Thursday, December 5, 2013

Flood Insurance Price Increases Affecting Home Sales

Flood insurance is an essential in many parts of the country, especially the coastal states. For years now this insurance has been available at reasonable rates because subsidies provided by the Nation Flood Insurance Program. But over time, and especially after hurricane Katrina, the debt that the program has accumulated has grown to unacceptable and unmanageable proportion- around $20 billion. About $1.3 trillion of property in all 50 states is covered by the program, with California, Florida, Louisiana, New Jersey and Texas accounting a 66% of all policies.
The Biggert-Walters Flood Insurance Reform Act of 2012 seeks to repair the weak financial state of the program by increasing flood insurance premiums. The law states that those who bought homes after July 2012 will no longer be eligible for these subsidies. This will affect over 1 million home owners whose finances will take a big hit. In addition to this, the new high flood insurance premiums are discouraging potential home buyers from investing in property.

The Impact Is Huge 

It is often presumed that the removal of a subsidy will result in a marginal increase in costs that is a financial pain, but which can be borne. That is not so in the case of flood insurance. For example, a middle aged school teacher and her husband bought a waterfront home in Florida a little over 4 months ago. Expecting to retire in the next 5 to 10 years, this was their investment for their future. The flood insurance premium for their 2,200 square foot home was $2,000 and they anticipated only marginal changes in the future. When the news of the removal of the subsidy came out they checked on the rates for the next year and were stunned to find that it had jumped to $14,000. They cannot afford that premium and because of the water front location and the mortgage requiring flood insurance, they are planning to sell the house, probably at a loss, to find something cheaper. This is not a stray case.

In many parts of the country buyers are blacklisting localities where the rates are on the rise. In some parts of Plaquemines Parish, a community on the Gulf of Mexico, flood insurance premiums range from $10,000 to $25,000 per year. Buyers are shying away from what would often be good deal when they see the new insurance costs.

Is There A Solution? 

The problem is that the debt accumulated by the National Flood Insurance Program is unsustainable and a way to escape this debt trap must be found. There is logic in the argument that those homeowners who are most at risk from floods should pay higher rates than others. Unless the program returns to financial viability, and there seems to be no other way, its very existence in the long term is in doubt.

But many states have begun action to reduce the hardship to homeowners and the damage that the increases will do to the real estate market. Some states are planning to enact legislation to cap the amount of rate increase and others are considering suing the federal government on the grounds that the impact of the increases has not been completely considered. Bills with bipartisan support are pending in both the U.S. House and Senate to delay the implementation of the rate increases so that homeowners and the property market have time to plan and adjust to the increases. This, it is hoped, will reduce the negative impact on the sale of homes.

Even Maxine Waters, one of the sponsors of the bill to remove the subsidies, says that she never imagined that it would result in this kind of increases and the ensuing negative impact on the market. Homeowners and buyer are both waiting to see the outcome of the pending bills so that they can decide on their plans for the future.

Monday, November 18, 2013

Customer Alert: Flood Insurance Policy Holders!

Don't Pay Your Renewal Bill Late! It Will Cost You Lots Of Money!!!

All property with a federally insured loan requires flood insurance. If you are late, the new 2012 flood insurance rules will force you to get an elevation certificate ($600-$2,000) and pay 33% higher rates immediately.

The new rules under The Biggert Waters Flood Insurance Reform Act of 2012 will raise everyone's rates for flood insurance, but the increases will be phased in over time for people with existing policies that started before July 6, 2012.

The goal is that everyone will eventually pay the same rates. Here is how it affects you:

1. People who pay 30 days late or cancel are forced to get an elevation certificate and pay the full new rates immediately.

2. If you purchase a new home, Title Change, or switch carriers, you will need an elevation certificate and will pay the full new rate.

3. Owner Occupied Principal Residences (OOPR) insured before July 6, 2012 - No elevation certificate is required and there is only a 5% annual rate increase.

4. Grandfathered OOPRs-these people have special lower rates and will see a 20% annual increase until they get to the full new rate. This will begin in the middle of 2014.

5. Secondary Residences, Rental Properties, and Commercial Buildings will see a 25% annual rate increase until the full new rate is reached. This has already begun for renewal policies on January 1, 2013.

An elevation certificate must be completed by a licensed surveyor. Each home has a different elevation, so it is needed to accurately determine how much to charge to insure your house. If your house is higher elevated, it costs less, and lower, it costs more. The cost for this service can be between $600-$1,200.

Failing to get an elevation certificate means you will get a provisional rate with the highest possible cost. In Palo Alto, this rate is $6,500 vs. $2,000 with an elevation certificate. After one year without an elevation certificate, you will be cancelled and your bank will place forced coverage at an even higher rate.

Call us (650-328-1000) for help with your flood and any other insurance issues.

ObamaCare 101

What is happening and how it affects you!

As you have heard, the implementation of ObamaCare (hereinafter called ACA) has the government and insurance companies in a state of chaos.

Following is a summary of what we know so far.

If you have a plan in place you do not have to do anything. You will be rolled over into an ACA compliant, or grandfathered plan automatically on January 1, 2014.

Our health insurance clients fall into five categories;

    1. New individual policies
    2. Grandfathered individual policies
    3. Uninsured
    4. Group policies
    5. Medicare supplements & drug plans

NEW INDIVIDUAL POLICIES are those policies that were written after the ACA was enacted on March 23, 2010.

If you do not proactively change your policy, you will be rolled over into the ACA plan most similar to your current plan on January 1, 2014. Most people will be put in the basic Bronze Plan. The Bronze Plan will have a $5,000 deductible, 30% copay, and a $6,350 out-of-pocket maximum.

Most new individual plans in Alameda and Marin Counties that are insured with Blue Shield will be cancelled. Blue Shield could not get enough doctors and hospitals to join their network in these counties. You will have to switch to Blue Cross, or HealthNet. Contact us for an application and details. We have the rates, applications and the coverages for these plans and can help you change companies.

GRANDFATHERED INDIVIDUAL POLICIES are those written prior to March 23, 2010.

Your network of providers and coverage should stay the same and Blue Shield will keep Marin and Alameda county residents with grandfathered plans. We do not yet have the rates, coverages, or change request forms for the grandfathered plans. You should receive a letter with this information soon. I got my renewal yesterday from Blue Shield with a 9.7% increase. If you have a grandfathered plan, keep it because you will have better prices and providers.

Some grandfathered plans are being cancelled because the company decides that it cannot meet ACA requirements profitably. If this happens, you will get a cancellation letter and will need to pick a new ACA plan. Call us for an application and guidance.

