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.
Insurance Information and Enforcement System
The Insurance Information and Enforcement System is a system used by many Department of Motor Vehicles agencies to track people who might be driving without automobile insurance. Since many jurisdictions forbid uninsured driving, a system like this is necessary to keep track of any applications and cancellations of policies. The system was created largely because many people try to trick the DMV into thinking they're keeping their car insured by registering a car with a policy and then cancelling the policy soon after to keep the plates.
Vehicle Insurance
Vehicle insurance
Vehicle insurance (or auto insurance, car insurance, motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents.
Coverage levels
Insurance can cover some or all of the following items:
1. The insured party
2. The insured vehicle
3. Third parties
Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.
Excess
An excess payment is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair garage when you collect the car. If your car is declared to be a write off, your insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you.
If the accident was the other driver's fault, and this is accepted by the third party's insurer, you'll be able to reclaim your excess payment from the other person's insurance company. If the other driver is uninsured, a policy's minimum limits include coverage for the uninsured/underinsured motorist(s) at fault.
Compulsory Excess
A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses do vary according to your personal details and driving record and by insurance company.
Voluntary Excess
In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.
Public policy
In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional - one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less a $700 deductible) (such as a collision damage waiver) as part of its basic insurance policy. In South Australia Third Party Personal insurance from the State Government Insurance Corporation (SGIC) is included in the license registration fee. South Africa allocates a percentage of the money from petrol into the Road Accidents Fund, which goes towards compensating third parties in accidents.[1] Most countries relate insurance to both the car and the driver, however the degree of each varies greatly.
In the United States, auto insurance is compulsory in all states, with the exception of New Hampshire.
Related research
A 1994 study by Jeremy Jackson and Roger Blackman[2] showed, consistent with the risk homeostasis theory, that increased accident cost caused large and significant reductions in accident frequency.
Basis of premium charges
See main article auto insurance risk selection
Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims.[3] Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).[4][5]
Gender
Men average more miles driven per year than women do, and have a proportionally higher accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the youth surcharge lower for young women drivers than for their male counterparts but adult rates are generally unisex. Reference to the lower rate for young women as "the women's discount" has caused confusion that was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in assessing insurance premiums.[6] Ending the discount would have made no difference to most women's premiums.
Age
Teenage drivers who have no driving record will have higher car insurance premiums. However young drivers are often offered discounts if they undertake further driver training on recognised courses, such as the Pass Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good academic record and resident student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25. Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age group.
Distance
Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of differentiation would include:
Reasonable estimation
Several car insurance plans rely on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This discount benefits drivers who drive their cars infrequently but has no actuarial value since it is unverified.
Odometer-based systems
Cents Per Mile Now[7](1986) advocates classified odometer-mile rates. After the company's risk factors have been applied and the customer has accepted the per-mile rate offered, customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline. Insurance automatically ends when the odometer limit (recorded on the car’s insurance ID card) is reached unless more miles are bought. Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later. However, as the Cents Per Mile Now website points out: "As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, in order to steal 20,000 miles of continuous protection while paying for only the 2,000 miles from 35,000 miles to 37,000 miles on the odometer, the resetting would have to be done at least nine times to keep the odometer reading within the narrow 2,000-mile covered range. There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering—detected during claim processing—voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail."
Under the cents-per-mile system, rewards for driving less are delivered automatically without need for administratively cumbersome and costly technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today's windfalls to insurers when decreased driving activity lowers costs but not premiums.
GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which volunteers installed a GPS-based technology called Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cellular phone to the company.[8] Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns.[9]
In 1996, Progressive filed for and obtained a US patent (US patent 5,797134) on their process. Progressive has also filed corresponding patent applications in Europe and Japan. UK auto insurer, Norwich Union, has obtained an exclusive license to Progressive's European patent application. They have recently completed a successful pilot test of the technology and it is now available commercially under the tradename "Pay As You Drive™"[10]
Recent theoretical economic research on the social welfare effects of Progressive's telematics technology business process patents have questioned whether the business process patents are pareto efficient for society. Premliminary results suggest that they are not, but more work is needed. [11] [12]
OBDII-based system
In 2004, Progressive launched another pilot program to allow policyholders to earn a discount on their premiums by consenting to use its TripSense device. TripSense connects to a car's OnBoard Diagnostic(OBD-II) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time.[13]
Auto Insurance in the United States
Coverage Available
The consumer may be protected with different coverage types depending on what coverage the insured purchases.
In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured’s vehicle, provided they do not live at the same address as the policy holder and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary for example, when a family member comes of driving age they must be added on to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident.
Generally, liability coverage does extend when you rent a car. Comprehensive policies ("full coverage") usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage may not apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle. Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.[14]
Liability
Liability coverage provides a fixed dollar amount of coverage for damages that an insured becomes legally liable to pay due to an accident or other negligence. For example, if an insured drives into a telephone pole and damages the pole, liability coverage pays for the damage to the pole. In this example, the insured also may become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company).
Liability coverage is available either as a combined single limit policy or as a split limit policy:
Combined Single Limit
A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured with a combine single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.
Split Limits
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Note that bodily injury liability coverage is also usually split as well into a maximum payment per person and a maximum payment per accident.
Collision
Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. Collision coverage is optional. Collision Damage Waiver (CDW) is the term used by rental car companies for collision coverage.
Comprehensive
Comprehensive (a.k.a. - Other Than Collision) coverage provides coverage, subject to a deductible, for an insured's vehicle that is damaged by incidents that are not considered Collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are just some types of Comprehensive losses.
Uninsured/Underinsured Coverage
Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if another at-fault party either does not have insurance, or does not have enough insurance. In effect, your insurance company acts as at fault party's insurance company.
In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws.
Loss of Use
Loss of Use coverage, also known as rental coverage, provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.
Loan/Lease Payoff
Loan/Lease Payoff coverage, also known as GAP coverage or GAP insurance,[15][16] was established in the early 1980s to provide protection to consumers based upon buying and market trends.
Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers when a "gap" exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances this insurance will also pay the deductible on the primary insurance policy. These policies are often offered at the auto dealership as a comparatively low cost add on that can be put into the car loan which provides coverage for the duration of the loan.
Consumers should be aware that a few states, including New York, require lenders of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning the State's requirements.
In addition, some vendors and insurance companies offer what is called "Total Loss Coverage." This is similar to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a new vehicle.
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, the "gap" is $5000. If the owner has traditional GAP coverage, the "gap" will be wiped out and he or she may purchase or lease another vehicle or choose not to. If the owner has "Total Loss Coverage," he or she will have to personally cover the "gap" of $5000, and then receive $5000 toward the purchase or lease of a new vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she will definitively purchase a replacement vehicle.
Car Towing Insurance
Car Towing coverage is also known as Roadside Assistance coverage. Traditionally, automobile insurance companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical breakdowns, flat tires and running out of gas. To fill that void, insurance companies started to offer the Car Towing coverage, which pays for non-accident related tows.
European Union and United Kingdom Laws regarding motor insurance
In 1930 the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance. Today UK law is defined by the The Road Traffic Act which was last modified in 1991.
The Act requires all motorists to be insured against their liability for injuries to others (including passengers) and for damage to other persons' property resulting from use of a vehicle on a public road or in other public places. This is called Third Party Insurance. It is an offence to drive your car, or allow others to drive it, without at least Third Party insurance whilst on the public highway, on private land no such legislation applies.
The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the vehicle specified on the document is indeed insured. The Law says that an authorised person, such as the police, may require a driver to produce an insurance certificate for inspection. If the driver cannot show the document immediately on request, then the driver will usually be issued a HORT/1 with seven days, as of midnight of the date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police station of the driver's choice. Failure to produce an insurance certificate is an offence.
Insurance is more expensive in Northern Ireland than in other parts of the UK.
Motorists in the UK are required to display a Vehicle excise duty disc in their car when it is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their vehicles because you are required to produce an insurance certificate when you purchase the disc. However it is a known practice for some people to purchase insurance to gain the certificate and then to cancel the insurance and gain a full refund within the statutory 14 day cooling off period.
The Motor Insurers Bureau compensates the victims of road accidents caused by uninsured and untraced motorists. It also operates the Motor Insurance Database, which contains details of every insured vehicle in the country.
Vehicle insurance (or auto insurance, car insurance, motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents.
Coverage levels
Insurance can cover some or all of the following items:
1. The insured party
2. The insured vehicle
3. Third parties
Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.
Excess
An excess payment is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair garage when you collect the car. If your car is declared to be a write off, your insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you.
