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Get answers to some of our most important commonly asked questions that will help you make good decisions here. Each section is grouped by insurance type.

General Insurance

What are the differences among the major types of insurers in the United States?

The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company and the insurance product is sold to customers who may or may not be shareholders in the firm. Mutual insurers are companies that are owned by their customers. Any policy owner of the company also owns a portion of the company. Reciprocal insurers or reciprocal exchanges are insurance companies where the policy owners of the exchange agree to insure one another. They are very similar to mutual companies.

Lloyd’s associations are insurance companies where the manager who makes the decisions for the firm also has his/her own personal wealth at stake in the firm. Blue Cross/Blue Shield insurers are typically nonprofit (some may now be for-profit), community-oriented health insurance providers. Blue Cross/Blue Shield companies typically offer traditional indemnity health insurance. HMOs or Health Maintenance Organizations are companies that provide comprehensive health care coverage to their customers. HMOs, in their simplest form, provide prepaid health care coverage. Once you pay your premium you can use the services of the HMO at little or no further cost to you.

Should I care which type of insurer I purchase insurance from?

From the customer’s point of view, the company which offers you the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from regardless of their organizational form. Economists have tried in numerous studies to identify which one of its organizational forms can provide the insurance product at the lowest cost and the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors such as the financial quality of the firm.

Some insurance agents I talk to say they are paid employees of the insurance company while other agents says they are independent business people – why the difference? Should I care which one I purchase insurance from?

Insurers deliver their insurance products to policy owners primarily through independent agents or through exclusive agents. Historically, almost all insurance agents were independent business people paid on commission. More recently, many insurance companies have adopted a system where the agent is a paid employee of the firm rather than an independent business person. These agents are referred to as exclusive agents.

Independent agents have the freedom to shop your insurance for you with multiple insurance companies. The reason some companies have paid employee agents is obvious. The exclusive agent companies do not want their agents to be able to compare their policies with other insurance companies. Also since independent agents are not employees of the company, they have the freedom to offer more objective claims advice and more personal claims service. Many exclusive agent companies require their policyholders to call an 800 number rather than call their agent. Once this number is called, the potential claim goes on a claim record whether or not it is covered by the policy. The personal, customized service provided by independent agents has stood the test of time as the number of independent agencies has grown dramatically in the 21st century.

What do I give up by not using an agent to purchase insurance?

Many property-casualty and life insurance products can be purchased without the use of an agent. Typically potential policyholders will either be contacted through mail or Internet ads, or they can call an 800 number to apply for the insurance product. These companies claim to have better pricing, but many times they do not. They claim to save you money by “cutting out the middleman”, but what they do not tell the consumer is they are spending hundreds of millions of dollars on TV, radio, mail, and newspaper ads on their distribution system, as well as employee expenses. Instead of receiving personal, customized, quality local service from a highly trained insurance professional, the consumer is many times buying an inferior product that is based on price only and impersonal service from distant and minimally trained employees. By purchasing one’s insurance from an independent agent, a consumer can talk to the same people every time.

I understand there are organizations that assign financial ratings to insurance companies. Who are they and what do they do?

Insurance is a product where the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important that you know the financial health of the insurer when you are deciding how much you are willing to pay for the product. For example, holding all other things equal, people should pay slightly more for a life insurance policy from an insurance company with a higher financial rating or should pay slightly less for the same policy from a company that is not as financially strong.

In order to make this kind of informed purchasing decision, a number of private organizations, called rating agencies, rate the financial stability of insurance companies. Major insurance rating agencies include the A.M. Best Company, Standard & Poor’s, Weiss Research, Duff and Phelps, and Moody’s. Each of these companies uses data obtained from various sources to rate the financial strength of insurance companies. It should be noted, however, that each organization has its own rating standards and therefore the financial grades from two different rating agencies may be different. The best advice usually given to insureds is to check the financial rating of the insurer from as many rating agencies as possible to determine the range of opinions of the financial health of the company.

Where can information be found on the largest insurance companies in the United States?

The monthly publication Best’s Review (Life and Health Edition) periodically contains information on assets, premium income, and products sold by most of the largest life insurance companies operating in the U.S. The sister publication, Best’s Review (Property and Casualty Edition) provides certain statistical information on large property-casualty companies. Both magazines are published by the A. M. Best Company in Oldwick, NJ. Public libraries in cities of medium to large size frequently subscribe to one or both of these magazines.

What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?

When you apply for an insurance policy, you will be asked a number of questions. For example, the agent will ask you a number of demographic questions such as your name, age, sex, address, etc. In addition to these demographic questions, you will be asked a number of other questions that will be used to determine what type of risk you are. For example, when an insurance company is deciding whether or not to offer auto insurance to a potential policy owner, it will want to know about the person’s previous driving record, whether there have been any recent accidents or tickets, what type of car is to be insured and various other types of information.

All of this information will be used for two purposes. First, based upon the responses to these questions, the insurance company will decide whether the profile of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only very safe drivers and therefore will only accept applications from people who fit the profile of a safe driver. Second, once the insurer has decided that your risk profile is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate to charge you. For example, the insurance company will decide whether you should be offered insurance at the high-risk driver rate or the low-risk driver rate.

Collectively, this entire process is known as the underwriting process. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application. If the answer is yes, then the underwriting department seeks to determine the “quality” of that risk so that the proper premium can be charged. That is, high-risk people should pay more than low-risk people.

Life / Health Insurance

Do I have to take a physical exam in order to get life insurance?

