufficient exercise and unhealthy food choices; excessive alcohol use, smoking, and use of street drugs. Other factors noted by the PWC study included the movement to broader-access plans, higher-priced technologies, and cost-shifting from Medicaid and the uninsured to private payers.[10]
Common complaints of private insurance
This section is missing citations or needs footnotes.
Using inline citations helps guard against copyright violations and factual inaccuracies.
Some common complaints about private health insurance include:
1. Insurance companies do not announce their health insurance premiums more than a year in advance.[citation needed] This means that, if one becomes ill, he or she may find that their premiums have greatly increased (however, in many states these types of rate increases are prohibited).
2. If insurance companies try to charge different people different amounts based on their own personal health, people may feel they are unfairly treated.[citation needed]
3. When a claim is made, particularly for a sizable amount, insureds may feel as though the insurance company is using paperwork and bureaucracy to attempt to avoid payment of the claim or, at a minimum, greatly delay it.[citation needed] One large industry survey suggests that claim processing times improved between 2002 and 2006. More claims are being submitted electronically; however, 29 percent of claims were not received by the insurer until more than a month after the date on which medical care was provided. The percentage of claims being adjudicated on an automated basis is also increasing. 14 percent of claims are "pended" by the insurer while additional information is requested or the information on the claim is verified. On average, pended claims are delayed by 9 days. Over 95 percent of the remaining "clean" claims are processed within 30 days; 57 percent are processed within one week.[11]
4. Health insurance is often only widely available at a reasonable cost through an employer-sponsored group plan and online for individuals.[citation needed]
5. In the United States, there are tax advantages to Employer-provided health insurance, whereas individuals must pay tax on income used to fund their own health insurance, although a small number of pre-tax health plans exist.[citation needed]
6. Experimental treatments are generally not covered.[citation needed] This practice is especially criticized by those who have already tried, and not benefited from, all "standard" medical treatments for their condition.[citation needed]
7. The Health Maintenance Organization (HMO) type of health insurance plan has been criticized for excessive cost-cutting policies in its attempt to offer lower premiums to consumers.[citation needed]
8. As the health care recipient is not directly involved in payment of health care services and products, they are less likely to scrutinize or negotiate the costs of the health care received.[citation needed] The health care company has popular and unpopular ways of controlling this market force.[citation needed]
9. Some health care providers end up with different sets of rates for the same procedure. One for people with insurance and another for those without.[citation needed]
10. Unlike most publicly funded health insurance, many private insurance plans do not provide coverage of dental health care, or only offer such coverage with additional premiums and very low dollar-amount coverages.
11. Insurance Companies can influence the type or amount of treatment that the insured receives by setting limits on the number of visits, types of treatment, etc., it will cover.
Health insurance in the United States
Main article: Health care in the United States
According to the United States Census Bureau, approximately 84% of Americans have health insurance. Some 60% obtain health insurance through an employer, about 9% purchase it directly, and various government agencies provide coverage to about 27% of Americans (there is some overlap in these figures).[12] In 2006, there were 47 million people in the U.S. (16 percent of the population) who were without health insurance for at least part of that year.[12] About 37% of the uninsured live in households with an income over $50,000.[12]
Private: employer-sponsored
Health insurance paid for by business entities generally on behalf of their employees and other immediate stakeholders. Broadly classified as "Traditional/Indemnity" and "Managed/Preferred Provider." Most private health coverage in the U.S. is employment based, and the employer typically makes a substantial contribution towards the cost of coverage.[13]
Costs for employer-paid health insurance are rising rapidly: since 2001, premiums for family coverage have increased 78%, while wages have risen 19% and inflation has risen 17%, according to a 2007 study by the Kaiser Family Foundation.[14]
According the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees.[15] Although much more likely to offer retiree health benefits than small firms, the percentage of large firms offering these benefits fell from 66% in 1988 to 34% in 2002.[16]
Many small employers provide employee health insurance, but the percentage offering is not as high as it is for larger employers. The types of coverage available to small employers are similar, but they do not have the same options for financing their benefit plans. In particular, self-insuring the benefits (see Self-funded health care) is not a practical option for most small employers. [17]
Private: individually purchased
Policies of health insurance obtained by individuals not otherwise covered under policies or programs elsewhere classified. Generally major medical, short term medical, and student policies. Fewer Americans are covered by individually purchased medical expense insurance than by employer-sponsored coverage. The range of products available is similar, however. Average premiums are generally somewhat lower than those for employer-sponsored coverage, but vary by age. Deductibles and other cost-sharing is also higher, on average, and the individual consumer pays the entire premium without benefit of an employer contribution.[18][8]
Private: long-term care insurance
Long-term care (LTC) insurance is growing in popularity in the U.S. Premiums have remained relatively stable in recent years. However, the coverage is quite expensive, especially when consumers wait until retirement age to purchase it. The average age of new purchasers was 61 in 2005, and has been dropping.[9]
The shift to managed care in the U.S.