If the accident was the other driver's fault, and this is accepted by the third party's insurer, you'll be able to reclaim your excess payment from the other person's insurance company. If the other driver is uninsured, a policy's minimum limits include coverage for the uninsured/underinsured motorist(s) at fault.
Compulsory Excess
A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses do vary according to your personal details and driving record and by insurance company.
Voluntary Excess
In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.
Public policy
In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional - one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less a $700 deductible) (such as a collision damage waiver) as part of its basic insurance policy. In South Australia Third Party Personal insurance from the State Government Insurance Corporation (SGIC) is included in the license registration fee. South Africa allocates a percentage of the money from petrol into the Road Accidents Fund, which goes towards compensating third parties in accidents.[1] Most countries relate insurance to both the car and the driver, however the degree of each varies greatly.
In the United States, auto insurance is compulsory in all states, with the exception of New Hampshire.
Related research
A 1994 study by Jeremy Jackson and Roger Blackman[2] showed, consistent with the risk homeostasis theory, that increased accident cost caused large and significant reductions in accident frequency.
Basis of premium charges
See main article auto insurance risk selection
Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims.[3] Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).[4][5]
Gender
Men average more miles driven per year than women do, and have a proportionally higher accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the youth surcharge lower for young women drivers than for their male counterparts but adult rates are generally unisex. Reference to the lower rate for young women as "the women's discount" has caused confusion that was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in assessing insurance premiums.[6] Ending the discount would have made no difference to most women's premiums.
Age
Teenage drivers who have no driving record will have higher car insurance premiums. However young drivers are often offered discounts if they undertake further driver training on recognised courses, such as the Pass Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good academic record and resident student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25. Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age group.
Distance
Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of differentiation would include:
Reasonable estimation
Several car insurance plans rely on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This discount benefits drivers who drive their cars infrequently but has no actuarial value since it is unverified.
Odometer-based systems
Cents Per Mile Now[7](1986) advocates classified odometer-mile rates. After the company's risk factors have been applied and the customer has accepted the per-mile rate offered, customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline. Insurance automatically ends when the odometer limit (recorded on the car’s insurance ID card) is reached unless more miles are bought. Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later. However, as the Cents Per Mile Now website points out: "As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, in order to steal 20,000 miles of continuous protection while paying for only the 2,000 miles from 35,000 miles to 37,000 miles on the odometer, the resetting would have to be done at least nine times to keep the odometer reading within the narrow 2,000-mile covered range. There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering—detected during claim processing—voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail."
Under the cents-per-mile system, rewards for driving less are delivered automatically without need for administratively cumbersome and costly technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today's windfalls to insurers when decreased driving activity lowers costs but not premiums.
GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which volunteers installed a GPS-based technology called Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cellular phone to the company.[8] Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns.[9]
In 1996, Progressive filed for and obtained a US patent (US patent 5,797134) on their process. Progressive has also filed corresponding patent applications in Europe and Japan. UK auto insurer, Norwich Union, has obtained an exclusive license to Progressive's European patent application. They have recently completed a successful pilot test of the technology and it is now available commercially under the tradename "Pay As You Drive™"[10]
Recent theoretical economic research on the social welfare effects of Progressive's telematics technology business process patents have questioned whether the business process patents are pareto efficient for society. Premliminary results suggest that they are not, but more work is needed. [11] [12]
OBDII-based system
In 2004, Progressive launched another pilot program to allow policyholders to earn a discount on their premiums by consenting to use its TripSense device. TripSense connects to a car's OnBoard Diagnostic(OBD-II) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time.[13]
Auto Insurance in the United States
Coverage Available
The consumer may be protected with different coverage types depending on what coverage the insured purchases.
In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured’s vehicle, provided they do not live at the same address as the policy holder and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary for example, when a family member comes of driving age they must be added on to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident.
Generally, liability coverage does extend when you rent a car. Comprehensive policies ("full coverage") usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage may not apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle. Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.[14]
Liability
Liability coverage provides a fixed dollar amount of coverage for damages that an insured becomes legally liable to pay due to an accident or other negligence. For example, if an insured drives into a telephone pole and damages the pole, liability coverage pays for the damage to the pole. In this example, the insured also may become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company).
Liability coverage is available either as a combined single limit policy or as a split limit policy:
Combined Single Limit
A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured with a combine single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.
Split Limits
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Note that bodily injury liability coverage is also usually split as well into a maximum payment per person and a maximum payment per accident.
Collision
Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. Collision coverage is optional. Collision Damage Waiver (CDW) is the term used by rental car companies for collision coverage.
Comprehensive
Comprehensive (a.k.a. - Other Than Collision) coverage provides coverage, subject to a deductible, for an insured's vehicle that is damaged by incidents that are not considered Collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are just some types of Comprehensive losses.
Uninsured/Underinsured Coverage
Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if another at-fault party either does not have insurance, or does not have enough insurance. In effect, your insurance company acts as at fault party's insurance company.
In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws.
Loss of Use
Loss of Use coverage, also known as rental coverage, provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.
Loan/Lease Payoff
Loan/Lease Payoff coverage, also known as GAP coverage or GAP insurance,[15][16] was established in the early 1980s to provide protection to consumers based upon buying and market trends.
Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers when a "gap" exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances this insurance will also pay the deductible on the primary insurance policy. These policies are often offered at the auto dealership as a comparatively low cost add on that can be put into the car loan which provides coverage for the duration of the loan.
Consumers should be aware that a few states, including New York, require lenders of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning the State's requirements.
In addition, some vendors and insurance companies offer what is called "Total Loss Coverage." This is similar to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a new vehicle.
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, the "gap" is $5000. If the owner has traditional GAP coverage, the "gap" will be wiped out and he or she may purchase or lease another vehicle or choose not to. If the owner has "Total Loss Coverage," he or she will have to personally cover the "gap" of $5000, and then receive $5000 toward the purchase or lease of a new vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she will definitively purchase a replacement vehicle.
Car Towing Insurance
Car Towing coverage is also known as Roadside Assistance coverage. Traditionally, automobile insurance companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical breakdowns, flat tires and running out of gas. To fill that void, insurance companies started to offer the Car Towing coverage, which pays for non-accident related tows.
European Union and United Kingdom Laws regarding motor insurance
In 1930 the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance. Today UK law is defined by the The Road Traffic Act which was last modified in 1991.
The Act requires all motorists to be insured against their liability for injuries to others (including passengers) and for damage to other persons' property resulting from use of a vehicle on a public road or in other public places. This is called Third Party Insurance. It is an offence to drive your car, or allow others to drive it, without at least Third Party insurance whilst on the public highway, on private land no such legislation applies.
The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the vehicle specified on the document is indeed insured. The Law says that an authorised person, such as the police, may require a driver to produce an insurance certificate for inspection. If the driver cannot show the document immediately on request, then the driver will usually be issued a HORT/1 with seven days, as of midnight of the date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police station of the driver's choice. Failure to produce an insurance certificate is an offence.
Insurance is more expensive in Northern Ireland than in other parts of the UK.
Motorists in the UK are required to display a Vehicle excise duty disc in their car when it is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their vehicles because you are required to produce an insurance certificate when you purchase the disc. However it is a known practice for some people to purchase insurance to gain the certificate and then to cancel the insurance and gain a full refund within the statutory 14 day cooling off period.
The Motor Insurers Bureau compensates the victims of road accidents caused by uninsured and untraced motorists. It also operates the Motor Insurance Database, which contains details of every insured vehicle in the country.
Thursday, September 27, 2007
COMPILATION OF INSURANCE SCHEMES AVAILABLE WITH THE FOUR NATIONALIZED INSURANCE COMPANIES IN INDIA SUITABLE TO POOR FAMILIES
CONTENTS
TOPIC PAGE NO.
Introduction
2
1. Janashree life insurance scheme of Life Insurance Corporation of India
3
2. Group life insurance scheme for socially weaker sections
5
3. Raj Rajeshwari Mahila Kalyan Yojana
6
4. Personal accident insurance policy
7
4 a. Janata Personal Accident policy
8
4 b. Grameen Personal Accident policy
8
5. Medi-claim Bima policy - hospitalisation benefit policy
9
6. Jan Arogya hospitalisation policy
10
Note for NGO/MFIs on how to go about providing hospitalization
insurance
11
7. Livestock insurance
14
Note on taking a master policy for livestock insurance
16
8. Agricultural pump-set insurance
18
Note on how Insurance companies settle pump-set claims
19
9. Special package scheme devised for a Dairy Cooperative by United
India Insurance company 20
INTRODUCTION
In the last few years, practitioners of microfinance are increasingly recognizing the need to offer insurance services to their members in addition to the services of credit and savings. The vulnerability of the poor due to low and irregular incomes is exacerbated by unexpected crises such as illness, disability, death, or physical catastrophes such as flood, fire etc. These unexpected events can wipe out their savings or lead them into greater indebtedness, thus worsening their already weak position.