Many life insurance companies issue non-medical life insurance, where you simply have to answer a series of questions in an application. However, depending on your answers, the company might require you to take a physical examination for any of the following: seriously impaired health, the existence of a terminal illness, or a request for an unusually large amount of coverage. If you refuse to take an examination, then the company has the right not to sell you a policy.

Can an insurance company refuse to insure me if I have a preexisting condition?

Yes, a company can reject you for a preexisting condition with almost no exceptions. A preexisting condition is a medical condition that the insured knows about before applying for coverage. Such a condition might affect either insurability or premium amount.

How much life insurance do I need?

Before buying life insurance, you should assemble personal financial information and review your family’s needs. There are a number of factors to consider when determining how much protection you should have. These include:

  • Any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes;
  • Funds for a readjustment period, to finance a move or to provide time for family members to find a job; and
  • Ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.

Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb is to buy life insurance that is equal to five to seven times your annual gross income.

If I develop a serious illness or become disabled; how can I protect my family?

People in their prime working years are more likely to become disabled than to be fatally injured. Thus, depending on your personal circumstances, one potentially excellent way to protect you, your family, and even your business, is to acquire disability insurance. In essence, disability insurance provides a “backup” income if you are temporarily out of work. Most disability insurance plans are somewhat flexible, and you can buy coverage for a variety of illnesses or injuries, or exclude specific injuries, such as a bad back.

How many participants does it take to purchase group health insurance?

Within certain participation guidelines, two participants is the minimum number required to set up a group health policy.

What is Obamacare?

Many names have been used to describe health care reform. The Affordable Care Act was passed into law on March 23, 2010. Insurance plans sold since that date must comply with the new law. Insurance companies can no longer deny coverage or increase premiums based on health conditions. Additionally, all insurance plans must include the same essential health benefits.

Is Obamacare a government insurance plan?

This has been one of the biggest misconceptions regarding health care reform. The Affordable Care Act did not create a new provider of health insurance, it simply changed the rules that insurance companies must abide by. Insurance plans are still available through the same commercial insurance companies that have always sold health insurance. There is not an insurance plan being sold by the government bearing the name of Obamacare.

What is the difference between the Bronze, Silver, Gold and Platinum plans?

The metal tiers are designed to describe the level of benefits provided by the plans. A bronze plan will have the highest deductible while a platinum plan will have the lowest deductible.

What is cost sharing?

Cost sharing can improve the benefits on a marketplace plan by reducing the deductible, co-pays and out of pocket expenses on a marketplace plan. It is available to insureds that fall below 250% of the federal poverty guidelines. It is available only on a SILVER PLAN.

What is a subsidy?

More accurately known as an advanced tax credit, premium subsidies are a way to reduce the monthly premium amount for a marketplace health insurance plan. The subsidy amount is based on household income and the number of family members claimed on the federal income tax return. The income range must be between 100%-400% of the federal poverty guidelines. Additionally, you or your spouse must not be eligible for group health insurance through an employer.

Do all plans cover wellness at 100%?

Health insurance plans that fall under the guidelines of the Affordable Care Act, regardless of the metal tier (bronze, silver, gold), cover certain preventative care or wellness procedures at 100% without a deductible or co-pay.

How do I know which insurance plan my physician will accept?

An experienced insurance agent or broker can help you determine which providers (doctors, hospitals and other facilities) participate with which insurance companies. In addition, the agent can provide you with a network directory, as well as give you information about the type of network being used by each insurance company.

What is an HMO?

This refers to the type of network that a particular insurance company uses. HMO is short for Health Maintenance Organization. Some insurance companies began using HMO’s when the Affordable Care Act was passed. These types of networks are the most restrictive. Services must be provided by doctors and hospitals that participate with the carrier’s HMO network. A referral is typically needed to see a specialist. Services rendered outside of the HMO are not covered at all unless it is of an urgent nature or an emergency.

What is a PPO?

A PPO is a Preferred Provider Organization. This type of network is not as restrictive as an HMO. Services rendered by providers that participate in the PPO network are covered by the insurance company subject to the deductibles and co-pays set forth in your plan. Services rendered by a provider outside of the PPO network are also covered, but are subject to higher out of pocket costs.

What happens if I do not have health insurance?

The biggest detriment of not purchasing a health insurance plan is obvious; you are not protected should you have an illness or accident. The Affordable Care Act includes a law that a tax penalty must be paid by those that remain uninsured. The penalty began in 2014 and increases yearly. Remember, paying the penalty still leaves you uninsured.

When can I purchase health insurance or change my plan?

Health insurance can only be purchased or changed during the annual open enrollment period which runs from November 1st until January 31st each year. If you need to purchase health insurance at any other time during the year, you have to have a qualifying event. A few examples of a qualifying event include: loss of group coverage, marriage/divorce, birth or adoption of a baby, or moving outside of your coverage area.

How come my doctor no longer accepts my insurance?

Many insurance companies changed their provider networks with the implementation of the Affordable Care Act. Some carriers changed from a PPO network to an HMO network. It is important to make sure your doctors are in-network on the plan you choose before you enroll.

Will I pay more for health insurance if I use an agent or broker?

Absolutely not! Health insurance premiums are set by the insurance companies and regulated by the insurance departments; therefore, the prices are the same whether you attempt to do it yourself or use the professional services of an experienced agent.

What happens if the subsidy I received is incorrect?

Because the subsidy is an “advanced tax credit”, it will be reconciled when the federal income tax return is filed. This is the importance of having an experienced broker help calculate the correct subsidy amount so that there are no surprises at tax time.

What if I missed the open enrollment period and do not have a qualifying event?

Short term medical plans are available any time during the year. While these plans do not cover pre-existing medical conditions, they can provide an inexpensive and valuable protection until the next open enrollment period.

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