What’s Left of Obamacare, Why You’re Not Covered for Water Damage and 13 Other Crucial Things To Know About Insurance

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Insurance is one of life’s necessary evils. While no one plans to get sick or have a house fire, you don’t want a tragedy to drain your wallet either. So you pay and pay and pay for insurance coverage and then hope you’ll never have to use it.

Since we’re paying so much for insurance, you’d think we’d all be experts on the subject. Alas, insurance policies have perfected the art of being so complex that even the experts sometimes get tripped up on the details. However, we’re here to shine some light on some common misconceptions about health, homeowner, auto and life insurance.

Keep reading for 15 things that people often don’t realize about insurance. Which ones did you already know?

1. What your deductible means

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Let’s start with the most basic of basics: the deductible. It’s something that’s attached to your health, auto and homeowner policies, but what is it? Nearly three-quarters of 2,000 adults surveyed by insurance website Policygenius in 2016 said they were confident they could define a deductible, but then only 50 percent did so correctly.

A deductible is simply the amount you pay out-of-pocket before your insurance kicks in. If your health insurance deductible is $6,000, you must pay $6,000 out-of-pocket before your insurance company starts paying claims for anything other than preventive services. If your $10,000 car gets totaled and your auto insurance deductible is $1,000, your insurer will pay out $9,000.

Make sense?

2. The difference between a copay and coinsurance

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Copays and coinsurance are other terms that confused people in the Policygenius survey. While 83 percent of survey respondents said they knew what copays are, only 52 percent correctly defined them. People weren’t quite so confident about coinsurance, with only 47 percent saying they were confident they understood the term and a mere 22 percent got the definition right.

You’re most likely to see copayments and coinsurance on health insurance policies, and they are both out-of-pocket costs you pay. The only difference is that a copay is a flat amount while coinsurance is a percentage of the total bill.

For example, your policy may have a $35 copay required for each doctor visit, or you may be charged 20 percent coinsurance for mental health services. Note: These are amounts charged after you meet your deductible.

3. How much is reasonable for health insurance premiums

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Everyone wants affordable health insurance, but our idea of affordable seems a bit skewed. Nearly 40 percent of people think premiums costing more than $100 a month are unfair, according to a 2018 survey of 1,705 people who purchased health insurance through the platform eHealth. Nearly three-quarters said anything above $200 was unfair. Those numbers were based on coverage for a single individual.

However, the average unsubsidized premium for those buying on eHealth was $440 a month. Meanwhile, consumer spending site ValuePenguin, pegs the cost of insuring a 21-year-old as being anywhere from the $167 a month for catastrophic coverage to $363 a month for a platinum plan that covers 90 percent of medical costs.

It’s worth noting the Affordable Care Act (also known as Obamacare) requires insurers to spend 80 to 85 percent of premiums on health care. So while your premiums may be expensive, at least there are limits to how much they can line the pockets of insurance executives.

4. Obamacare is still in effect

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Did you know Obamacare is still the law of the land? Did you know you could still get charged a tax penalty if you don’t have health insurance coverage this year? Six in 10 people surveyed this past spring by Insurancequotes.com didn’t.

While Congress was not successful in repealing or replacing the Affordable Care Act, they did include a provision in last year’s tax bill to eliminate the tax penalty for failure to have coverage. This led some people to think Obamacare had been scrapped. However, the law still stands even if its major enforcement mechanism is being wiped out.

One thing about that tax penalty elimination though: It doesn’t kick in until 2019. That means anyone without coverage this year could still be facing a significant tax bill next April.

5. You could be losing some essential health benefits

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This one might be news to you on several levels. Nearly 80 percent of Americans don’t even know the essential health benefits insurers are required to provide by the ACA. That’s according to a 2017 survey conducted by Policygenius. For the record, those benefits are:

  1. Outpatient services (health care you get without being admitted to a hospital)
  2. Emergency care
  3. Hospitalization
  4. Pregnancy, maternity and newborn care
  5. Mental health and substance abuse treatment, including counseling and psychotherapy
  6. Prescription drugs
  7. Rehabilitative services and devices
  8. Laboratory services
  9. Preventive and wellness services
  10. Pediatric services, include dental and vision care

Don’t get too attached to that benefits list, though. A 523-page rule was approved this year by the Centers for Medicare & Medicaid Services to allow states flexibility to select benefits insurers must provide for its residents starting in 2019. Rather than everyone being guaranteed the same 10 benefits, states will be given 50 options from which to pick and choose their own set of essential health benefits.

6. Women pay less for car insurance

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Let’s talk about car insurance now. This is one place where it pays to be a woman. Most states allow insurers to take a driver’s gender into consideration when setting premiums, and rates are typically lower for women than men.

The difference can be negligible at older ages but significant for teens. You’ll pay nearly 15 percent more if your 16-year-old driver is a boy rather than a girl, according to data from insurance platform The Zebra.

Sixty percent of people surveyed didn’t realize women drivers cost less to insure, according to Insurancequotes.com.

7. Parking tickets, car color and disabilities don’t factor into premiums

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Speaking of insurance rates, do you really understand what goes into the price you pay for auto insurance? The Zebra surveyed 1,165 U.S. auto insurance consumers in 2017, and found 90 percent of people said they knew which factors are used to calculate premiums. Yet, only 21 percent got a passing grade when actually identifying them.