In India, only a few microfinance institutions (mfis) and non-government organizations (NGOs) are offering some insurance services to their members. Recognizing the need to build the capacity of MFIs in India to offer insurance services to their members, FWWB has been working on a project aimed at instituting insurance schemes for members of microfinance programme.
As a part of this project, FWWB is bringing out a series of informational material for its partner network. This booklet is a part of this series, and contains a tabulated description of some of the insurance schemes currently available with the four Indian nationalized insurance companies. The schemes listed inside are for risks commonly faced by low income. For four schemes, viz. Janshree Life Insurance scheme, hospitalization insurance, livestock insurance and agricultural pump-set insurance, descriptive notes on implementation issues has been added for the benefit of the reader.
In addition to single schemes for different types of risk cover, we have also presented one package scheme designed for a cooperative society. This scheme is shown as an example of possible packages that can be developed to suit the specific needs.
Friends of Women’s World Banking, India
May 2001
1. JAN SHREE LIFE INSURANCE SCHEME OF LIFE INSURANCE CORPORATION OF INDIA
Risk covered Natural death, accidental death, permanent total disability and partial disability
Who is eligible? - Groups of low-income individuals. While no minimum group size is specified, even a group of as few as 25 members can qualify for the scheme.
- Individuals cannot avail of the scheme.
Age limit 18-60 years
Policy holder The nodal organization through which the group policy is bought
What is the premium amount The policy costs Rs.200 per member per year of which Rs.100 is charged by the member and Rs.100 is contributed by the government.
Group discounts NIL
What is the sum insured? Rs. 20,000 for natural death; Rs. 50,000 for accidental death: permanent total disability occurring due to accident; Rs.25, 000 for partial disability
Who receives the claim amount? An account payee chequs is made in the name of the insured member or her nominee
Documents required for natural death claim Death certificate
Documents for accidental death claim Death certificate
First Information Report (FIR)
Post-mortem report
Permanent total disability means disability resulting from the loss of two eyes or two limbs. Partial disability refers to the disability resulting from the loss of one eye or one limb.
Specific characteristics of LIC’s Jan Shree Scheme
i) The Group Insurance Scheme of the LIC is a long-term continuous scheme for which premium is paid annually by the policyholder. The LIC issues a Policy only once, on payment of the premium at the time the policy is purchased. In the subsequent years, it only issues a receipt for the premium paid.
ii) The claim amount, in case of claims passed, is given by the insurance company to the policyholder. The policyholder has to disburse the amount to the nominee.
iii) The list of insured members can be revised each year. This would be necessary in the case of new members who want to join the scheme and/or existing members who want to withdraw from the scheme.
iv) A fresh list of members has to be submitted each year, if there are changes in the membership. If there are no changes in the membership, a declaration stating the same has to be submitted to LIC.
The commencement date for the policy period can be any month of the year, and can be jointly decided by the mFI and the Insurance Company. Once the policy period has been decided, e.g. January to December, or March to February, it is the same throughout the duration of the policy. Changing the policy period is possible, but it is a complicated procedure.
v) The list of insured members has to be sent to the insurance company prior to the commencement of the policy period. When renewing the policy for the second year, the company allows a grace period of 30 days for submitting the premium and list of members. However, if the list includes any new members, risk of these members is covered only from the date of payment of premium to LIC. (LIC accepts only one list per policyholder; so it is not possible to give two separate lists- one for old members and one for new members. The names of both old and new members have to be incorporated in one list)
2. GROUP LIFE INSURANCE SCHEME FOR SOCIALLY WEAKER SECTIONS
Risk covered 1. Natural death.
2. There is an option to cover accidental death, permanent total disability and partial disability by paying an additional premium.
Who is eligible? Groups of low-income individuals. A group can be as small as 25 members. Individuals cannot avail of the scheme.
Age limit 18-55 years
Who is the policyholder? The nodal agency through whom the group policy is purchased.
What is the premium amount? - The policy ranges from Rs.3.50 to Rs.10 per Rs.1000 sum insured per member per year. The premium here varies with the size of the group and the average age of the members.
- Premium for accidental death and disability cover if fixed at Rs.0.75 per Rs.1000 sum insured, irrespective of group size and age of members.
Group discounts Yes, depending upon group size
What is the sum insured The sum insured is selected by the insured group.
It ranges from Rs. 1000 to Rs. 20,000 for natural death.
The sum insured for accidental death can at most be is double of the sum insured for natural death.
Who receives the sum insured The claim amount is paid through an account payee cheque made in the name of the nodal agency.
Documents required for making claim for natural death Death certificate
Documents required for making claim for accidental death Death certificate
First Information Report (FIR)
Post-mortem report
3. RAJ RAJESHWARI MAHILA KALYAN YOJANA
Risk covered* A. Basic cover
Permanent total disability and partial disability of insured due to accident
Accidental death for unmarried women
Accidental death of insured’s husband
B. Extended cover
1. Temporary total disablement following hospitalization due to accident
2. Expenses incurred on legal proceedings for divorce
3. Loss of personal/household goods due to fire, flood cyclone
Who is eligible? Only women
Age limit 10-75 years
Who is the policyholder? - In the case of an individual policy- the Woman
- In the case of a group policy- Organization representing a group of women
What is the premium amount? - Basic cover Rs. 15 per member per year
- Basic cover with extended cover Rs. 23 per member per year
Discounts ( if any) - Group discounts- 5 % for a group size of 101-1,000 women and
10% for a group size of 1,001-10,000 women
- Long-term period discounts- insurance cover can also be taken for period upto 5 years. Discount varies with the number of years of cover sought
- Special discount of 5% in lieu of agency commission
What is the sum insured Basic cover
1. Rs. 25,000 permanent total disability; Rs.12, 500 for loss of one eye or one limb in an accident.
2. Rs. 25,000 for accidental death of unmarried women
3. Rs. 25,000 for accidental death of members husband
Extended cover
4. Rs. 500 per month’s upto a max. of Rs. 1,500
5. Upto Rs. 2000, based on actual expenses
6. Upto Rs. 2000
Who receives the claim amount? Individual in case of individual insurance
Nodal agency in case of group insurance
Claims procedure and documents required for making a claim Written notice to the company within 30 days of the event
Proof satisfactory to the company e.g physical examination in case of injury
Post mortem report in case of death
* Permanent total disability means disability resulting from the loss of two eyes or two limbs. Partial disability refers to the disability resulting from the loss of one eye or one limb.
4. PERSONAL ACCIDENT INSURANCE POLICY
I. Risk covered 4 options are available
1. Accidental death only
2. Permanent total disability (PTD – loss of two eyes or two limbs)
3. Permanent partial disability (PPD- loss of one eye or one limb)
4. Temporary total disability (TTD)
5. Medical expenses incurred for treatment of injury.
Insured can choose only 1, 1+2, 1+2+3, 1+2+3+4, 1+2+3+4+5
Who is eligible Anyone within 16 – 70 years
Who is the policy holder Individual or organization representing group of members
What is the premium rate The premium rate varies with the amount of coverage sought; which are as follows:
I Per Rs. 1000
II 100% of sum insured on death only --- Rs.0.45
100% of sum insured for permanent --- Rs.0.65
III total disability
1%- 100% of sum insured for permanent --- Rs. 0.75
IV partial disability
1 % of sum insured per week for temporary total --- Rs. 1.50
disability (this amount is paid to compensate for
loss of income due to an accident, and is paid for a
maximum of 100 weeks)
What is the sum insured Sum insured depends upon the annual income of the insured of person
- For coverage of I, II, III, the sum insured is five times the annual income of the person
For coverage of I, II, III, IV, the sum insured is two times of annual income person
Group discounts (if any) Group discounts of 5-30% are available.
Further, a special discount of 5% is given in lieu of agency commission to the policyholder of a group policy.
Who receives the claim amount Individual in case of individual policy
Organization in case of group policy, who in turn pays member / nominee
Claims procedure • Death claims – First Information Report (FIR) , Postmortem report and death certificate
• Other claims - police report if lodged, medical treatment (prescription, bills, receipts….), doctors certificate regarding disability
For an accidental injury resulting in death/disablement, compensation can be claimed within a period of 12 months of the accident.