UNINSURED INDIVIDUALS are those broken into two categories:

1. Those that qualify for a subsidy: If you earn less than $43,000 single, or $93,000 for a family, you may seek a subsidy. We cannot help you with these types of subsidized policies and suggest that you contact Covered California at 1-800-300-1506 for assistance, or visit their website at

2. Those that do not qualify for a subsidy: We can help you with the same plans available to NEW INDIVIDUAL POLICYHOLDERS. Call us for an application, rates, and coverage options.

GROUP POLICIES will be rolled over to an ACA compliant plan on January 1, 2014:

Group policies should have the same provider that you have now. The rates will go up at renewal and are rumored to be going up 50%. We have already contacted all of our group clients to lock in the current rates for as long as possible. MEDICARE SUPPLEMENTS AND DRUG PLANS are not affected by ObamaCare.

The following is a summary of the different elements of the ACA plans.

COVERAGE - Coverages and optional deductibles do vary. Call us for explanations.

PRICES - All rates among companies are about the same.

PROVIDER NETWORKS - The main difference between companies will be their provider networks. Because doctors and hospitals will get reduced reimbursement schedules, companies are having a hard time signing up providers.

COMMISSIONS - Our commissions have been cut by 80%, so Allied Brokers is weighing our ability to continue offering health insurance assistance and advice profitably. For the present time we will actively service all present clients with their health insurance needs.


• ObamaCare does not affect Medicare rates, coverages, or providers yet!

Subsidies are available through Covered California to individuals earning less than $43,000 per year, or $94,000 of earnings for a family of four.

• If you are in a high risk or COBRA plan you can buy a new ACA plan that will be less because there is no extra charge for pre-existing conditions. Call us for an application to switch to an ACA plan.

• If you are over 50 you may save some money with an ACA plan in that it now illegal to charge more than three times more for a 64 year old than a 21 year old.

This whole mess is a work in progress and we should have more clarity in 2014. Sandy White has retired for medical reasons, so I will be your new contact person going forward. Everyone has been very kind with their concern and admiration for Sandy. I have some big shoes to fill and will do my best to help you.


Chris A. Grammar
Insurance by Allied Brokers

Thursday, October 17, 2013

New Home's Flood Insurance Shocks Floridians

Suppose that you have retired after many years of hard work; that you have been financially prudent all your life and when you call it a day you have enough to buy a home and live comfortably. You may not be rich, but you will be able to live in comfort. And then, after you buy you home and settle in, suppose you find that your flood insurance rates have gone up tenfold. Will you be able to weather the shock? Or will you have to lose your home and watch your plans for a peaceful retired life go up in smoke?

This is not a nightmare “what if….” scenario. It is happening to a vast number of homeowners today. The reason is the Biggert-Waters Flood insurance Reform Act of 2012. After being inundated with claims after Hurricane Katrina, the National Flood Insurance Program was on the verge of insolvency. The act aims to revise flood insurance premiums upwards so that the Program can continue to operate. To clarify the kind of impact that the new rates will have, a home where the flood insurance premium was $1,500 per year may now have to pay$12,000 a year, which is what happened to a Floridian couple who recently bought a home.

Who’s To Blame?
When situations like this arise, it’s natural to look for a person or agency to blame. But in this case, there are no real bad guys. FEMA Director Craig Fugate admits that the homeowners will feel the “sticker shock.” But he says that flood insurance is being provided at below market rates and that the government has been borrowing money to enable the subsidy to continue. This is obviously a situation that cannot remain indefinitely. The removal of the subsidies and making homeowners pay realistic rates will remove this financial burden from the government.

While the economic argument makes sense, the fact that a huge number of homeowners in flood zones will suffer remains. For those who bought their homes before the Act came into force, the shock will be less, but still major – they wills see their rates increase by about 25% a year. But recent home buyers and those insuring secondary homes will have to pay the full increase from the get go. To add insult to injury, many of those affected by the proposed increase do not live anywhere near any body of water. But because they are in low lying inland areas, they are in flood zones.

What Can Be Done?
A bipartisan effort was recently made to introduce a bill that would delay the implementation of the Act for a year. This would have allowed for time for the impact of the increased rates on homeowners to be more fully considered and for strategies to reduce the impact to be found. The search for other alternatives could also have been conducted. But unfortunately, partisan politics and the fight over Obamacare have brought the government to a standstill. By the time a solution is found and the shutdown is over, the move may be lost in a sea of pending legislation and overdue government decisions.

The government can no longer afford to subsidize flood insurance rates. And many homeowners will not be able to pay the new premiums. It is the job of government to find solutions to these problems that offer the greatest good to the greatest number. Hopefully something will emerge before people begin to lose their hone over the rate increases.

Flood Insurance Rate Hikes Delayed Due to Government Shutdown

The effects of Hurricane Katrina are being felt, with increasing impact, even today. The onslaught of flood insurance claims that followed the catastrophe created huge financial problems for the National Flood Insurance Program. The Biggert-Waters Flood Insurance Reform Act was passed in 2012 (BW-12) in order to keep the Program solvent. A bipartisan proposal to delay the implementation of the rate hikes that the act envisages has been blocked by the congressional dispute over Obamacare and the consequent government shutdown.

The proposed increase in flood insurance rates has all the stakeholders, except the insurance companies, worried. A look at the situation in Florida will explain why. The state has more people covered by subsidized flood insurance than any other state in the country. Everyone, from the Governor down, is worried that any increase in insurance rates could have an adverse impact on the real estate market which is only now beginning to get back on its feet after the recent recession.

Who Gets Hurt?
Pinellas County in Florida, which includes the city of St. Petersburg, has more subsidized flood insurance policies than any other county in the nation. It is estimated that about 33,000 hoes will be affected by the proposed increase. The median value of these homes is $132,245 and the average size is approximately 1,430 square feet. These are not the homes of the super-rich – they belong to middle class homeowners. Surprisingly, about 66% of these homes, which will be subjected to the rate increase, do not have either a water view or water frontage. The impact of the increase on these homeowners could be devastating.

And Florida isn’t the only state to be worried about the situation. The Mississippi Department of Insurance is trying to block the proposed increase by filing a lawsuit. Louisiana is considering action that will enable the state to sell flood insurance to residents. Other state may soon consider following suit. California too will be impacted by the proposed premium increases.

The amount of the proposed increase is not small. Under the new rules, all those who bought homes in flood zones after July 6 of last year, when the act was signed into law, will face insurance premium increases of up to ten times what they are currently paying. Those who owned property prior to that date will be faced with annual flood insurance premium increases of up to 25% per year.

The definition of flood zones is also controversial. While many of the affected properties are on or near the Gulf Coast, many of those that will be affected by the rate increase are located quite far inland. But since they are in low lying areas, they are considered flood zones for the purpose of the rate increase.