Through the 1990s, managed care grew from about 25% of U.S. employees to the vast majority.
Rise of managed care in the U.S.
Year Conventional plans HMOs
PPOs
POS plans
HDHPs
1998 14% 27% 35% 24% ~
1999 10% 28% 39% 24% ~
2000 8% 29% 42% 21% ~
2001 7% 24% 46% 23% ~
2002 4% 27% 52% 18% ~
2003 5% 24% 54% 17% ~
2004 5% 25% 55% 15% ~
2005 3% 21% 61% 15% ~
2006 5% 20% 60% 13% 4%
[10]
New types of medical plans in the U.S.
One approach to addressing increasing premiums, dubbed "consumer driven health care," received a boost in 2003, when President George W. Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act. The law created tax-deductible Health Savings Accounts (HSAs). An HSA is a private bank account which is un-taxed and only penalized if spent on non-medical items or services. It must be paired with a high-deductible insurance plan. HSAs enable mostly healthy people to pay less for insurance and bank money for their own health care expenses.[19] HSAs are one form of tax-preferrenced health care spending account. Others include Archer Medical Savings Accounts (MSAs), which have been superseded by the new HSAs (although existing MSAs are grandfathered), Flexible Spending Arrangments (FSAs) and Health Reimbursement Accounts (HRAs). FSAs and HRAs are typically used as part of an employee-benefit plan.[20]
Limited Medical Benefit Plans pay for routine care and do not pay for catastrophic care. As such, they do not provide equivalent financial security to a major medical plan. Annual benefit limits can be as low as $2,000. Lifetime maximums can be very low as well.
Common health insurance terms
• Annual Limit - A benefit may be limited to a certain dollar or utilization limit (example: chiropractic care may be limited to 20 visits per calendar year).
• Alternative Funding Arrangement - A hybrid funding arrangement that features benefits of both self funding and fully insured arrangements (ASO, Minimum Premium, et. al.).
• Birthday rule - many insurance companies have adopted this rule to determine which parent is primary payer when both parents cover the same dependents. Who ever has the earlier date of birth, excluding the year, is designated primary insurance carrier. Exceptions to this rule usually arise when there is a court order for one of the parents to be the primary carrier.
• Co-insurance - Generally expressed as the percentage that you pay of any covered medical services after you have paid the deductible and co-pay.
• Co-insurance limit - The dollar amount you have to pay with Co-insurance before the insurance company begins paying your bills at 100% for the remainder of the plan year.
• Co-ordination of benefits (COB) - How your plan pays when it is coordinating with another plan. There are three principle methods in US health plans.
• Co-pay - A fixed fee you pay for services rendered. Most plans cover 100% after the co-pay for services rendered, however this can be adjusted to any amount depending on how the plan is set up.
• Deductible - The fixed amount you have to pay before your insurance starts to pay.
• Deductible carry-forward - Amounts for benefits incurred in the previous year may be subject to the prior year's deductibles.
• Employee Assistance Plan - a health-related benefit for non-medical, work-place issues or employees that commonly develop into medical issues such as marital counseling, absenteeism, suicidal ideation, etc.