TWO VARIATIONS OF THE PERSONAL ACCIDENT POLICY
Janata Personal Accident Policy
Gramin Personal Accident Policy
These two policies are variations of the Personal Accident Policy described above. They have lower premia and sums insured to make it affordable for the lower income groups. The other terms and conditions of these policies are the same as the Personal Accident Policy.
Janata Personal Accident Policy Gramin Personal Accident Policy
Who is eligible Anyone between 10-70 years Anyone between 10-70 years
What is the premium Rs. 15 per annum Rs. 5 per annum
Sum insured-
Death
PTD
PPD
Rs. 25000
Rs. 25,000
Rs. 12,500
Rs. 10,000
Rs. 10,000
Rs. 5,000
5. MEDI CLAIM BIMA POLICY -HOSPITALISATION BENEFIT POLICY
I. Risk covered i. Hospitalization due to disease, accident ;
ii. Medical expenses 30 days prior to, and 60 days after hospitalization
Who is eligible and Age limit Anyone Between 5 -75 years of age;
Children between the age of 3 months and 5 years of age can be covered provided one or both parents are covered concurrently
Who is the policyholder? The member- in the case of Individual policy
The organization -in the case of a group policy
What is the premium rate? The premium varies with the insured’s age
Minimum Rs. 175 per member per year for persons under 45 years
What is the sum insured? Minimum sum insured is Rs. 15000
Discounts (if any) For individual policies, family discounts of 10 % if more than one family member insured;
Group discounts available depending on size and average of group
Who receives the claim amount? Individual in case of individual policy
In case of group policy, organization or individual, as agreed upon
Claims procedure and documents required for making a claim 1. Preliminary notice of claim within 7 days of discharge from the hospital (policy number, illness, name and address of attending medical practitioner etc.)
2. Final claim should be submitted to the company within 30 days of discharge from the hospital, along with receipted bills/cash memos, claim form etc.
Exclusions No pre-existing diseases covered in first year. These include surgeries for hernia, cataract and hysterectomy.
Childbirth related hospitalization is not covered.
No hospitalization within 30 days except in case of accident
6. JAN AROGYA BIMA POLICY
This policy is a variation of the Mediclaim Policy described above. It has a lower premium and sum insured to make it affordable for the lower income groups. The other terms and conditions of the Jan Arogya policy are the same as the Mediclaim policy.
What is the premium rate? Premium varies with the age of the insured person. Minimum Rs.70 for person upto 45 years of age
What is the sum insured? Fixed sum insured of Rs.5000 per person
PROVIDING HEALTH INSURANCE TO MEMBERS OF MICROFINANCE PROGRAMMES
Introduction
In this note we discuss how mFIs/NGOs can provide health insurance for their members. Specifically, we discuss the health insurance scheme currently available through the four nationalized insurance companies.
The health insurance coverage currently available through insurance companies in India is for expenses incurred on hospitalization, and for medicines and laboratory tests directly related to the hospitalization for which claims are made.
Some Details Of Scheme Design And Coverage
1. Generally health insurance policies are annual polices, and have to be renewed each year.
2. The insurance company is particular about how it defines a hospital and a doctor and will honour only those claims where services have been obtained at hospitals and from doctors meeting the set standards. The standard definition for hospital is a facility that is open 24 hours and is registered as a hospital. If not registered, the facility should have at least 10-15 beds (depending upon location, i.e.urban/rural) and be open for 24 hours.
3. As mentioned above, the premium for the insurance coverage depends on the age of the insured person. In the case of group policies, the average age of the group is considered.
Two important choices that a person buying hospitalization insurance needs to make
I. How many persons in the family to insure
II. How much financial coverage to take
I. Choosing how many persons in the family to insure
Naturally, a person would like to have all the persons in her family covered under hospitalization insurance. However, the more the number of family members covered, the higher the premium.
One way to extend the insurance coverage across the entire family without paying the premium for all the family members is to buy a floater policy, which we describe below. While floater policies are relatively uncommon in India, they can be negotiated with the insurance companies.
II. How much financial coverage to take
The ‘financial coverage’ or ‘sum insured’ means the amount of money the insurance company will reimburse to the insured person for expenses incurred on the insured person’s hospitalization. Insurance companies offer different amounts of financial coverage. The higher the financial coverage a person wants, the more premium she has to pay. The premium also depends upon the age of the insured persons.
How a Floater Policy Works
Suppose a family has five members - two parents and three children. The family would like all its members to be covered by hospitalization insurance, but paying the premium for five members would be very expensive. Also it is unlikely that all five members will be hospitalized in one year. It can therefore choose to take a floater policy.
To design a floater policy, the family has to choose two things.
(i) how many of its members will be covered by the policy, and
(ii) how much financial coverage to take.
Based on the choices it makes, the insurance company will decide the premium.
The family can decide that it would like coverage for only the two adults in the family, since it feels it is unlikely that the children will be hospitalized. Alternately, it can decide to have all five members of the family covered under the scheme, so that the insurance would cover hospitalization for any of the five family members.
The more the number of persons that are covered under the floater policy, the higher the premium. If the family decides to cover only the husband and wife under the policy, the premium will be lower than if it covers all five family members. This is because the probability of hospitalization occurring among two persons is lower than the probability of hospitalization occurring among five persons.
The family also needs to choose the amount of financial coverage or ‘sum insured’.
Suppose the family decides to insure only the two adults in the family, and chooses a maximum claim amount of Rs. 10,000 per year.
The premium rate will be fixed taking into consideration both these factors, i.e. the number of persons covered under a floater policy and the financial coverage or ‘sum insured’.
Now, suppose the wife is hospitalized and Rs. 10,000 is spent on her illness. Then, if the husband happens to need hospitalization in that same year, the insurance company will not pay his hospitalization expenses. This is because the claim limit of Rs. 10,000 will have been used up for the hospitalization expenses of the wife. If the wife’s hospitalization had cost Rs. 6000, then the insurance company would have been willing to cover the husband’s hospitalization expenses upto a maximum of Rs. 4000.
Items That Can Be Negotiated With The Insurance Company
When an mFI decides to purchase a group health insurance for its members from the insurance company, it can negotiate certain terms and conditions with the insurance company. An mFI buying a group policy for a large number of individuals brings good business to the insurance company. In return, the insurance company may be willing to offer certain concessions to the mFI. Some of the items that can be negotiated with the insurance company are:
i. Rate of premium: By taking a group policy, the mFI can get group discounts. The larger the group and the lower the average age of the group members, the lower the premium.
ii. Definition of hospitalization: The standard definition of hospital as per the insurance company is given above. However, the mFI/NGO may be able to negotiate with the insurance company to include smaller hospitals in case of members living in remote areas. For this the MFI/NGO should have knowledge about the types of medical facilities used by its members.
iii. Limited claim settlement authority: The mFI/NGO can negotiate with the insurance company to give the mFI/NGO limited claim settlement authority. Under this, the mFI/NGO can settle claims upto a mutually agreed upon limit, without sending the documents to the insurance company. The insurance company will of course bear the cost of the claim, but the decision about whether to pass the claim or not will be with the mFI.
This system allows faster settlement of small claims, as the documents do not have to be sent to the insurance company. The insurance company also saves on administrative costs which it would incur in processing these claims.
However, having a limited claim settlement authority places two additional
responsibilities on the mFI/NGO.
First, it has to have the administrative apparatus to process these claims.
Second, the responsibility of ruling out fraudulent claims falls upon the
mFI/NGO.
iv. Maximum period for settling claims: The mFI/NGO and the insurance company can mutually agree upon the maximum time that the insurance company will take to process claims. This will prevent the problem of delays in claim settlement.
The Importance of Giving Complete Information About the Scheme To Members
One of the reasons that people do not have faith in insurance companies is because the insurance companies do not always clearly give all the relevant information to the insured persons at the time of buying the policy. Many details of expenses which are not covered under the policy become clear only when a claim is filed.
An mFI which decides to offer insurance services to its members needs to ensure that its members have complete faith in the programme. For this it is very important that the mFI conveys complete information to the members about the scheme. This can be done through trainings and workshops on insurance for the members and leaders.
In addition, members can be given pamphlets with written information about the insurance programme which they can take home with them. Even illiterate women value written information which they can take home. Even if they cannot read, some family member or neighbour can read it to them.