A Solution Is Needed Fast
Obviously the National Flood Insurance Program cannot be allowed to fall into financial chaos. Adequate funding to keep it operational is essential. But at the same time, to subject homeowners to such a huge rate increase is not just unfair, it will create havoc in the real estate market that is still in a fragile state.

While both those who support the increase and those who wish to delay it have valid arguments to support their cases, the Congressional deadlock may see this critical proposal fall by the wayside and become mired in the quicksand of partisan politics and result in many people suffering undue financial hardship for no fault of their own.

How Property Owners Can Protect Themselves

Talk to Insurance by Allied Brokers today and know your options. You’ll need to know about if your property is located in a Special Flood Hazard Area (SFHA) and your property’s elevation in relation to the Base Flood Elevation (BFA). You’ll also need an elevation certificate to accurately determine the premium rates. Contact allied brokers at (650) 328-1000 with your questions about BW-12 and how it would affect your policy.

Sunday, September 29, 2013

Insurance Costs Rise Faster Than Wages

Employer sponsored health insurance is the most common type of health coverage in the country. It is something that every employee wants and the contribution towards this coverage, deducted from the worker’s wages, is in most cases seen as a reasonable cost in view of the possible benefits. With health costs still beyond the means of a large part of the population, the need for employer sponsored covered can only grow.

But the cost of this insurance is, in terms of its effect on incomes, is increasing.

Almost Flat Wages

In 2011 the costs of family health insurance coverage increased by 9% and that of individual coverage by 8%. Against this, the rise in the current year over 2012 has been 4% for family coverage and 5% for single coverage. So while the lower increases are good news, the fact that wages have gone up by only 1.8% shows that the cost, to the employee, has gone up. Today, employer sponsored family insurance costs top $16,000.

On top of this, many employers are modifying the health insurance policies to include a higher deductible. This means that the insured will have to pay more for medical tests and treatments before the coverage kicks in. Add this to the growing cost of coverage and the low wage increase and employees are paying significantly more from their own pockets for health insurance.

The more moderate increases in health insurance costs since the end of the recession are the only silver lining in this situation. The Kaiser Family Foundation, a non-profit that has studied the issue sums up the situation it in this way – coverage costs are going up, cost sharing is going up and wages are almost flat. The implications for the family budget are clear. The only positive is that inflation remains low.

It’s Not The Same For All 

Generally speaking the employer covers most of the health insurance costs of an employee, but the actual change in costs and its effect is often felt directly by the employee. There are some lucky workers whose employers absorb health insurance cost increases so the employee contribution remains static. Insurance rates also depend on the type of coverage, the area lived in and the size of the employer. Those working for smaller companies tend to suffer the most from insurance cost increases as the employers do not have the same negotiating leverage as large companies do.

Little Hope Of Relief 

According to America’s Health Insurance Plans (AHIP), the national trade association representing the health insurance industry, more than one sixth of the U.S. economy is directed towards health care spending, but the value received in not anywhere near the $2.7 trillion that is being spent. Up to 30% of this amount -$800 billion – is wasted or used in inefficient or redundant ways. While a great deal of discussion has taken place on the issue, concrete long terms steps to bring the situation under control, Obamacare notwithstanding, are yet to emerge. In other words, the hopes for any short term relief on rising health care costs are slim.

Contact Insurance by Allied Brokers and have your questions answered about how to keep your insurance cost in check.

Friday, September 27, 2013

Property Insurance Mistakes That Could Cost You

The occupancy status of a piece of property often changes. It could be a home that is left empty for an extended period while the family is away or an office that is no longer operational with no one to occupy it. If the property has been insured, it will have been done so with reference to a specific type of occupancy. These would include:
  • Owner Occupied, Primary and Secondary – i.e. Homeowner’s policies
  • Tenant Occupies – Fire, Dwelling and Rental Property policies
  • Course of Construction (COC)
  • Vacant property

Any insurance policy taken on property is conditional on the occupancy status remaining unchanged. If a change occurs and the necessary amendments have not been made to the policy, most or all of coverage may be lost.

What Can Happen And Why

An owner occupied primary residence is the main home of the family which is where they live most of the time. Because the house is in regular use and is not left empty the structure and its contents are thought to be reasonably safe from damage, theft or other forms of loss. Because of this the owner occupied primary residences usully get the best coverage at the best rates.

An owner occupied secondary residence will be a vacation home, a ski cabin or other place where the family spends a part of their time, but which is unoccupied for the large part of the year. These homes are fully furnished, like the primary residences, but since they are left empty for extended periods, the risk factor and chances of loss are greater. Coverage for such residences will cost more than that of the primary. They also usually have less coverage for theft and loss of personal property. In addition there are a few coverage limitations such as that of water damage from freezing pipes etc. In many cases, an insurance company will offer coverage for a secondary residence only if the primary residence is insured with them. What often happens is that a secondary home is used for vacations and also rented out during periods when it will not be owner occupied. If this happens and the insurance policy is a homeowner’s one, it is null and void. The proper insurance for this kind of property, with double use, is that of a rental property which will provide coverage when owner occupied and also when given on rent.

If a property is covered by homeowner’s / rental property insurance and is under Course of Construction the insurance company must be informed within 30 days and a request made to add COC coverage to the policy, If this is not done, a number of coverages such as theft of building materials, wiring, plumbing, appliances and so on may be lost. Construction site theft is increasing across the country because of the rising costs of copper and other material and fittings.

If a home is left vacant for over 30 days and the insurance company not informed and a vacant home policy obtained, the property will not be covered. This is because a vacant home, with all the valuable items inside it, is at high risk in terms of theft. This vacancy can be for a variety of reasons including short term change of residence, awaiting sale, repossession bankruptcy etc. Whatever the reason, a vacant home policy is essential. A vacant home is different from a secondary or vacation home which is classified as unoccupied and not vacant so the polices that apply are different.

Wednesday, August 28, 2013

Commercial Insurance Rates on a Steady Rise

Commercial insurance rates has been on the decline for the past few years. This trend has now reversed and rates have been on the upswing for the last 4 months with June showing a 5% increase. This had to happen sooner or later – what goes down must come up. The current rise has been sparked by the impact of natural disasters, fraud, general issues of theft and changes in regulations.

The biggest increase has been in commercial auto insurance where rates have increased by over 6%. Property, directors and officers, general liability and employment practices liability insurance (EPLI) came next at over 5%.

What Next?

At present the commercial insurance market is relatively stable and the indications are that it will remain this way. There were no surprises or unexpected increases in commercial insurance rates in June and there are no signs of any drastic changes happening soon. Even the effects of Hurricane Sandy seem to have had little impact on commercial insurance. One reason for this could be that the bulk of the damage and losses were caused by flooding which is not something that the American insurance industry is responsible for.