These three tripped up people the most:

  • 35 percent thought abilities or disabilities affect insurance rates. (They don’t.)
  • 25 percent thought getting a parking ticket affects insurance rates. (It doesn’t.)
  • 23 percent thought the color of your car affects insurance rates. (Nope.)

None of these factors is used by car insurance companies to calculate rates.

8. Credit scores are used to determine insurance rates

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You might be surprised, though, to learn your credit score plays a role in insurance rates. Only 41 percent of those surveyed by The Zebra knew that.

While a few states, such as Massachusetts and California, have banned their use, credit-based insurance scores are staples in the property and casualty insurance industry. That means how well you pay your bills could affect both your auto and homeowner premiums.

What does your credit card debt have to do with your ability to drive a car? Some consumer advocacy groups say there is no connection, but insurers say there is evidence to show that those with good credit have fewer claims and deserve lower rates.

9. Your homeowners insurance may extend to your car

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If someone grabs your phone out of your car at the gas station, your auto insurance company might so say too bad, so sad, and decline your claim. That’s because many car policies don’t cover contents of the vehicle.

However, an unlikely hero might come to your rescue. Your homeowners or renters insurance policy will likely cover the loss under its provisions. It’s a valuable benefit, but 62 percent of Americans don’t know about it, according to the Insurancequotes.com survey.

10. Flood damage may not be covered by insurance

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The historic flooding of Houston after Hurricane Harvey has heightened public awareness of the limitations of homeowners insurance. While most people now seem to realize that homeowners coverage won’t pay for flood damage, it wasn’t always that way. More than 40 percent of those surveyed by the Insurance Information Institute for its 2016 Consumer Insurance Survey, thought heavy rain flooding was a covered event. There are separate flood insurance policies to cover this type of damage.
People may also not realize that basic car insurance won’t cover water damage. Comprehensive coverage generally will pay for damage caused by flooding, but if you leave your windows open or have leaks associated with poor maintenance, you’re out of luck.

11. Pest and rodent damage may not be covered

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Your house is so warm and cozy that you can barely blame the mice for wanting to move in for the winter. However, if they or another pest causes damage, you’ll be paying for the repairs yourself. Most homeowners policies won’t pay claims associated with rodents, termites and other pests.

You’re not alone if this is news to you. Among those surveyed by Insurancequotes.com, 46 percent didn’t realize damage caused by pests wasn’t covered.

12. Liability coverage doesn’t require a deductible

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Remember when we talked about deductibles earlier? That’s the amount you have to pay out-of-pocket before your insurance starts covering your claim. Well, the good news is that there is no deductible required for the liability portion of your homeowner and auto insurance policies.

That’s a little known fact. A 2018 survey of 1,000 homeowners by Insurance.com found 84 percent of respondents incorrectly thought you had to pay a deductible when making a liability claim. Actually, liability insurance is a cause of confusion all around, with 48 percent saying they didn’t understand what it is.

Liability coverage is the portion of your insurance that pays for injuries and property damage to another person. For example, liability coverage is what pays if someone falls in your driveway and gets hurt. Your insurance company will pay any valid claim in these instances without asking you to pitch in the deductible.

13. Your homeowners policy may not pay enough to rebuild your house

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When it comes to replacing your house after a catastrophic event such as a fire or tornado, homeowners policies have two ways of deciding how much you are owed: They may use a replacement cost or a market value.

As its name suggests, the replacement cost is what you would need to rebuild your house with the same materials and features. The market value is how much it would be worth if you put it up for sale. Homeowners policies that pay out market value are generally cheaper, but you could find you can’t rebuild your house for the amount its worth on the open market.

This detail can be easy to miss when you’re buying insurance, so it might be wise to double-check your policy.

14. Taking loans from life insurance isn’t free

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Life insurance comes in two flavors: term life and permanent life. Term life is straightforward. You pay premiums for a set period of time and should you die during the term, your beneficiaries get a payout. Permanent life, which includes whole life and universal life, includes an investment component and builds cash value over time.

One of the selling points of permanent life insurance policies is that you can borrow against this cash value at any time and for any reason. Even better, the amount doesn’t have to be paid back. It can just be deducted from the amount your beneficiaries receive later.

That may give you the mistaken impression that borrowing against your cash value is a cheap way to get an infusion of money. However, interest is charged on that loan, and interest rates can be anywhere from 5 to 9 percent. The interest goes to the insurance company, so it’s not like you’re paying yourself, either. Plus, depending on how the insurance policy is structured, interest can compound so your loan balance will grow if you’re not making payments. Finally, some companies deduct a loan fee, sometimes called an opportunity cost.

15. Your heirs don’t get the cash value from your life insurance

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One other thing to mention about life insurance cash value. The insurance company gets to keep it when you die.

That’s right. It’s not bonus money that goes to your beneficiaries. What’s more, if you use it for loans or to make premium payments while you’re alive, the amount you use will be deducted from the death benefit given to your heirs.

Bet you didn’t know that.

What surprises have you encountered in your quest for insurance or insurance claims? Share with us in comments below or on our Facebook page.

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