7. LIVESTOCK INSURANCE
I. Risk covered 1. Death of cattle * due to: accident, disease, surgical operation, riot and strike
2. Permanent Total Disability (PTD) on payment of extra premium: Permanent total disability , PTD in the case of stud bulls
Who is eligible Any cattle owner, or financer of cattle loans
Age limit 1. (a) Milch cows (indigenous/ cross-bred / exotic) 2 years (or age of first calving) to 10 years
(b) Milch buffaloes 3 years (or age of first calving) to 12 years
(c) Stud bulls (cow / buffalo species) 3 years to 8 years or earlier age of sexual maturity
(d) Bullocks (castrated bulls) and castrated male buffaloes, 3 years to 12 years
2. Indigenous- cross-bred and exotic female calves/ heifers From 4 months upto the date of first calving or minimum age as in 1 (a) and (b)
Who is the policy holder Individual owners of cattle, or institutions financing cattle loans (the latter can take a master policy)
What is the premium amount Species Covers
Death PTD extra
1. Scheme animals
(Indigenous/ cross-bred) 2.25% 0.85 %
2. Non-scheme animals
(Indigenous/ cross-bred) 4.00 % 1.00%
3. Exotic animals 4.00 % as above plus 2.00 % extra 1.00 %
What is the sum insured** Sum insured will not exceed 100% of market value for death, and
75% of sum insured for PTD
Who receives the claim amount Individual in case of individual policy
In case of group policy, individual or organization as agreed upon
LIVESTOCK INSURANCE (CONTD.)
Waiting period 15 days from the commencement of insurance for death due to disease
Claims procedure and documents required to make a claim Immediate intimation to company within 7 days of death.
Submission of the following documents within 30 days of the death:
1. Non-scheme animals
(a) Duly completed claim form and ear tag
(b) Death certificate from qualified veterinarian
(c) Postmortem examination report if required by the company
2. Scheme Animals
(a) Duly completed claim form and ear tag
(b) Death certificate from qualified veterinarian or by two village level officials
(c) Postmortem report if conducted
3. PTD
(a) Certificate from vet after inspection
(b) Complete information on treatment carried out
(c) Inspection by insurance company’s vet
* The word Cattle refers to: (a) Milch cows and buffaloes (b) calves / heifers (c) stud bulls (d) bullocks (castrated bulls) and castrated male buffaloes, whether indigenous exotic or cross-bred
** The market value of cattle varies from breed to breed, from area to area and from time to time
NOTE ON TAKING A MASTER POLICY FOR LIVESTOCK INSURANCE
A Master Policy is an annual agreement between the insurance company and an organization. An organization would purchase a master policy if it expects to insure a number of heads of cattle over the period of one year. The insurance company maintains a list of all the cattle that are insured under one master policy. Banks that issue IRDP loans for purchase of cattle routinely purchase this master policy.
Taking out a master policy: The interested organization has to meet with the Insurance Company and buy the policy. The policy-holder has to deposit a sum of money roughly equal to the expected monthly premium that is to be paid to the insurance company. This estimate will naturally be based on the expected number of insured cattle in an average month.
Duration of policy and coverage: A master policy is issued for a period of one year, and enables the policy holding organization to insure several heads of cattle as and when they are purchased in the course of the policy period. The coverage of insurance of any particular cow or buffalo is for a period of one year from the time it is insured.
However, the master policy has the effect of offering insurance coverage for a two year period. This happens for instance, if a cow is insured on the last day of the one year policy period. Even though the policy would lapse if it were not renewed, the cow insure on the last day would remain covered for one year from the date its insurance premium is received by the insurance company.
For e.g. if the master policy is for the period January 1 to December 31 2000, and the premium for insuring a cow is received by the insurance company on December 31, 2000, the cow would remain insured till December 31, 2001.
The policy can be renewed for the following year.
Registering a head of cattle in the policy: The policy holder has to send a monthly statement to the Insurance company informing them about the cattle purchased in that month which have to be insured. This has to be accompanied by a cheque for the exact amount of the premium for the new additions to the insured cattle list. Sending this exact premium means that the value of the deposit paid initially is maintained.
Information about the purchase of a cow or buffalo must reach the insurance company within one month of its purchase along with the premium amount, for the insurance coverage to happen.
Advantages of taking a master policy: There are two main advantages of taking a master policy. (1) An organization which expects that a number of cows/buffaloes will need to be insured over a year can simply take one policy instead of buying a new policy for each head of cattle insured. It is easier administratively. (2) More importantly, a master policy offers better insurance coverage. Under a master policy, a cow/buffalo is insured from the moment it is purchased, as long as information about the purchase reaches the insurance company within one month of the purchase date. In the case of single policies, insurance coverage for a cow begins only after the premium is paid to the insurance company. Thus the cattle is uninsured from the time it is purchased to the time the cheque reaches the insurance company, and the member will have to bear the loss if any thing goes wrong during this period.
All the other procedures (e.g. premium rate, identification through ear-tag etc.) are followed as per the Insurance Company’s livestock insurance policy.
.
8. AGRICULTURAL PUMP-SET INSURANCE
Risk covered Unforeseen and sudden physical damage caused by and/or solely due to :
1. Fire and / or lightening
2. Burglary / theft
3. Mechanical or electrical breakdown
Who is eligible Any one owning an agricultural pump set- individuals or group of individuals
Who is the policyholder? Who so ever is the owner of the pump set
What is the premium amount - 2% gross on Sum Insured for pump sets upto 10 years old
- 50 % loading on premium rates will be charged for pump sets more than 10 years old
Discounts (if any) Can be negotiated
What is the sum insured? Sum Insured will be 100 % of the market value of a new motor of the type insured.
Who receives the claim amount? The policy holder
Claims procedure and documents required for making a claim - Estimate of repairs
- Bills of repairs
- Payment receipt
- Damaged pump-set should be repaired only after survey hs been conducted
NOTE: Insurance companies have not had good experiences with pump-set insurance, particularly for older machines. It has generally been observed that wear and tear of machine parts sets in 6-7 years of purchase of the machine. An organization wanting to offer pump-set insurance to members may want to set an age limit for insured pump-sets.
How Insurance Companies Settle Pump-set Claims
Insurance companies pay compensation for pump set losses in two ways. The compensation is based either on partial loss or total loss. The decision about which should be the basis for settlement of claim depends on the cost of repair relative to the total current value of the pump-set. The example below illustrates the point.
Suppose the current depreciated value of the pump-set is Rs. 8000.
Scenario One
Suppose a part is damaged and the repair cost of damaged part is Rs. 5000
And suppose that the salvage value of the damaged part is Rs. 500
In this case, the cost to the insurance company (on partial loss basis)
would be the repair cost minus the salvage value of the damaged part, i.e. Rs. 4,500
Scenario Two
Suppose a part is damaged and the repair cost of damaged part is Rs. 7000
And the salvage value of the damaged part is Rs. 500
In this case, the settlement cost to the insurance company (on partial loss basis)
would be the repair cost minus the salvage value of the damaged part, i.e. Rs. 6,500
However, since Rs. 6,500 is only a little less than the total value of the motor,
i.e. Rs. 8,000, the insurance company would assess whether it should
compensate the insured on a partial loss basis or total basis.
Suppose the salvage value of the full motor is Rs. 1000
Here, the settlement cost to the insurance company (on total loss basis) would
be the current value of the pump-set minus the total salvage value, i.e. Rs. 7000
Under scenario II, where the liability on partial loss basis is only slightly lower than the liability on total loss basis, the insurance company would prefer to settle for total loss basis to avoid more claims on the same pump-set later.
9. SPECIAL SCHEME DEVISED FOR A DAIRY COOPERATIVE BY UNITED INDIA INSURANCE CO.
- This is group policy that has been tailor made for a diary cooperative
- The minimum number of members required to enroll for this group policy (the group size) – 25,000 members
- This scheme covers the following:
Coverage Sum insured (in Rs) per member Premium (in Rs.) charged per member
Fire damage to house
20,000 18.00
Personal accident
50,000 14.00
Mediclaim for hospitalization
5000 39.00
Loss of Assets- Household goods
10,000 6.00
Money in transit
2000 3.00
Total premium = Rs. 80.00
TOPIC PAGE NO.