• Experimental/Investigational - Most insurance companies will deny coverage for any procedures or tests which have not been medically verified by clinical trials conducted by recognized bodies of physicians or scientists. Many medical providers use tests which they believe in but have not been clinically validated.
• Fully Insured - The insurance company collects the premiums and pays claims from its own money.
• Incurred But Not Paid (IBNP) - under insurance based accrual accounting, a liability for claims that have not been paid, but may or may not be received. Incurred But Not Reported (IBNR) plus Reported But Not Paid (RBNP) equals IBNP. IBNP is a significant balance sheet item for insurers.
• In-Network/Participating/Par Providers - Medical providers who have an established relationship with an insurance company
• Life time maximum - The total your policy will pay out over the life of the contract. Many plans have a yearly restoration amount which will replenish the total so that after the policy money is exhausted there will still be some money in the following plan year for new claims. Life time maximums are easily avoided by switching policies or re-enrolling.
• Self-Insured - Many major U.S. and world corporations hire insurance companies and Third Party Administrators as claims and eligibility administrators to manage a health plan or trust. Many state laws do not apply to these plans due to ERISA exemption.
• Reciprocity - Most insurance plans deal with networks of doctors. If for example you have an HMO plan that allows you to see any HMO provider anywhere in the country, it is called Full Reciprocity, but if it only allows you access to local area networks of providers it is called Limited Reciprocity and if you can only go to select networks that your company has purchased access to, it is called No Reciprocity.
• No-fault - This is generally for automobile insurances, however if your auto policy is no-fault and you are injured, the medical insurance will become a secondary payer and will not be able to process claims until explanation of benefits are received from the auto insurance carrier.
• Out-of-Network/Non Participating/Non-Par Providers - Medical providers without an established relationship with an insurance company.
• Out Of Pocket Maximum - The total dollar amount paid out by a subscriber (deductible plus coinsurance).
• Subscriber - The primary member on the insurance policy. Also, "enrollee", "contractee".
• Reserve - refers to the amount that must be set aside for statutorily required funds for dissolution (terminal liability).
Health Insurance in Canada
Most health insurance in Canada is administered by each province, under the national law that requires all people to have free access to basic health services. Collectively, the public provincial health insurance systems in Canada are called Medicare. Private health insurance in Canada is allowed only for services that the public health plans do not cover; for example, semi-private or private rooms in hospitals and prescription drug plans. Canadians also must use private insurance for elective medical services such as Lasik surgery, plastic surgery such as liposuction, and other non-basic medical procedures. Private health care cannot cover physician fees which are covered by Medicare. Private-sector services not paid for by the government accounted for nearly 30 percent of total health care spending.[23]. In 2005, the Supreme Court of Quebec ruled, in Chaoulli v. Quebec, that the prohibition on insurance for health care already insured by the state constitutes an infringement of the right to life and security. It is yet to be seen if this ruling will change the overall delivery of health insurance across Canada.
Health insurance in Australia
The public health system is called Medicare. It ensures free universal access to hospital treatment and subsidised out-of-hospital medical treatment. It is funded by a 1.5% tax levy.
The private health system is funded by a number of private health insurance organisations. The largest of these is Medibank Private, which is government-owned, but operates as a government business enterprise under the same regulatory regime as all other registered private health funds; the Howard government has announced that Medibank will be privatised in 2008 assuming it is returned to office at the 2007 election. Some private health insurers are 'for profit' enterprises, and some are non-profit organizations.
Most aspects of private health insurance in Australia are regulated by the Private Health Insurance Act 2007.
The private health system in Australia operates on a "community rating" system, whereby premiums do not vary solely because of a person's previous medical history or current state of health. Balancing this are waiting periods, in particular for pre-existing conditions. Funds are entitled to impose a waiting period of up to 12 months on benefits for any medical condition the signs and symptoms of which existed during the six months ending on the day the person first took out insurance.