According to insurance market analysts, the way ahead is that of slow and steady rate increases. Some months may show a decline in rates but it would be a mistake to read too much into that as these are going to be only small bumps in a regular upward movement. What could affect market dynamics and prove the predictions to be wrong are the recent moves by Berkshire Hathaway to make an entry into the primary casualty and property insurance markets. The company has not yet revealed its plans or the size of its entry vehicle. If the entry is on a large scale then whatever action it takes will have a significant impact on insurance rates.

A steady rise in insurance rates is not good news for businesses. Overheads are already high and any increases will be hard to absorb. But there is no point is a business owner burying his head in the sand. It makes sense to examine the possibilities and options available and plan on ways to minimize the impact without reducing the coverage. In fact this kind of analysis could even reveal where additional coverage is called for – another cost perhaps, but one that is worth incurring.

What Is Your Insurance Costing You?

The rising commercial insurance rates will, in all probability, continue to move upwards in the foreseeable future. Now is a good time to review your commercial insurance policies to see if your coverage is adequate and if there are ways in which you can cut your insurance costs without compromising on the coverage you have. Even if you have been insured for a long time with no problems, revisiting your policies to see if they reflect the changes in your business is a good idea. Contacting your broker to provide you with a professional analysis of the coverage you have vis-à-vis your present insurance needs will help you to make the changes required, if any. And a broker’s expert knowledge of insurance will help you to find the most cost effective solutions.

Monday, August 26, 2013

California's Unclaimed Insurance Money - You Could be a Rightful Owner

Considering that we live in an information age, one would not expect that information, especially contact details, could be difficult if not impossible to find. And this is not in reference to those who wish to hide – it applies to those who need to be contacted for legitimate reason – often those that benefit them. But because computers can only recall data that has been fed into them, and when data has not been fed, nothing will come out. That is one of the main reasons why around $ 1 billion in unclaimed life insurance benefits are pending today.

Who Loses? And How Much Do They Lose?

According to Consumer Reports magazine, the average unclaimed life insurance benefit is around $2,000 but in some cases it can be as high as $300,000. The report also says that the chances of a person being the beneficiary of a lost, forgotten or unknown insurance policy are 1 in 600. Six hundred to one may not sound like much in the way of odds but when this is placed in the context of 300 plus million Americans, the number of people losing out becomes huge – over half a million people in this country may have benefits due to them that they do not know about. The unclaimed money will usually go to an unclaimed payment trough and then to the general fund.

Why Does This Happen?

There are two main reasons for this – faults on the side of the person who has the policy and failures by the insurance companies. Life insurance policy holders change jobs and move to new homes all the time. They often forget to inform their insurance companies who are then not able to contact them when benefits are due. Also, even if the insurance company was informed, mergers and acquisitions in the world of insurance are frequent and when this happens, records can get misplaced or lost. Or it could just be a clerical error that allows a policy holder’s contacts information to slip through the cracks.

Always make sure that your attorney has complete details of all your life insurance policies so that claims can be made at the right time. It is also a good idea to provide the information to a close and trusted relative it that does not cause family complications.

On the insurance companies side regulators in California found an industry wide practice of failing to pay death benefits even when companies has access to federal death records. In some cases it was found that even when the companies received direct confirmation of the policy holder’s death, payment was still withheld. There have even been cases where companies continued to collect premiums after the policy holder’s death by drawing down the policy’s cash reserve.

The Solution

The major insurance companies have agreed to modify their procedures to reduce the amount of unclaimed benefits with them and to make claiming easier. And keeping your attorney informed about your policies will ensure that your heirs have this information available to them.

It is easy to overlook old life insurance policies. And these policies may not fit your current needs. If you have any questions about your insurance policies or need any assistance, contact Insurance by Allied Brokers to discuss your old life insurance policies and review them to see if they are relevant to your current situation. Also obtain the broker’s assistance, if needed, in updating your information lying with the insurance company.

Wednesday, July 31, 2013

Auto Insurance: Rising Rates Affect Customer Satisfaction

According to a recent study by J.D. Power, consumer satisfaction rates with auto insurance providers have dropped from the all-time high that was seen in 2012. One of the main reasons for this is the rise in insurance rates. While the overall satisfaction level is still a good 794 (on a 1,000 point scale) the score for price satisfaction is significantly less at 716. According to the study, the average price increase in 2013 has been $153 as compared to $113 in 2012.

The Levels of Dissatisfaction

If the number of people who change insurers is taken as a measure of the level of dissatisfaction there is a clear connection between the amount of increase in the rates and the dropping of satisfaction levels. 9 percent of consumers who had their auto insurance rates increase by up to $50 switched their insurance companies. This number doubles to 18 percent when the increase is between $51 and $100; and it jumps to 32 percent when the increase is more than $200.

The lack of communications from the insurance companies has only compounded the problem. It appears that insurance companies are not informing their customers about impending rate increase prior to issuing the renewal notice. Also very little effort was made to help customers examine options available to them that could have reduced the impact of the rate increase. Where customers did receive advance intimation of the rate increases and were able to discuss the options available to them with their insurance companies the satisfaction levels were 67 points higher and the churn reduced. But only 16 percent of customers said they were able to discuss the rate increases with their insurance companies to examine the potential for making cost effective changes in their 

The Need For Better Communications

The J.D. Power study goes on to suggest that the communication between company and customer needs to be improved. Companies focus on communicating discount and other information that will be received positively by the customer. But little is done to explain to them the modalities of setting insurance rates or why, when shopping for insurance policies, the rates can vary by hundreds of dollars between insurance companies. Very few customers know that in the current low interest market insurance companies are suffering in terms of underwriting losses. The only viable option available to them to rectify the problem is via rate increases.

With the situation unlikely to improve in the near future, a drop in the satisfaction index and higher attrition levels can be expected unless some positive steps are taken by the insurance companies. The seemingly best option before them is be more proactive in reaching out to customers and explaining the rationales behind rate increases. If information flow could be improved and customer understanding increased, it is possible that the satisfaction levels will increase, or at least not drop further. If not, the insurance industry may have to brace itself for even lower levels of customer 
satisfaction and increased attrition.

Tuesday, July 30, 2013

Vacant Rental Units: Are You Sure You're Covered?

Vacation Rental Insurance
Everyone leaves their home vacant for an extended period at one time or another.It could be for going on a long vacation, a short term change of location for work reasons, because they are not in a position to occupy the house and do not want to sell or rent it out, they cannot find a buyer, or anything else. When a house is left vacant, the normal precautions are usually taken – locking everything up securely, informing the neighbors and the police, stopping deliveries etc. But what a lot of people do not realize is that when a property is left vacant for a period of time, the insurance cover may be affected.