Introduction
2
1. Janashree life insurance scheme of Life Insurance Corporation of India
3
2. Group life insurance scheme for socially weaker sections
5
3. Raj Rajeshwari Mahila Kalyan Yojana
6
4. Personal accident insurance policy
7
4 a. Janata Personal Accident policy
8
4 b. Grameen Personal Accident policy
8
5. Medi-claim Bima policy - hospitalisation benefit policy
9
6. Jan Arogya hospitalisation policy
10
Note for NGO/MFIs on how to go about providing hospitalization
insurance
11
7. Livestock insurance
14
Note on taking a master policy for livestock insurance
16
8. Agricultural pump-set insurance
18
Note on how Insurance companies settle pump-set claims
19
9. Special package scheme devised for a Dairy Cooperative by United
India Insurance company 20
INTRODUCTION
In the last few years, practitioners of microfinance are increasingly recognizing the need to offer insurance services to their members in addition to the services of credit and savings. The vulnerability of the poor due to low and irregular incomes is exacerbated by unexpected crises such as illness, disability, death, or physical catastrophes such as flood, fire etc. These unexpected events can wipe out their savings or lead them into greater indebtedness, thus worsening their already weak position.
In India, only a few microfinance institutions (mfis) and non-government organizations (NGOs) are offering some insurance services to their members. Recognizing the need to build the capacity of MFIs in India to offer insurance services to their members, FWWB has been working on a project aimed at instituting insurance schemes for members of microfinance programme.
As a part of this project, FWWB is bringing out a series of informational material for its partner network. This booklet is a part of this series, and contains a tabulated description of some of the insurance schemes currently available with the four Indian nationalized insurance companies. The schemes listed inside are for risks commonly faced by low income. For four schemes, viz. Janshree Life Insurance scheme, hospitalization insurance, livestock insurance and agricultural pump-set insurance, descriptive notes on implementation issues has been added for the benefit of the reader.
In addition to single schemes for different types of risk cover, we have also presented one package scheme designed for a cooperative society. This scheme is shown as an example of possible packages that can be developed to suit the specific needs.
Friends of Women’s World Banking, India
May 2001
1. JAN SHREE LIFE INSURANCE SCHEME OF LIFE INSURANCE CORPORATION OF INDIA
Risk covered Natural death, accidental death, permanent total disability and partial disability
Who is eligible? - Groups of low-income individuals. While no minimum group size is specified, even a group of as few as 25 members can qualify for the scheme.
- Individuals cannot avail of the scheme.
Age limit 18-60 years
Policy holder The nodal organization through which the group policy is bought
What is the premium amount The policy costs Rs.200 per member per year of which Rs.100 is charged by the member and Rs.100 is contributed by the government.
Group discounts NIL
What is the sum insured? Rs. 20,000 for natural death; Rs. 50,000 for accidental death: permanent total disability occurring due to accident; Rs.25, 000 for partial disability
Who receives the claim amount? An account payee chequs is made in the name of the insured member or her nominee
Documents required for natural death claim Death certificate
Documents for accidental death claim Death certificate
First Information Report (FIR)
Post-mortem report
Permanent total disability means disability resulting from the loss of two eyes or two limbs. Partial disability refers to the disability resulting from the loss of one eye or one limb.
Specific characteristics of LIC’s Jan Shree Scheme
i) The Group Insurance Scheme of the LIC is a long-term continuous scheme for which premium is paid annually by the policyholder. The LIC issues a Policy only once, on payment of the premium at the time the policy is purchased. In the subsequent years, it only issues a receipt for the premium paid.
ii) The claim amount, in case of claims passed, is given by the insurance company to the policyholder. The policyholder has to disburse the amount to the nominee.
iii) The list of insured members can be revised each year. This would be necessary in the case of new members who want to join the scheme and/or existing members who want to withdraw from the scheme.
iv) A fresh list of members has to be submitted each year, if there are changes in the membership. If there are no changes in the membership, a declaration stating the same has to be submitted to LIC.
The commencement date for the policy period can be any month of the year, and can be jointly decided by the mFI and the Insurance Company. Once the policy period has been decided, e.g. January to December, or March to February, it is the same throughout the duration of the policy. Changing the policy period is possible, but it is a complicated procedure.
v) The list of insured members has to be sent to the insurance company prior to the commencement of the policy period. When renewing the policy for the second year, the company allows a grace period of 30 days for submitting the premium and list of members. However, if the list includes any new members, risk of these members is covered only from the date of payment of premium to LIC. (LIC accepts only one list per policyholder; so it is not possible to give two separate lists- one for old members and one for new members. The names of both old and new members have to be incorporated in one list)
2. GROUP LIFE INSURANCE SCHEME FOR SOCIALLY WEAKER SECTIONS
Risk covered 1. Natural death.
2. There is an option to cover accidental death, permanent total disability and partial disability by paying an additional premium.
Who is eligible? Groups of low-income individuals. A group can be as small as 25 members. Individuals cannot avail of the scheme.
Age limit 18-55 years
Who is the policyholder? The nodal agency through whom the group policy is purchased.
What is the premium amount? - The policy ranges from Rs.3.50 to Rs.10 per Rs.1000 sum insured per member per year. The premium here varies with the size of the group and the average age of the members.
- Premium for accidental death and disability cover if fixed at Rs.0.75 per Rs.1000 sum insured, irrespective of group size and age of members.
Group discounts Yes, depending upon group size
What is the sum insured The sum insured is selected by the insured group.
It ranges from Rs. 1000 to Rs. 20,000 for natural death.
The sum insured for accidental death can at most be is double of the sum insured for natural death.
Who receives the sum insured The claim amount is paid through an account payee cheque made in the name of the nodal agency.
Documents required for making claim for natural death Death certificate
Documents required for making claim for accidental death Death certificate
First Information Report (FIR)
Post-mortem report
3. RAJ RAJESHWARI MAHILA KALYAN YOJANA
Risk covered* A. Basic cover
Permanent total disability and partial disability of insured due to accident
Accidental death for unmarried women
Accidental death of insured’s husband
B. Extended cover
1. Temporary total disablement following hospitalization due to accident
2. Expenses incurred on legal proceedings for divorce
3. Loss of personal/household goods due to fire, flood cyclone
Who is eligible? Only women
Age limit 10-75 years
Who is the policyholder? - In the case of an individual policy- the Woman
- In the case of a group policy- Organization representing a group of women
What is the premium amount? - Basic cover Rs. 15 per member per year
- Basic cover with extended cover Rs. 23 per member per year
Discounts ( if any) - Group discounts- 5 % for a group size of 101-1,000 women and
10% for a group size of 1,001-10,000 women
- Long-term period discounts- insurance cover can also be taken for period upto 5 years. Discount varies with the number of years of cover sought
- Special discount of 5% in lieu of agency commission
What is the sum insured Basic cover
1. Rs. 25,000 permanent total disability; Rs.12, 500 for loss of one eye or one limb in an accident.
2. Rs. 25,000 for accidental death of unmarried women
3. Rs. 25,000 for accidental death of members husband
Extended cover
4. Rs. 500 per month’s upto a max. of Rs. 1,500
5. Upto Rs. 2000, based on actual expenses
6. Upto Rs. 2000
Who receives the claim amount? Individual in case of individual insurance
Nodal agency in case of group insurance
Claims procedure and documents required for making a claim Written notice to the company within 30 days of the event
Proof satisfactory to the company e.g physical examination in case of injury
Post mortem report in case of death
* Permanent total disability means disability resulting from the loss of two eyes or two limbs. Partial disability refers to the disability resulting from the loss of one eye or one limb.
4. PERSONAL ACCIDENT INSURANCE POLICY
I. Risk covered 4 options are available
1. Accidental death only
2. Permanent total disability (PTD – loss of two eyes or two limbs)
3. Permanent partial disability (PPD- loss of one eye or one limb)
4. Temporary total disability (TTD)
5. Medical expenses incurred for treatment of injury.
Insured can choose only 1, 1+2, 1+2+3, 1+2+3+4, 1+2+3+4+5
Who is eligible Anyone within 16 – 70 years
Who is the policy holder Individual or organization representing group of members
What is the premium rate The premium rate varies with the amount of coverage sought; which are as follows:
I Per Rs. 1000
II 100% of sum insured on death only --- Rs.0.45
100% of sum insured for permanent --- Rs.0.65
III total disability
1%- 100% of sum insured for permanent --- Rs. 0.75
IV partial disability
1 % of sum insured per week for temporary total --- Rs. 1.50
disability (this amount is paid to compensate for
loss of income due to an accident, and is paid for a
maximum of 100 weeks)
What is the sum insured Sum insured depends upon the annual income of the insured of person
- For coverage of I, II, III, the sum insured is five times the annual income of the person
For coverage of I, II, III, IV, the sum insured is two times of annual income person
Group discounts (if any) Group discounts of 5-30% are available.