The Australian government has introduced a number of incentives to encourage adults to take out private hospital insurance. These include:
• Lifetime Health Cover: If a person has not taken out private hospital cover by the 1st July after their 30th birthday, then when (and if) they do so after this time, their premiums must include a loading of 2% per annum. Thus, a person taking out private cover for the first time at age 40 will pay a 10 per cent loading. The loading continues for 10 years.
• Medicare Levy Surcharge: People whose taxable income is greater than a specified amount and who do not have an adequate level of private hospital cover must pay a 1% surcharge on the standard 1.5% Medicare Levy.
• Private Health Insurance Rebate: The government subsidises the premiums for all private health insurance cover, including hospital and ancillary (extras), by 30%, 35% or 40%.
Property Insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main ways - open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage causing events as fire, lightning, explosion and theft.
Casualty insurance
Casualty insurance policies are written to cover losses that are the direct result of an unforeseen accident(s). It may include Auto liability insurance for car accidents, Marine insurance for shipwrecks or losses at sea, and etc. Life, health and property insurance are typically excluded from the definition. Loosely used to describe an area of insurance not particularly or directly concerned with life insurance, fire insurance or automobile insurance. Most frequently it refers to liability, crime and plate glass insurance but may include surety as well.
Builder's risk insurance
Builder's risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction.[1]
Necessity
Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure. One common theory is that any new construction becomes property of the owner once it is located on the owner's site. The general contractor may be responsible for any losses caused by his own negligence, but the owner is responsible for most other losses. Builder's risk insurance indemnifies against some of these losses.
Coverage
Builder's risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner.
Who buys builder's risk insurance?
It is usually bought by the owner of the building but the general contractor constructing the building may buy it if it is required as a condition of the contract.
Alternatives
If the project involves renovations or additions to an existing building, the owner's existing property insurance may cover the work under construction, obviating the need for builder's risk insurance. (Policies vary.) However, in the case of new buildings under construction on vacant sites, the owner may not have an existing policy that provides coverage.
Casualty insurance
Casualty insurance policies are written to cover losses that are the direct result of an unforeseen accident(s). It may include Auto liability insurance for car accidents, Marine insurance for shipwrecks or losses at sea, and etc. Life, health and property insurance are typically excluded from the definition. Loosely used to describe an area of insurance not particularly or directly concerned with life insurance, fire insurance or automobile insurance. Most frequently it refers to liability, crime and plate glass insurance but may include surety as well.
Builder's risk insurance
Builder's risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction.[1]
Necessity
Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure. One common theory is that any new construction becomes property of the owner once it is located on the owner's site. The general contractor may be responsible for any losses caused by his own negligence, but the owner is responsible for most other losses. Builder's risk insurance indemnifies against some of these losses.
Coverage
Builder's risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner.
Who buys builder's risk insurance?
It is usually bought by the owner of the building but the general contractor constructing the building may buy it if it is required as a condition of the contract.
Alternatives
If the project involves renovations or additions to an existing building, the owner's existing property insurance may cover the work under construction, obviating the need for builder's risk insurance. (Policies vary.) However, in the case of new buildings under construction on vacant sites, the owner may not have an existing policy that provides coverage.
Home Insurance
Introduction:
Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.
The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders—additional items to be insured—are attached to the policy. The insurance policy itself is a lengthy contract, and names what will and what will not be paid in the case of various events. Typically, claims due to
earthquakes, floods, "Acts of God", or war (whose definition typically includes a nuclear explosion from any source) are excluded. Special insurance can be purchased for these possibilities, including flood insurance and earthquake insurance.
The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station, or if the house is equipped with fire sprinklers and fire alarms. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.
In the United States, most home buyers borrow money in the form of a mortgage loan, and the mortgage lender always requires that the buyer purchase homeowners insurance as a condition of the loan, in order to protect the bank if the home were to be destroyed. Anyone with an insurable interest in the property should be listed on the policy. In some cases the mortagagee will waive the need for the mortgagor to carry homeowner's insurance if the value of the land exceeds the amount of the mortgage balance. In a case like this even the total destruction of any buildings would not affect the ability of the lender to be able to foreclose and recover the full amount of the loan. The insurance crisis in Florida has meant that some waterfront property owners in that state have had to make that decision due to the high cost of premiums. See Citizens insurance.