An Increased Risk

Insurance companies feel that an unoccupied property has an increased risk over an occupied one. A vacant house is like a magnet that attracts vagrants, vandals and thieves who would not risk entering an occupied dwelling. And then there is the liability aspect. Kids climbing a fence to enter and explore a vacant building could get hurt. Or teens partying in an empty house could get into all kinds of trouble and risk a variety of injuries.

A normal home insurance policy will not cover the property if it is left vacant for an extended period of time – this is known as a ‘neglect’ or ‘abandonment of property’ exclusion. The time frame will vary from policy to policy (it is generally 30 to 60 days) but before leaving a property empty the owner should check to see for how long the property will remain covered and what will be the status after that.

Even though the home is vacant, the liability remains with the owner and this is something that a lot of people forget.

The Solution

If your home is going to be vacant for an extended period of time, it is important to inform your insurance company of the change in the status of the property. Insurance terms and conditions vary from state to state and restrictions vary according to the insurer. In most cases, insuring a vacant home is not a problem. All it requires is purchasing an endorsement to the existing home insurance policy to cover the period when the house will be empty. To not do so will not only expose the owner it the risk of substantial loss, it could be construed to constitute insurance fraud and the status of the property was changed –and the risk increased - without the insurer being informed.

When a property is empty and up for sale, it can be tempting to ignore the need for insurance.  Even if thieves break in, the damage will typically be a broken window or door. But those who enter the property could do significant damage that will affect the selling price and then there are the liability issues mentioned earlier. The risk is not worth it especially when getting vacant property insurance coverage is so easy.

Contact Your Insurance Broker

If your home is going to be vacant for any reason, contact your insurance broker and find out exactly what kind of coverage you will have during the period of vacancy and discuss with him or her the options available to you to increase the coverage and the protection you have.

Friday, June 28, 2013

The Kick Me Prank and What It Can Cost Your Business

The importance of business insurance, in its various forms, is apparent to most business owners. They study the nature of their businesses and the risks that exist and then take the insurance policies that they think offer them the kind of protection they need. But insurance is a complex subject and it is easy to overlook issues and leave the owner and the business exposed to needless risk. Employment practices insurance and legal defense coverage are cases in point. Many businesses either do not realize the risk that they face or undervalue the importance of the exposure they are accepting.

Even with the best of intentions, a small business owner cannot control every aspect of his employees’ behavior while they are at work. Issues such as sexual harassment, discrimination and so on can arise out of thoughtless acts or because of a misinterpretation of an innocent action or words.

Issues like wrongful termination or the failure to provide benefits are easy to raise and difficult to defend. All it takes is one uninformed employee or a vicious one to cause chaos that will carry a hefty price tag. One misguided employee causing pain or suffering to another can land you, the business owner, in the soup. The recent case of the INTEL plant in New Mexico is a good example of this.

Some employees taped a “Kick Me” sign to the back of another employee and then kicked him while others who were watching laughed. The employee went to his supervisor who, on seeing the sign, decided to join in the “fun” and also kicked him. A few more then joined in before the sign was finally removed. The employee suffered severe mental and emotional trauma and has filed a lawsuit of damages as well as attorney’s fees.

This kind of behavior has never been encouraged by INTEL and the employees, for the most part it appears, thought of it a harmless fun and a good prank. But it misfired and the one left holding the baby is the employer. Many of those who participated in the “prank” lost their jobs, but the lawsuit remains and while the damages claimed are not being specified, it could potentially cost the company millions of dollars.

As a small business owner, you may think you know your employees well and are certain that they will not behave in a manner that could cause you problems. But all it takes is one off day, caused by anything from a fight with a spouse to a fender bender on the way to work or anything else beyond your control, and the otherwise well behaved employee could, because of a bad mood, become a huge financial liability.

A lawsuit for damages that are not covered by your existing business insurance policies can ruin you financially and result in the loss of the business.

The cost of this essential extra coverage for a small company with about 15 employees is not
high at around $3,000 per year. As a business owner you will naturally have to consider the
requirement of such expenditure.  But how do you assess people’s moods and attitudes? Even the best behaved of people can indulge in a thoughtless or hurtful act and if it happens in the workplace, you will be the one who has to pay any damages that may be awarded.

If your business does not have employment practices insurance and legal defense coverage, the best thing to do is to talk to an insurance broker to understand the nature of the risks that will be covered, the cost and the benefits that such protection offers. All it takes is one thoughtless gesture or misinterpreted action to create a huge potential liability.

Dog Bite Insurance Claim Trends

From before the beginnings of recorded history, dogs have played a special role in the lives of human being – friend, protector and purveyor of non-judgmental love, they do it all. Having a dog in the house adds another level to the joy and happiness that the family feels. But, while a dog is a part of the family, it should never be forgotten that it is an animal and there is always a chance that it’s natural instincts will surface and cause it to do something that will not meet with human approval. The most common of these is biting – either a person or another dog. The reasons for the bite could be many and from a dog’s perspective, it often makes perfect sense. But a person who has been bitten or whose dog has been injured will not see it that way.

And as the owner of the dog, you are the one responsible for its actions. This means that you are liable for any costs arising out of injuries caused by your dog.

Dog bites are among the top risks covered by homeowner’s liability insurance coverage and with even the best behaved of dogs suddenly having an off day and biting someone, the reasons for this are obvious. But in most cases this coverage is a one shot thing. Once your claim is raised for damages and costs due to your dig biting someone, the chances are that the insurance will be cancelled and finding another fresh coverage will be next to impossible. And even if you do find it, the cost will be 5 times more expensive, or even higher.

As a dog owner, you need to balance the liability with the possible loss of future coverage if you decide to file a claim. To complicate matters further it is a normal condition of an insurance policy that the insurance company must be notified in a timely manner of any potential claim and not doing so could place the coverage in jeopardy. In most cases it is advisable to turn in all claims to the insurer.

But this is not set in stone. If your dog bites someone or another dog and the injury is minor, it could make sense to accept the blame, apologize for what has happened and offer to pay all the bills arising out of the bite. Denying responsibility or trying to place the blame on the other party are natural human instincts, but if your liability can be proven, this kind of actions can make the situation worse for you in relation to your insurance company.

If the costs arising from the bite are going to be less of a burden on you as compared to the possibility of losing your insurance coverage, accepting responsibility and the costs involved could be the more practical and cost effective option. When faced with such a dilemma discussing the matter with your insurance broker and obtaining his expert advice on the best course of action is the right thing to do.

Training your dog properly, socializing him  to minimize the risk of biting and keeping it on a leash when out in public can go a long way towards reducing the chances of your getting involved in a dog bite situation. There are very few bad dogs, but there are many owners who have shirked their responsibility to train their dogs in proper behavior. That is not just antisocial but it also places your finances and insurance coverage at risk.