Further, a special discount of 5% is given in lieu of agency commission to the policyholder of a group policy.
Who receives the claim amount Individual in case of individual policy
Organization in case of group policy, who in turn pays member / nominee
Claims procedure • Death claims – First Information Report (FIR) , Postmortem report and death certificate
• Other claims - police report if lodged, medical treatment (prescription, bills, receipts….), doctors certificate regarding disability
For an accidental injury resulting in death/disablement, compensation can be claimed within a period of 12 months of the accident.
TWO VARIATIONS OF THE PERSONAL ACCIDENT POLICY
Janata Personal Accident Policy
Gramin Personal Accident Policy
These two policies are variations of the Personal Accident Policy described above. They have lower premia and sums insured to make it affordable for the lower income groups. The other terms and conditions of these policies are the same as the Personal Accident Policy.
Janata Personal Accident Policy Gramin Personal Accident Policy
Who is eligible Anyone between 10-70 years Anyone between 10-70 years
What is the premium Rs. 15 per annum Rs. 5 per annum
Sum insured-
Death
PTD
PPD
Rs. 25000
Rs. 25,000
Rs. 12,500
Rs. 10,000
Rs. 10,000
Rs. 5,000
5. MEDI CLAIM BIMA POLICY -HOSPITALISATION BENEFIT POLICY
I. Risk covered i. Hospitalization due to disease, accident ;
ii. Medical expenses 30 days prior to, and 60 days after hospitalization
Who is eligible and Age limit Anyone Between 5 -75 years of age;
Children between the age of 3 months and 5 years of age can be covered provided one or both parents are covered concurrently
Who is the policyholder? The member- in the case of Individual policy
The organization -in the case of a group policy
What is the premium rate? The premium varies with the insured’s age
Minimum Rs. 175 per member per year for persons under 45 years
What is the sum insured? Minimum sum insured is Rs. 15000
Discounts (if any) For individual policies, family discounts of 10 % if more than one family member insured;
Group discounts available depending on size and average of group
Who receives the claim amount? Individual in case of individual policy
In case of group policy, organization or individual, as agreed upon
Claims procedure and documents required for making a claim 1. Preliminary notice of claim within 7 days of discharge from the hospital (policy number, illness, name and address of attending medical practitioner etc.)
2. Final claim should be submitted to the company within 30 days of discharge from the hospital, along with receipted bills/cash memos, claim form etc.
Exclusions No pre-existing diseases covered in first year. These include surgeries for hernia, cataract and hysterectomy.
Childbirth related hospitalization is not covered.
No hospitalization within 30 days except in case of accident
6. JAN AROGYA BIMA POLICY
This policy is a variation of the Mediclaim Policy described above. It has a lower premium and sum insured to make it affordable for the lower income groups. The other terms and conditions of the Jan Arogya policy are the same as the Mediclaim policy.
What is the premium rate? Premium varies with the age of the insured person. Minimum Rs.70 for person upto 45 years of age
What is the sum insured? Fixed sum insured of Rs.5000 per person
PROVIDING HEALTH INSURANCE TO MEMBERS OF MICROFINANCE PROGRAMMES
Introduction
In this note we discuss how mFIs/NGOs can provide health insurance for their members. Specifically, we discuss the health insurance scheme currently available through the four nationalized insurance companies.
The health insurance coverage currently available through insurance companies in India is for expenses incurred on hospitalization, and for medicines and laboratory tests directly related to the hospitalization for which claims are made.
Some Details Of Scheme Design And Coverage
1. Generally health insurance policies are annual polices, and have to be renewed each year.
2. The insurance company is particular about how it defines a hospital and a doctor and will honour only those claims where services have been obtained at hospitals and from doctors meeting the set standards. The standard definition for hospital is a facility that is open 24 hours and is registered as a hospital. If not registered, the facility should have at least 10-15 beds (depending upon location, i.e.urban/rural) and be open for 24 hours.
3. As mentioned above, the premium for the insurance coverage depends on the age of the insured person. In the case of group policies, the average age of the group is considered.
Two important choices that a person buying hospitalization insurance needs to make
I. How many persons in the family to insure
II. How much financial coverage to take
I. Choosing how many persons in the family to insure
Naturally, a person would like to have all the persons in her family covered under hospitalization insurance. However, the more the number of family members covered, the higher the premium.
One way to extend the insurance coverage across the entire family without paying the premium for all the family members is to buy a floater policy, which we describe below. While floater policies are relatively uncommon in India, they can be negotiated with the insurance companies.
II. How much financial coverage to take
The ‘financial coverage’ or ‘sum insured’ means the amount of money the insurance company will reimburse to the insured person for expenses incurred on the insured person’s hospitalization. Insurance companies offer different amounts of financial coverage. The higher the financial coverage a person wants, the more premium she has to pay. The premium also depends upon the age of the insured persons.
How a Floater Policy Works
Suppose a family has five members - two parents and three children. The family would like all its members to be covered by hospitalization insurance, but paying the premium for five members would be very expensive. Also it is unlikely that all five members will be hospitalized in one year. It can therefore choose to take a floater policy.
To design a floater policy, the family has to choose two things.
(i) how many of its members will be covered by the policy, and
(ii) how much financial coverage to take.
Based on the choices it makes, the insurance company will decide the premium.
The family can decide that it would like coverage for only the two adults in the family, since it feels it is unlikely that the children will be hospitalized. Alternately, it can decide to have all five members of the family covered under the scheme, so that the insurance would cover hospitalization for any of the five family members.
The more the number of persons that are covered under the floater policy, the higher the premium. If the family decides to cover only the husband and wife under the policy, the premium will be lower than if it covers all five family members. This is because the probability of hospitalization occurring among two persons is lower than the probability of hospitalization occurring among five persons.
The family also needs to choose the amount of financial coverage or ‘sum insured’.
Suppose the family decides to insure only the two adults in the family, and chooses a maximum claim amount of Rs. 10,000 per year.
The premium rate will be fixed taking into consideration both these factors, i.e. the number of persons covered under a floater policy and the financial coverage or ‘sum insured’.
Now, suppose the wife is hospitalized and Rs. 10,000 is spent on her illness. Then, if the husband happens to need hospitalization in that same year, the insurance company will not pay his hospitalization expenses. This is because the claim limit of Rs. 10,000 will have been used up for the hospitalization expenses of the wife. If the wife’s hospitalization had cost Rs. 6000, then the insurance company would have been willing to cover the husband’s hospitalization expenses upto a maximum of Rs. 4000.
Items That Can Be Negotiated With The Insurance Company
When an mFI decides to purchase a group health insurance for its members from the insurance company, it can negotiate certain terms and conditions with the insurance company. An mFI buying a group policy for a large number of individuals brings good business to the insurance company. In return, the insurance company may be willing to offer certain concessions to the mFI. Some of the items that can be negotiated with the insurance company are:
i. Rate of premium: By taking a group policy, the mFI can get group discounts. The larger the group and the lower the average age of the group members, the lower the premium.
ii. Definition of hospitalization: The standard definition of hospital as per the insurance company is given above. However, the mFI/NGO may be able to negotiate with the insurance company to include smaller hospitals in case of members living in remote areas. For this the MFI/NGO should have knowledge about the types of medical facilities used by its members.
iii. Limited claim settlement authority: The mFI/NGO can negotiate with the insurance company to give the mFI/NGO limited claim settlement authority. Under this, the mFI/NGO can settle claims upto a mutually agreed upon limit, without sending the documents to the insurance company. The insurance company will of course bear the cost of the claim, but the decision about whether to pass the claim or not will be with the mFI.
This system allows faster settlement of small claims, as the documents do not have to be sent to the insurance company. The insurance company also saves on administrative costs which it would incur in processing these claims.
However, having a limited claim settlement authority places two additional
responsibilities on the mFI/NGO.
First, it has to have the administrative apparatus to process these claims.
Second, the responsibility of ruling out fraudulent claims falls upon the
mFI/NGO.
iv. Maximum period for settling claims: The mFI/NGO and the insurance company can mutually agree upon the maximum time that the insurance company will take to process claims. This will prevent the problem of delays in claim settlement.
The Importance of Giving Complete Information About the Scheme To Members
One of the reasons that people do not have faith in insurance companies is because the insurance companies do not always clearly give all the relevant information to the insured persons at the time of buying the policy. Many details of expenses which are not covered under the policy become clear only when a claim is filed.