Types of Homeowners Insurance
[edit] United States
As described in Wiening et al.[1], prior to the 1950s, there were separate policies for the various perils that could affect a home. A homeowner would have had to purchase separate policies covering fire losses, theft, personal property, and the like. During the 1950s, policy forms were developed, allowing the homeowner to purchase all the insurance they needed on one complete policy. However, these policies varied by insurance company, and were difficult to comprehend. The need for standardization grew so great that a private company based in Jersey City, New Jersey, Insurance Services Office, also known as the ISO, was formed in 1971 to provide risk information and issued a simplified homeowners policy for resell to insurance companies. These policies have been amended over the years until currently, the ISO has seven standardized homeowners insurance forms in general and consistent use . Of these HO-3 is the most common policy followed by HO-4 and HO-6. Others that are less used, though still significant, are HO-1, HO-2, HO-5, and HO-8. Each is summarized below:
HO-1
A limited policy that offers varying degrees of coverage but only for items specifically outlined in the policy. These might be used to cover a valuable object found in the home, such as a painting.
HO-2
Similar to HO-1, HO-2 is a limited policy in that it covers specific portions of a house against damage. The coverage is usually a "named perils" policy, which lists the events that would be covered. As above, these factors must be spelled out in the policy.
HO-3
This policy is the most commonly written policy for a homeowner and is designed to cover all aspects of the home, structure and its contents as well as any liability that may arise from daily use, as well as any visitors who may encounter accident or injury on the premises. Covered aspects as well as limits of liability must be clearly spelled out in the policy to insure proper coverage. The coverage is usually called "all risk". Also called an "open perils" policy.
HO-4
This is commonly referred to as renters insurance or renter's coverage. Similar to HO-6, this policy covers those aspects of the apartment and its contents not specifically covered in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for guests as well as passers-by up to 150' of the domicile. Common coverage areas are events such as lightning, riot, aircraft, explosion, vandalism, smoke, theft, windstorm or hail, falling objects, volcanic eruption, snow, sleet, and weight of ice.
HO-5
This policy, similar to HO-3, covers a home (not a condo or apartment), the homeowner and its possessions as well as any liability that might arise from visitors or passers-by. This coverage is differentiated in that it covers a wider breadth and depth of incidents and losses than an HO-3.
HO-6
As a form of supplemental homeowner's insurance, HO-6, also known as a Condominium Coverage, is designed especially for the owners of condos. It includes coverage for the part of the building owned by the insured and for the property housed therein of the insured. Designed to span the gap between what the homeowner's association might cover in a blanket policy written for an entire neighborhood and those items of importance to the insured, typically the HO-6 covers liability for residents and guests of the insured in addition to personal property. The liability coverage, depending on the underwriter, premium paid, and other factors of the policy, can cover incidents up to 150' from the insured property, all valuables within the home from theft, fire or water damage or other forms of loss. It is important to read the Associations By-laws to determine the total amount of insurance needed on your dwelling.
HO-8
It is usually called "older home" insurance. It lets house owners with higher replacement cost than the market value insure them at the lower market value rate.
In addition, a Dwelling Fire policy is generally available for non-commercial owners of rented houses, covering property damage to the structure, and sometimes to the owner's personal property (such as appliances and furnishings). The owner's liability is generally extended from their own primary home insurance, and does not comprise part of the Dwelling Fire policy. It is a counterpart to the HO-4 renter's policy.
Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.
The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders—additional items to be insured—are attached to the policy. The insurance policy itself is a lengthy contract, and names what will and what will not be paid in the case of various events. Typically, claims due to
earthquakes, floods, "Acts of God", or war (whose definition typically includes a nuclear explosion from any source) are excluded. Special insurance can be purchased for these possibilities, including flood insurance and earthquake insurance.
The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station, or if the house is equipped with fire sprinklers and fire alarms. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.