Wednesday, May 22, 2013

Long Term Care vs. Retirement Income

With Americans living longer than ever before and remaining active at ages that were unthinkable a generation or two ago, the need to plan for old age and retirement becomes increasingly important. And an important part of this is planning for health needs. The US Department of Health and Human Services estimates that 70% of people of the age of 65 or older will need some form of longer term care during their lives. This care could be for a few weeks, a few months or could be permanent.

The cost of this kind of care can be greater than most people realize. For example a private room in a nursing home can cost $205 per day or over $74,000 per year. A home health aide will cost $25 per hour. These are major expenses and when they arise can throw financial planning for retirement out of gear, leading to severe financial hardships. In many cases, assets that have been set aside for retirement need to be compromised. There are today insurance policies that can protect you from these contingencies and because of the money back guarantee and income tax free death benefit that they offer, should be treated as a saving cum insurance tool that does not require cash outflow with no chance of monetary return.

This type of insurance policy is a universal life insurance policy with long term care benefits incorporated into it. Here’s how it works:

If There Are Long Term Care Costs: In many cases the policy can provide you with up to 5 times the dollars needed to reimburse long term care costs. The specified death benefit amount is used to cover long term care costs up to the monthly maximum as lain down in the policy. There is also an option or a rider to provide for coverage beyond the depletion of the death benefit.

If Long Term Care Costs Do Not Arise: If you do not require long term care the full death benefit amount remains intact. If only a part of the death benefit amount has been used to meet long term care costs, the balance remains available as death benefit. The entire available death benefit amount will go to your beneficiaries free of income tax and will not be subject to probate if anyone besides your estate is named as the beneficiary.

The Option to Change Your Mind: A Return of Premium Rider is available on both single premium as well as certain flexible premium policies. If you should decide to discontinue the policy, the premiums paid by you till that time will be returned to you, less any loans, withdrawals or benefits paid. The terms of the Return of Premium Rider will govern the terms of the refund.

Here’s an example of how this type of policy could benefit you. Suppose you have set aside $300,000 of you retirement portfolio to cover possible long term care costs. If you move $100,000 into a single premium policy, you could get up to $80,000 plus per years for 6 years to cover long term care costs. That totals to $480,000 or nearly 500% of the premium amount. If there are no long term care expenses, your beneficiaries could receive over $150,000 as tax free death benefit. In case some part of the death benefit is used for long term care costs, the remaining portion will go to your beneficiaries’ tax free. The exact amount to benefit available will vary from case to case. And if you should change your mind about the policy, you can request for return of premium, less any benefits paid, loans or withdrawals.

An insurance policy to protect you from long term care costs can give you all the protection you need while freeing up a significant part of your portfolio for use where greater returns may be expected.

Friday, May 17, 2013

How Forgiving is the Tax and Law for Gay Couples?

The ongoing debate and legal cases regarding gay marriage are likely to continue for a long time, and the acrimony may increase. While both sides have their points of view to put across, what is often missed in the passion the issue ignites is the issue of taxation and the law for gay couples.

Whether you are for or against the freedom to live an alternative lifestyle is not the issue. The issue is one of equality under law. The question to be asked is why should a heterosexual married couple, a heterosexual unmarried couple, a LGBT couple a single person, gay or straight, be treated differently under the law and for the purpose of taxation?

As an example, married couples often get free group health benefits for their spouses and children. No one else does. Why is there this differentiation? Why does 1 year of marriage confer more benefits than 10 years of a committed but unmarried relationship? Would it not be fairer to either give this benefit to everyone or to take it away from married couples so that everyone is treated equally? If a married heterosexual dies, the spouse gets everything including tax free social security. No other relative has any claim, unless otherwise provided for in the deceased person’s will. There is nothing wrong with this, but why is it limited to only married couples?

The situation in regard to unmarried couples who have not gone through the formality of marriage or LGBT couple is very different. There is not protection for the surviving partner under the law or tax codes. The duration of any relationship is of no consequence. There is no social security, estate taxes must be paid and the relatives of the deceased have a greater claim on the assets than the surviving partner. Not only does this frequently lead to ugly disputes and court cases, it is ignores the wishes of the deceased.

A large number of people, of all sexual orientations, never make a will, create a trust or prepare medical directives. They either keep postponing the matter just do not think about it. In the case of those in relationships outside the traditional legal marriage structure, this can mean a failure to provide for the continued well-being of the surviving partner. These people do not plan to fail, the fail to plan.

And even the estate available for bequeathing is subject to greater taxation than in the case of a legally recognized married couple. The question here is not one of personal beliefs on the subject of gay and unmarried couples. The matter is one of equality for all under the law and in matter of taxation. The matter of gay marriage is one that will, it is hoped, be finally resolved to everyone’s satisfaction and that the varying moral, ethical, religious and legal points of view are all accommodated. But let us not forget the need for ensuring that, whatever the outcome of the gay marriage issues, that everyone is treated as being equal under the law. Why should a couple in a strong committed relationship of 20 years be treated differently from a couple that has gone through 5 legal marriages and divorces in the same period? Until the legal issues are resolved, it is important for all couples, of all kinds, to protect themselves from legal and tax problems by ensuring that they have taken care of the required legal formalities.

While married couples are protected by laws and tax codes, they should still have their wills, trusts and medical directive drawn up to make life easier for the survivor. In the case of unmarried or LGBT couples, this is even more important because of the lack of legal and tax protection that is available to them. Talking to a reputed insurance broker is a good place to start.

Tuesday, April 23, 2013

Want to get fired? Don’t buy EPLI

It’s really easy for your employees to sue you for discrimination, harassment, wrongful termination or anything they want to make up. They do not even need a lawyer. All they have to do is file a complaint with the state EDD department and the state will serve you a demand for damages and info. Then you have to hire a lawyer to defend yourself. Even if you win with the state EDD pro employee bureaucrats the employee can still hire an attorney and sue you.

If the EDD finds against you they will prosecute you for free. We had an employee do this and the EDD ran up $5000 in legal bills on our end just so they could justify their jobs before finding the case without merit 9 months later. Good thing we had paid $3000 a year for coverage.

A Company

Here is an example of what could happen to any company. A man was fired by his employers 5 years ago. According to him, a few days after he told his supervisor about an unethical business practice he found his company was indulging in, he was fired on grounds of his age (he was 71) and the need to cut the wage bill. He sued to company for wrongful termination and age discrimination. He recently won the case and the
total award, on different grounds, was $3.5 million. In the meantime the company he worked for was bought up by another business and that business is now stuck with the cost.