An mFI which decides to offer insurance services to its members needs to ensure that its members have complete faith in the programme. For this it is very important that the mFI conveys complete information to the members about the scheme. This can be done through trainings and workshops on insurance for the members and leaders.
In addition, members can be given pamphlets with written information about the insurance programme which they can take home with them. Even illiterate women value written information which they can take home. Even if they cannot read, some family member or neighbour can read it to them.
7. LIVESTOCK INSURANCE
I. Risk covered 1. Death of cattle * due to: accident, disease, surgical operation, riot and strike
2. Permanent Total Disability (PTD) on payment of extra premium: Permanent total disability , PTD in the case of stud bulls
Who is eligible Any cattle owner, or financer of cattle loans
Age limit 1. (a) Milch cows (indigenous/ cross-bred / exotic) 2 years (or age of first calving) to 10 years
(b) Milch buffaloes 3 years (or age of first calving) to 12 years
(c) Stud bulls (cow / buffalo species) 3 years to 8 years or earlier age of sexual maturity
(d) Bullocks (castrated bulls) and castrated male buffaloes, 3 years to 12 years
2. Indigenous- cross-bred and exotic female calves/ heifers From 4 months upto the date of first calving or minimum age as in 1 (a) and (b)
Who is the policy holder Individual owners of cattle, or institutions financing cattle loans (the latter can take a master policy)
What is the premium amount Species Covers
Death PTD extra
1. Scheme animals
(Indigenous/ cross-bred) 2.25% 0.85 %
2. Non-scheme animals
(Indigenous/ cross-bred) 4.00 % 1.00%
3. Exotic animals 4.00 % as above plus 2.00 % extra 1.00 %
What is the sum insured** Sum insured will not exceed 100% of market value for death, and
75% of sum insured for PTD
Who receives the claim amount Individual in case of individual policy
In case of group policy, individual or organization as agreed upon
LIVESTOCK INSURANCE (CONTD.)
Waiting period 15 days from the commencement of insurance for death due to disease
Claims procedure and documents required to make a claim Immediate intimation to company within 7 days of death.
Submission of the following documents within 30 days of the death:
1. Non-scheme animals
(a) Duly completed claim form and ear tag
(b) Death certificate from qualified veterinarian
(c) Postmortem examination report if required by the company
2. Scheme Animals
(a) Duly completed claim form and ear tag
(b) Death certificate from qualified veterinarian or by two village level officials
(c) Postmortem report if conducted
3. PTD
(a) Certificate from vet after inspection
(b) Complete information on treatment carried out
(c) Inspection by insurance company’s vet
* The word Cattle refers to: (a) Milch cows and buffaloes (b) calves / heifers (c) stud bulls (d) bullocks (castrated bulls) and castrated male buffaloes, whether indigenous exotic or cross-bred
** The market value of cattle varies from breed to breed, from area to area and from time to time
NOTE ON TAKING A MASTER POLICY FOR LIVESTOCK INSURANCE
A Master Policy is an annual agreement between the insurance company and an organization. An organization would purchase a master policy if it expects to insure a number of heads of cattle over the period of one year. The insurance company maintains a list of all the cattle that are insured under one master policy. Banks that issue IRDP loans for purchase of cattle routinely purchase this master policy.
Taking out a master policy: The interested organization has to meet with the Insurance Company and buy the policy. The policy-holder has to deposit a sum of money roughly equal to the expected monthly premium that is to be paid to the insurance company. This estimate will naturally be based on the expected number of insured cattle in an average month.
Duration of policy and coverage: A master policy is issued for a period of one year, and enables the policy holding organization to insure several heads of cattle as and when they are purchased in the course of the policy period. The coverage of insurance of any particular cow or buffalo is for a period of one year from the time it is insured.
However, the master policy has the effect of offering insurance coverage for a two year period. This happens for instance, if a cow is insured on the last day of the one year policy period. Even though the policy would lapse if it were not renewed, the cow insure on the last day would remain covered for one year from the date its insurance premium is received by the insurance company.
For e.g. if the master policy is for the period January 1 to December 31 2000, and the premium for insuring a cow is received by the insurance company on December 31, 2000, the cow would remain insured till December 31, 2001.
The policy can be renewed for the following year.
Registering a head of cattle in the policy: The policy holder has to send a monthly statement to the Insurance company informing them about the cattle purchased in that month which have to be insured. This has to be accompanied by a cheque for the exact amount of the premium for the new additions to the insured cattle list. Sending this exact premium means that the value of the deposit paid initially is maintained.
Information about the purchase of a cow or buffalo must reach the insurance company within one month of its purchase along with the premium amount, for the insurance coverage to happen.
Advantages of taking a master policy: There are two main advantages of taking a master policy. (1) An organization which expects that a number of cows/buffaloes will need to be insured over a year can simply take one policy instead of buying a new policy for each head of cattle insured. It is easier administratively. (2) More importantly, a master policy offers better insurance coverage. Under a master policy, a cow/buffalo is insured from the moment it is purchased, as long as information about the purchase reaches the insurance company within one month of the purchase date. In the case of single policies, insurance coverage for a cow begins only after the premium is paid to the insurance company. Thus the cattle is uninsured from the time it is purchased to the time the cheque reaches the insurance company, and the member will have to bear the loss if any thing goes wrong during this period.
All the other procedures (e.g. premium rate, identification through ear-tag etc.) are followed as per the Insurance Company’s livestock insurance policy.
.
8. AGRICULTURAL PUMP-SET INSURANCE
Risk covered Unforeseen and sudden physical damage caused by and/or solely due to :
1. Fire and / or lightening
2. Burglary / theft
3. Mechanical or electrical breakdown
Who is eligible Any one owning an agricultural pump set- individuals or group of individuals
Who is the policyholder? Who so ever is the owner of the pump set
What is the premium amount - 2% gross on Sum Insured for pump sets upto 10 years old
- 50 % loading on premium rates will be charged for pump sets more than 10 years old
Discounts (if any) Can be negotiated
What is the sum insured? Sum Insured will be 100 % of the market value of a new motor of the type insured.
Who receives the claim amount? The policy holder
Claims procedure and documents required for making a claim - Estimate of repairs
- Bills of repairs
- Payment receipt
- Damaged pump-set should be repaired only after survey hs been conducted
NOTE: Insurance companies have not had good experiences with pump-set insurance, particularly for older machines. It has generally been observed that wear and tear of machine parts sets in 6-7 years of purchase of the machine. An organization wanting to offer pump-set insurance to members may want to set an age limit for insured pump-sets.
How Insurance Companies Settle Pump-set Claims
Insurance companies pay compensation for pump set losses in two ways. The compensation is based either on partial loss or total loss. The decision about which should be the basis for settlement of claim depends on the cost of repair relative to the total current value of the pump-set. The example below illustrates the point.
Suppose the current depreciated value of the pump-set is Rs. 8000.
Scenario One
Suppose a part is damaged and the repair cost of damaged part is Rs. 5000
And suppose that the salvage value of the damaged part is Rs. 500
In this case, the cost to the insurance company (on partial loss basis)
would be the repair cost minus the salvage value of the damaged part, i.e. Rs. 4,500
Scenario Two
Suppose a part is damaged and the repair cost of damaged part is Rs. 7000
And the salvage value of the damaged part is Rs. 500
In this case, the settlement cost to the insurance company (on partial loss basis)
would be the repair cost minus the salvage value of the damaged part, i.e. Rs. 6,500
However, since Rs. 6,500 is only a little less than the total value of the motor,
i.e. Rs. 8,000, the insurance company would assess whether it should
compensate the insured on a partial loss basis or total basis.
Suppose the salvage value of the full motor is Rs. 1000
Here, the settlement cost to the insurance company (on total loss basis) would
be the current value of the pump-set minus the total salvage value, i.e. Rs. 7000
Under scenario II, where the liability on partial loss basis is only slightly lower than the liability on total loss basis, the insurance company would prefer to settle for total loss basis to avoid more claims on the same pump-set later.
9. SPECIAL SCHEME DEVISED FOR A DAIRY COOPERATIVE BY UNITED INDIA INSURANCE CO.
- This is group policy that has been tailor made for a diary cooperative
- The minimum number of members required to enroll for this group policy (the group size) – 25,000 members
- This scheme covers the following:
Coverage Sum insured (in Rs) per member Premium (in Rs.) charged per member
Fire damage to house
20,000 18.00
Personal accident
50,000 14.00
Mediclaim for hospitalization
5000 39.00
Loss of Assets- Household goods
10,000 6.00
Money in transit
2000 3.00
Total premium = Rs. 80.00
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