Personal Finance Tips

This February, the Department of Health and Human Resources has issued a report identifying an alarming trend for insurance companies to seek premium rate increases. This is not limited to one or two states. This is not limited to one or two percentage increases in the rates. This is all the leading insurance companies asking for the right to significantly higher premiums: in Michigan hikes of 56%, in California hikes of 39%, and so on. If this only affected small numbers of policyholders, it might have passed unnoticed. But, with millions of policyholders affected across the country, these rate increase requests have attracted the full scrutiny of the federal government. Secretary Sibelius has been leading the attack, using the requests to push the reform agenda forward.

Because of the national anger, some companies have paused. WellPoint had proposed the increases take effect from March 1. Any increases, even if approved by the states, will now be delayed until May at the earliest. This decision is partly in response to the summons of WellPoint’s chief executive officer to Washington to justify the requested increases. Insurance companies find themselves in a difficult political situation. Their management teams accept a duty to maximize profits for the benefit of the stockholders. They look around at an America seriously affected by the recession. Increasing numbers of people are unable to afford the premiums, some because of unemployment, others because of a squeeze on credit. More worrying from the insurance industry is that more healthy people are deciding not to insure at all. This means the group of people left holding policies has a higher percentage of those with existing health problems. Without more healthy people in the group paying premiums and not claiming, it becomes more expensive to insure those less healthy people who remain. It is also a verified fact that hospitals and healthcare service professionals have also been increasing their fees and charges. The pharmaceutical companies have increased the price of almost all the most commonly used drugs. The insurance industry is under pressure from both sides. As Secretary Sibelius points out, however, this is not a completely accurate picture. Every year, insurance companies are required to submit reports to all the US states in which they are licensed to sell policies. This data shows many companies actually increased the number of policyholders during 2009.

The market in health insurance plans is complicated by the political situation. Democrats and Republicans are two armies unable to agree a truce long enough for some reform to be made. As it stands, there is no immediate likelihood that medical costs will be controlled. If the costs continue to rise faster than inflation, insurers will have no choice other than increasing their premiums. If they do not, they will not have enough cash in hand to pay out on all the claims. This means, for the average person, it will become increasingly difficult to find cheap health insurance. For those with a pre-existing condition, group health insurance will be the only option but, for those plans, premiums are rising at their fastest rates. For years, it has been obvious that the healthcare industry is broken. It would be ironic if, having come this close to some meaningful reforms, we not only saw the reform bills lost in Washington, but also found every major insurer imposing massive premium increases. That really would be the final nail in the coffin.

It’s always better to start article with good news. This sets a positive tone to the piece and keeps people reading. So, let’s start with good news. The premiums for life insurance have been dropping! Yes, you can believe your eyes. It may not feel like it, but there has never been a cheaper time to buy a life policy. How come? Well, unlike other forms of insurance, the policy only pays out in the future when the life insured ends. If you go back to 1980, men lived to an average of 70 years, women to 77 years. In the latest figures released by the Center for Communicable Diseases, men now live to an average of 75.6, with women now into the 80s at 80.8 years. As an aside, the poor quality of the US healthcare service is highlighted by the life expectancy figures. The US ranks only 38th in the world. That said, since the obligation of having to pay out on a life policy is disappearing into the future, the cost of the benefits payable can be collected over more years. This makes premiums fall.

You will have noticed that women usually live longer than men. There are a number of explanations for this, but the reality is simple. Women have always had stronger levels of immunity to almost all diseases that strike down men. They are also more careful and less likely to die in any kind of accidents or while indulging in dangerous sports. This reflects the gender roles with women acting protectively over their children and, in later years, acting as the primary caregivers to older family members and relatives. This throws up the first major decision. If a woman is going to leave dependents behind her, there will be a need to leave a more substantial lump sum behind. Women multitask and buying in professional help to do all the work is expensive. Whereas it’s estimated that men should leave an average of seven times their average pay, women with dependents should aim for a multiple of not less than ten. The plan should be to provide a substantial lump sum that can be invested and generate an income to supplement the capital for those who remain.

With family responsibilities, the second decision is the type of policy to buy. If your budget is tight, there will be a temptation to buy the cheaper term insurance. But, with life expectancy extending, you are gambling you will not outlive the policy. Remember, there is no payment if you are still alive when the term ends. Although permanent insurance costs more, it gives a valuable safety net for your dependents. More importantly, a permanent policy has a cash value and this can give you access to money if expenses are threatening to overwhelm you. So when you start shopping around, always get life insurance quotes from the widest possible range of companies. Then check out that they are financially stable. You need your choice to be around in the decades to come. It’s also a good idea to find out whether the company offers an advice service to help older people manage their money. So don’t stop when you get a list of the life insurance quotes using the search engine. Talk to the companies before deciding which is going to offer you the best deal.