The question here is not whether the man had a legitimate claim or not. The new owners of the company are stuck with a huge payout, not to mention the cost of the legal fees they have borne. If it has EPLI, it is protected. If not, that kind of payout is going to have a serious effect on the bottom line.

A Manager

And what happens to the manager who conducted the due diligence before the take over? Maybe the facts of the case convinced him that the employee could not win and that the chance of having to pay out a large sum of money was so small it was a risk worth taking. Maybe he acted in the best interest of his employer. But now that the case has been lost, what happens to him? Is he busy working on his resume?

However, if there was EPLI, then any risk was covered and the manager, his company
and the bottom line are all protected.

With Employment Practices Liability Insurance, a business is typically covered against:

  • Wrongful termination of employment
  • Workplace discrimination
  • Workplace harassment
  • Emotional distress
  • Some defamation claims
  • Some privacy based claims

We had one client that declined the EPLI coverage. The next year they lost a $750,000 sexual harassment case against a manager. The manager was fired AND the CONTOLLER also was fired. If you are in charge of buying your companies insurance protect your job and buy EPLI. We live in CALIFORNIA after all.

It could happen to any business. Why risk it happening to you when EPLI can provide an effective line of defense?

Protect Your Valuables from Criminals

Your policy limits or doesn't cover the things thieves target – like jewelry, watches, silverware, guns, cash, securities and gold. Unless you get appraisals and schedule these items separately you will have little or no coverage.

Sadly the crime rate is rising all across the country. A client was burglarized last week, thieves took $50,000 of jewelry and watches and $10,000 in cash. With no scheduled items coverage her policy only paid $2000 for jewelry and $300 for the cash. She had planned to schedule the jewelry but was too busy and never got around to it. Don’t let this be you.

The first thing to do is to keep items of sentimental value and those which you never or very rarely use in a safe deposit box. The same applies to valuable collectors’ items like gold and silver coins, loose gemstones. And since you have a safe deposit box, it’s also the best place to keep share certificates and other valuable documents.

Having secured the things you do not need or use every day, the next step is to protect those that you need to have in your home. The first thing to do is to invest in a good security system. Many people feel that they do not have enough in the way of valuables to justify the cost of a home security system. Spend a little time totaling up the value of all the valuables you have in your home that can easily be stolen. The figure may surprise you and cause you to rethink about the necessity of increasing your home’s security. And remember, the average burglar does not break in with specific objects in mind to steal. He will take whatever he can. Why should he not take the $100 candle stand if it’s right in front of him? Losing a few small things can be a pain, but losing a lot of them at the same time could be a real tragedy.

The next thing to do is to look at your insurance. You may be covered against theft, but is enough? Insurance policies limit the coverage of items that are targeted by thieves. Items like jewelry, watches, cash, securities, gold ware, silverware, guns etc. are usually limited to a value of $300 to $3,000. Remember, your great grandmother’s wedding ring may have cost just a $100 a century ago. How much is it worth now?

It makes sense to inventory your valuables, especially the big ticket items and schedule them on a separate policy. A typical blanket policy for jewelry, watches, gold, silver etc. along with appraised big items will only cost you 1.5% of their value. That is $150 for every $10,000 coverage. That’s not a large amount to pay for the peace of mind that comes from knowing that if the worst should happen, at least you are financially
protected. According to one leading insurance broker 75% of his clients do not bother to get appraisals done in order to buy extra coverage. With the increase in crime, this is taking an unacceptable risk.

There is one more thing and this is something you need to not do. Do not think that you need only the minimum insurance because getting robbed happens only to the other guy. For everyone else, you are the other guy.

Friday, April 12, 2013

The effect of State Farm's dropping insurance rates

State Farm is California’s biggest provider of homeowner’s insurance and any change in the premium rates that the company makes will have a ripple effect across the state. The company recently announced that it will be reducing insurance rates for over 1 million policy holder from April of this year. This will mean, on an average, a reduction of insurance premiums by approximately $100. State Farm insures about 1.6 million homeowners in California and the benefit of the rate reduction should be available to around 85% of them. The rate are expected to come down by 8.5% in San Francisco, 12.3% in Los Angeles County, 12.4% in San Diego County, 14.1% in Orange County and 21% in Sacramento County. The total annual savings to homeowners in the state is expected to be in the region of $160 Million.

Balancing pervious rate increases
State Farm had increased rates by 6.9% in January 2009 and again by the same amount in February 2010 and this reduction should allow homeowners to pay in 2013 what they were paying for insurance on 2008.
The reductions in insurance rates are based on a new system that does away with the old ZIP code based risk assessment. The new system works on micro-zones and breaks down risk factors such as fire risk and geological factors based on the latitude and longitude of the home. This allow for a much greater fine tuning to the risk assessment and consequently a revision in the insurance premium rates. State Farm says that this new system will allow the company to provide its customers with more competitive insurance quotes and better service.

The California system seems to works
It would appear that California’s system of regulating property and casualty insurance rates is working. The new fine-tuned policy being adopted by State Farm is a logical fallout of the state’s efforts to keep insurance rates low and the market competitive.

The move by State Farm should cause other insurers to take a look at their pricing structure to determine if they are overcharging for insurance and to find ways to reduce premiums. This will trickle down effect will benefits homeowners across the board. And if the other insurance companies do not follow suit, the California insurance commissioner has the authority to begin proceedings to study the question and determine why they have not cut their rates. But with insurance being such a market driven business, the chances of this happening are small. Insurance premium costs are a major factor in determining the choice of insurers and none of the other companies will want to risk losing out.

Using the savings
Many studies show that most homes in California are under insured. While it may be tempting to pocket the savings or spend the money on something else, examining the risk coverage and looking for weak areas where the coverage could and should be improved and using the money to cover the shortfall is always a good idea. The fine tuning that State Farms has done means that local risk factors can be more clearly identified and more balanced coverage will be possible. Additional savings by reducing the amount of coverage where it is not required can be used to increase risk coverage where the risks are higher. The approximately $100 savings that State Farm policy holders will benefit from can go a long way in achieving this.

Contacting an insurance professional to discuss policy modifications makes a lot of sense right now.

Wednesday, April 10, 2013

Basic car insurance requirements in California

In 2006 the laws in California were changed to ensure that all privately owned vehicles that are on the state’s roads have insurance liability coverage for any damage or injury caused by a collision, regardless of the party at fault. The mandatory requirements are that all vehicles operated or parked on roadways in the state of California must have proof of financial responsibility available at all times. This evidence must be provided when asked for by law enforcement, when the vehicle is involved in a traffic accident, irrespective of who is at fault and when renewing vehicle registration. Failure to provide the required proof may result in severe penalties.

