Read this before you spend another dime on road hazard insurance

I wonder how many people are paying for road hazard insurance unnecessarily. I used to pay the annual fee to a big-name motor club for the promise to help me or my wife out if we had a flat tire, dead battery or needed a tow.

My decision to discontinue the coverage was easy the first time I called for help after being told that it would be over an hour before someone would come to change my flat tire on I-25 in Denver. Ordinarily I would change the tire myself, which is what I ended up doing.

Check with your current auto insurance company before paying someone else for roadside assistance protection.

I enrolled in the plan with my wife in mind, but they covered both of us for the same price so I thought I would try it out. On the day I called for help, my motivation was driven by the fact that my blowout occurred in rush hour traffic in the midst of one of Denver’s famous summer afternoon monsoon gully washers. We discontinued the coverage the next time they sent me a payment due notice.

It wasn’t until recently that I realized I had been wasting my money with the policy anyway. It turns out the full-coverage policy we’ve had with State Farm all these years comes with roadside assistance. I found out about it only recently while scanning my semi-annual premium notice into the computer. I looked into it a little deeper and found that it’s basically the same service I had been paying about $100 a year for once upon a time.

If we ever get locked out of our car, or have a dead battery, or need a tow, we’re covered. You have to call a special toll-free number to take advantage of it but no biggy; we just keyed the number into our cell phones.

Takeaway: Check with your current auto insurance provider to see if they offer roadside assistance. If so, don’t even think about paying another “motor club” for the same service.

What Powerball can teach us about annuities

by @PaulFiarkoski

Dream with me for a minute. Imagine that you woke up this morning and realized that the quick pick numbers on the Powerball ticket you bought at the convenient store the other day matched all six balls in last night’s drawing.

Lump sum or annuity?
Among the many important decisions you’ll have to make is weather you want a lump sum or series of payments over twenty years. If you were to choose the series of payments, you’re opting for what we call in the financial planning world an annuity.

Now you know what an annuity is in it’s simplest form. Unfortunately, the insurance industry has added so many bells and whistles to annuity products that they’re far from simple.

When I used to teach my financial consultant trainees about annuities, I always found it helped them understand the concept better if we put them into categories. Most annuity products can be categorized as either a fixed annuity or variable annuity and again as immediate or deferred.

Fixed or variable
A fixed annuity means that it accrues interest at a minimum guaranteed rate. The interest paid is generated by underlying investments in bonds or other securities that pay interest and the eventual return of principal. Since annuities are also insurance products, fixed annuities are typically guaranteed to pay a minimum rate plus additional earnings (or dividends) on top of the guaranteed amount.

On the other hand, a variable annuity offers no guaranteed rate. Instead, the return generated by a variable annuity depends on the performance of underlying investments – usually publicly traded stocks and other non-interest bearing securities. Variable annuities can even lose principal in the event of a drop in the stock market.

Immediate or deferred
Most annuities can also be classified as either immediate or deferred, a reference to when the payments (to you) begin. As the name implies, an immediate annuity will begin payments right away. That could be in a month, a quarter or even a year from the contract date, depending on when you request your first payment. Deferred annuities often don’t begin to pay out for several years. During that time, you can typically increase the size of the annuity principal by contributing more premiums to it.

To summarize, you could have a fixed annuity that’s immediate or deferred. Likewise, a variable annuity can be either immediate or deferred.

The connection to Powerball
Okay, so how does this lesson about annuities tie in with Powerball? Remember, if you ever win the Powerball lottery one of the most important decisions you’ll have to make is whether you want to receive your winnings as a lump sum or annuity – a series of payments.

You don’t need me to tell you that your chances of getting hit by lightning in this life are better than matching all six Powerball numbers. However, anyone can purchase an annuity contract. If you have a sizable lump sum from insurance proceeds, the sale of property or a business or what have you, you can convert that money into a series of payments with an immediate annuity. In many cases you can even roll all, or a portion of, your retirement account into an annuity. (Be sure to educate yourself on potential tax consequences if you consider this move.)

Suppose you don’t have a large sum of money. You can purchase a deferred annuity with a smaller sum of money and add to it over the years to build up your own annuity “jackpot.”

Three reasons to say no to cell phone insurance

When I bought my daughter a new phone at Verizon recently, I was asked if I wanted insurance on the phone. The insurance would offer a replacement phone in the event it was damaged beyond repair.

As I began to do the quick math in my head, that little voice of reason that I’ve been hearing from a lot more lately promptly gave me three reasons to say no.

Say 'no' to cell phone insurance — Image courtesy of insuranceinfonews.com

1. Monthly Cost
The upfront cost for the insurance is $7 per month, or $84 a year. If the need arises, we can likely replace the phone with a used model from an Ebay seller for under $100. So unless she destroys the phone in the first two months, the insurance math just doesn’t add up.

2. Deductible
In addition to the monthly premium, if we need to use the insurance, there is a $100 deductible to get a new phone.