In the United States, most home buyers borrow money in the form of a mortgage loan, and the mortgage lender always requires that the buyer purchase homeowners insurance as a condition of the loan, in order to protect the bank if the home were to be destroyed. Anyone with an insurable interest in the property should be listed on the policy. In some cases the mortagagee will waive the need for the mortgagor to carry homeowner's insurance if the value of the land exceeds the amount of the mortgage balance. In a case like this even the total destruction of any buildings would not affect the ability of the lender to be able to foreclose and recover the full amount of the loan. The insurance crisis in Florida has meant that some waterfront property owners in that state have had to make that decision due to the high cost of premiums. See Citizens insurance.
Types of Homeowners Insurance
[edit] United States
As described in Wiening et al.[1], prior to the 1950s, there were separate policies for the various perils that could affect a home. A homeowner would have had to purchase separate policies covering fire losses, theft, personal property, and the like. During the 1950s, policy forms were developed, allowing the homeowner to purchase all the insurance they needed on one complete policy. However, these policies varied by insurance company, and were difficult to comprehend. The need for standardization grew so great that a private company based in Jersey City, New Jersey, Insurance Services Office, also known as the ISO, was formed in 1971 to provide risk information and issued a simplified homeowners policy for resell to insurance companies. These policies have been amended over the years until currently, the ISO has seven standardized homeowners insurance forms in general and consistent use . Of these HO-3 is the most common policy followed by HO-4 and HO-6. Others that are less used, though still significant, are HO-1, HO-2, HO-5, and HO-8. Each is summarized below:
HO-1
A limited policy that offers varying degrees of coverage but only for items specifically outlined in the policy. These might be used to cover a valuable object found in the home, such as a painting.
HO-2
Similar to HO-1, HO-2 is a limited policy in that it covers specific portions of a house against damage. The coverage is usually a "named perils" policy, which lists the events that would be covered. As above, these factors must be spelled out in the policy.
HO-3
This policy is the most commonly written policy for a homeowner and is designed to cover all aspects of the home, structure and its contents as well as any liability that may arise from daily use, as well as any visitors who may encounter accident or injury on the premises. Covered aspects as well as limits of liability must be clearly spelled out in the policy to insure proper coverage. The coverage is usually called "all risk". Also called an "open perils" policy.
HO-4
This is commonly referred to as renters insurance or renter's coverage. Similar to HO-6, this policy covers those aspects of the apartment and its contents not specifically covered in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for guests as well as passers-by up to 150' of the domicile. Common coverage areas are events such as lightning, riot, aircraft, explosion, vandalism, smoke, theft, windstorm or hail, falling objects, volcanic eruption, snow, sleet, and weight of ice.
HO-5
This policy, similar to HO-3, covers a home (not a condo or apartment), the homeowner and its possessions as well as any liability that might arise from visitors or passers-by. This coverage is differentiated in that it covers a wider breadth and depth of incidents and losses than an HO-3.
HO-6
As a form of supplemental homeowner's insurance, HO-6, also known as a Condominium Coverage, is designed especially for the owners of condos. It includes coverage for the part of the building owned by the insured and for the property housed therein of the insured. Designed to span the gap between what the homeowner's association might cover in a blanket policy written for an entire neighborhood and those items of importance to the insured, typically the HO-6 covers liability for residents and guests of the insured in addition to personal property. The liability coverage, depending on the underwriter, premium paid, and other factors of the policy, can cover incidents up to 150' from the insured property, all valuables within the home from theft, fire or water damage or other forms of loss. It is important to read the Associations By-laws to determine the total amount of insurance needed on your dwelling.
HO-8
It is usually called "older home" insurance. It lets house owners with higher replacement cost than the market value insure them at the lower market value rate.
In addition, a Dwelling Fire policy is generally available for non-commercial owners of rented houses, covering property damage to the structure, and sometimes to the owner's personal property (such as appliances and furnishings). The owner's liability is generally extended from their own primary home insurance, and does not comprise part of the Dwelling Fire policy. It is a counterpart to the HO-4 renter's policy.
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