Additional requirements

In addition to the mandatory requirements, there are some additional requirements that may also be asked for by the Department of Motor Vehicles (DMV). These include:
  • An ID card or other equivalent document issued by your insurance company
  • Cash depositors or those who are self-insured may be asked for a DMV authorization letter
  • California Proof of Insurance Certificate (SR-22) for owner’ policy or broad coverage
  • If a vehicle is covered by commercial or business policies and is being registered for the first time, as Notification of Alternative Forms of Financial responsibility (REG 5085) may be required
Minimum liability requirements in California of private passenger vehicles

The following are the minimum liability requirements required for operating a private vehicle in California:
  • Death and / or injury to one person - $15,000
  • Death and / or injury to more than one person - $30,000
  • Damage to property – $5,000
It is important to note that liability insurance specifically covers compensation to a person other than the policy holder for any injury of property damage. Comprehensive and collision insurance do not meet this requirement. Those who are financially unable to meet these liability insurance requirements may eligible for coverage under the California Low Cost Automobile Insurance Program.

Violations could resulting in suspension of vehicle registration

Your vehicle registration could be suspended if:
  • The DMV is is notified by the insurance company that a policy has been cancelled and a replacement policy is not issued within 45 days
  • At the time of initial registration or transfer of ownership the required insurance information is not submitted to the DMV within 30 days
  • The registration is obtained by providing false insurance information
If you receive notice from the DMV that your vehicle registration is going to be suspended or has been suspended, it is possible submit the required information and reinstatement fee and be able to operate the vehicle.

The requirements are simple

As can be seen, the basic insurance requirements in California are really quite simple and it should not be difficult for anyone to ensure that they are followed. However, this is where many people make mistakes. They either take the procedure for granted and make careless mistakes or do all that is required of them and then forget about it and neglect their renewals and so on. Adhering to the insurance requirements is simple – just keep a checklist of all that is required and place a renewal reminder in your planner or computer diary.
It is also worthwhile noting that the minimum liability requirements are just that – the minimum. Any serious accident could make you liable for much more and it is a good idea to discuss your driving habits, typical trips, vacation journeys and other car usage information with an insurance agent who will be able to help you find the kind of coverage that is best for you.

Friday, March 1, 2013

Events You Should Notify Your Insurer About

Insurance covers every aspect of life, from homeowner’s insurance to life, car, property, health, business and everything else. When events occur in life that can affect insurance premiums, it can be tempting to avoid communicating these to the insurance company because of the additional financial burden that the higher premiums cause. But all insurance policies contain the requirement of informing the insurer of any events or occurrences that could affect the cost and terms of the coverage. Not to do so may render the policy void.

Here are some of the common events that are either concealed from insurance companies or which are overlooked as not being relevant to the coverage:

In many cases, an insurance claim may be filed and the company will know about the event. But in some instances no claim may be raised and then it is incumbent upon you to inform the insurer.

In the case of homeowners insurance, events such as remodeling or major renovation or room additions change the value of your home. The insurance company should be informed about this and the policy modified to reflect the increased value so that if a claim should be raised, the policy provides adequate coverage.

In the case of business insurance, things like a need to increase stock or inventory levels or an increase in turnover must be reported to the insurance company so that your coverage can be modified to reflect the possibility of higher loss due to accident, theft or disruption of commercial activities.

Similarly, events like hiring new people should be conveyed to the insurer so that the health insurance and workmen’s compensation policies can be revised as needed.

Car insurance is an area where many events that can affect insurance occur. An accident that causes damage or injury may be covered by the other party’s insurance but you should inform you insurance company also, as the value of the car may be changed and the injuries could have long term health consequences.

Not all events result in increased insurance premiums. Many, such as installing a security system at the home or place of work, increased fire protection, putting anti-theft devices in your car or stopping smoking or excessive alcohol consumption can reduce what the insurer sees as risk factors and result in lower insurance costs.

The basic principle to follow is inform the insurance company about any events that could affect the policy either in terms of leaving you without inadequate coverage or affecting the coverage that exists. And if you are not sure about whether the insurer should be informed about a particular event, the policy should be “when in doubt – inform.”

An insurance company that sees that you are diligent about informing them about events that could affect your insurance coverage, even if they do not, will go out of its way to work with you when you do make a claim.

Smoking Could Cost You More With The Affordable Care Act In Place

The cost of cigarette smoking and other forms of tobacco use are well known, both in terms of effect on a smoker’s health and the rising cost of tobacco products. There can be no disputing the fact that smoking is injurious in more ways than one and can be lethal. However, this has not stopped the almost one in five Americans who still smoke regularly. Now, because of the tobacco use penalties that are present in the President’s health care law, the impact of smoking on their pockets will be even more severe.

Obamacare has a few little noted provisions that are only now coming to light and the impact of which are still being assessed. Among these is a provision that allows health insurers to charge individuals who smoke up to 50% more in their health insurance premiums. This will kick in from January 1 next year. While the exact nature and amount of the penalties will vary from case to case, a ball park estimate is possible. In the case of a smoker who is 55 years old, the additional financial burden by way of increased health insurance premiums will be in the range of $4,000 plus a year. For a smoker who is 60, the impact could be substantially higher – around $5,000 per year.

Since the increase in premium amounts is age related, younger smokers will pay less by way of the “smoking penalty.” This reduces the effective financial deterrent at the age when the habit develops and takes root. However, the impact is expected to be massive on older smokers because the high penalties appear at the age when most smoking related health complications begin to appear and when retirement and living on a fixed income is a fast approaching reality. Add to this the fact that smoking is highest among the lower income section of the population and the total impact of the increased premiums because of smoking becomes obvious.

Those who are covered under job related health insurance plans will be able to avoid the penalties by joining programs to enable them to give up the habit, but it is unlikely that this option will be available to individual policy holders. Additionally, although the law provides for those who are unable to get coverage under the new provisions to buy private healthcare insurance and provides for tax credits to keep the premiums at reasonable levels, this will not help smokers. The tax credits cannot be used to offset the higher premiums that may be charged on account to the insured person being a smoker.

The increase in premiums by up to 50% is a figure whose impact may not be obvious initially. A look at a possible scenario will make clear how huge an impact it will really have. If a person aged 60 years takes a health insurance policy under the new law the cost will be around $10,000 a year. The tax credits that can be availed of will bring this figure down to about $3,000. But the penalties could add another $5,000 to the cost of insurance, making the total $8,000 plus. If that individual is earning $35,000 per year, health insurance will cost him or her around 24% of the annual salary. By this calculation smoking will not just become very expensive, it will be financially unviable.

All those who have been trying to kick the habit and have not been able to succeed now have a huge new incentive to stop smoking. The cost of smoking, direct and indirect, is not a problem to be faced in the future. It is here and needs to be tackled now. And the only way to do this is by stopping.