3. Obsolescence
The model of your phone will likely be obsolete by the time you need to use the insurance. Earlier this summer my daughter’s other phone gave out. Verizon didn’t have a “comparable replacement” so we ended up buying the exact model on eBay for about $60. We took it in to get the contacts transferred over and she was back in business.

There was a time when we felt it was worthwhile to pay for insurance cell phones. That was when the whole cell phone craze began and we had this fear of forking out a bunch of money just to maintain the ability to use our service. Now that cell phones are plentiful and we have been using them for a long time with no issues, I just can’t justify the cost of insuring them.

Buying health insurance in the Obamacare era

by Paul Fiarkoski

The Affordable Care Act – aka Obamacare – has become a hot political topic as of late. Oddly, this issue has divided even voters registered within the political parties.

From my perspective, much of the talk before the Obama healthcare plan went into effect was rhetoric based on fear. As a result of my insurance training, the notion of having everyone in the U.S. insured would spread risk across a huge pool of people and greatly reduce costs across the board.

Now that Obamacare has been in place for about a year, I’d like to share my family’s recent experience with the health insurance buying process.

Want the conclusion? Here’s mine: Obamacare is sorely needed in today’s economy.

Background
Due to a new career path I decided to take, my wife and I recently (July 2012) found ourselves in the market for health insurance for our family of four. I gave up the group insurance I had for the last twelve years and decided to pay out of pocket for a high-deductible individual policy. We have two tween-aged daughters. The company we dealt with is Aetna. That’s who I had the group policy with and who I applied for the individual policy with.

I thought it would make things simpler to stick with them since every one of our health insurance claims went through Aetna for more than a decade. I couldn’t have been more wrong. We still had to document for them every doctor visit, illness, etc. over the past ten years. When I suggested that they look up our claims and base their decision of whether or not to insure us based on their records, the representative said they couldn’t do that due to privacy laws. Right from the script!

Playing by the insurance company’s rules
Really? Privacy laws prevent me from giving my own insurance company access to their own files containing information about my health. I didn’t like that answer but played along since I really didn’t want my family to be uninsured.

As it turned out, my wife was denied coverage completely. And not just for me misstating her height and weight. It was that, combined with something that was not discovered in the physical but that my wife mentioned to the doctor, who logged it in her notes to the insurance company. We paid out of pocket to have the doctor treat the other matter, then appealed Aetna’s decision knowing in our minds that my wife would likely not be able to get coverage with another company now since one of the key questions on a new application is “Have you ever been denied coverage by any insurance company?”

I was issued a policy but with a 40% higher premium than I was originally quoted. Even though the bloodwork that I paid out of pocket for revealed that I’m in better health than I was five years ago, they rated me for “pre-diabetes,” likely because I mentioned on the application that a family member has diabetes. Great, now I’m paying more for revealing information that is none of Aetna’s business and they would have otherwise had no access to. Both of my kiddos were issued policies but one of them was rated higher due to an injury she sustained at gymnastics practice six months earlier.

At that point I couldn’t help but wondering if I had not mentioned the gymnastics injury, or my family member’s diabetes, or if I had been accurate with my wife’s height and weight, would we be having any of this trouble. Would Aetna have detected omissions on the application by checking our claim history? Call me a cynic, but my hunch is that yes they would.

Light at the end of the tunnel
Currently I and my two kids are insured. My wife is still uninsured as we await the outcome of the appeal. In the meantime, thanks to a tidbit I found in small print on Aetna’s denial letter, my wife will be eligible to apply for a “no pre-existing conditions” policy in early 2013. Prior to Obamacare this option would not have existed. I have already checked the premiums and the cost is about 30% higher than what Aetna originally quoted us. Chances are that even if Aetna does decide to cover her, it will be at an increased rate.

Regardless of the outcome, it is good to know that thanks to Obamacare we have the ability to get insurance for my wife. We just need to pray that she remains healthy until her insurance kicks in.

Option for people who have been denied health insurance
Apply for insurance under the Pre-existing Condition Insurance Plan made possible by the Affordable Care Act. Get details at www.pcip.gov

As for the runaround and rated policies we received from Aetna, I don’t attribute that to Obamacare. Having dealt with them for the last twelve years for my group policy, I have become wise to their archaic infrastructure and tendency to stonewall when it comes to paying out benefits.

Lessons learned
Here are some tips I would offer to anyone thinking about applying for an individual (not group) health insurance policy:

Don’t guess when completing the application. I guessed my wife is 5’8′ and 120. Although I scored big points with her for that one, Aetna said she was too thin to be considered for coverage.
Don’t overshare. Since insurance companies are allgedly prevented from obtaining health information about your relatives, don’t reveal anything. Make them insure you based on your health.
Apply to more than one company about three months before you need the coverage. That’s about how long it can take to get insurance from the time you apply. This way you can go with the company that offers you the best overall package (price, service, efficiency) and tell the other(s) you won’t be needing them.
Keep detailed records of medical treatments you and your family members receive. It will save you a lot of grief if you ever have to apply for individual health insurance.