FOR MANY CONSUMERS, insurance is a confusing maze of possibilities. There are myriad kinds of policies available, including life, auto, homeowners, health, disability, flood and even pet insurance, that could be appropriate for people, depending on their circumstances and where they live. But many consumers don’t fully understand what each of these policies covers, and they may struggle to find the information they need to make informed decisions.
Insurance professionals recommend consumers review their policies and coverage options yearly to ensure they are properly protected. How much do you really know about insurance?
Take our quiz to find out.
1. True or false: All disasters are covered under standard homeowners and renters insurance policies.
ANSWER: False. Standard homeowners policies typically cover damages from some potential disasters, including tornadoes, lightning strikes and winter storms, according to the Insurance Information Institute, which helps educate consumers on insurance- related issues. These policies can vary, so read the fine print. What’s more, standard homeowners policies generally don’t cover damages from disasters such as floods, earthquakes or sewer backups; separate endorsements or policies may be needed to protect against these types of problems, according to the institute.
2. If a policy has a $500 deductible, and the insurance company determines that the insured loss is worth $10,000, the claimant would receive a check for ____________.
D. None of the above
ANSWER: B. $9,500. The dollar amount of a deductible comes off the top of the claim payment. Deductibles can be specific dollar amounts or percentages, as is generally the case with homeowners insurance. With an auto-insurance or homeowners policy, the deductible applies each time you file a claim. One exception to this is in Florida, where homeowners policies usually require consumers to pay only one hurricane deductible per calendar year, rather than after each storm.
3. When thinking about the amount of coverage to place on personal possessions, a good rule of thumb is to insure them at ___% to ___% of a person’s dwelling coverage amount.
A. 10% to 15%
B. 20% to 30%
C. 50% to 70%
D. None of the above
ANSWER: C. Most homeowners-insurance policies provide coverage for personal possessions at about 50%-70% of the insurance on the person’s dwelling, according to the Insurance Information Institute. So, if a person insures a dwelling for up to $150,000, he or she would want to insure personal possessions for at least $75,000.
4. Usage-based insurance is _______________.
A. A new type of biometric device.
B. A type of vehicle insurance where premiums can depend on driving habits such as speed, miles driven and hard-braking incidents.
C. A policy based on your life expectancy.
D. A way of measuring how much your personal property is worth.
ANSWER: B. Usage-based insurance, also known as telematics, tracks driving behavior through devices installed in a vehicle or through smartphones. Wireless devices transmit data in real time to insurers, which use the information to help set premiums. The devices record metrics such as the number of miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering and air-bag deployment. By year-end, 80% of new cars for sale in the U.S. could be equipped with onboard telematics devices, and by 2020, 70% of all auto insurers will use telematics, the National Association of Insurance Commissioners predicts.
5. Some ___% of households didn’t have life insurance in 2016, according to Limra, an industry-funded research firm.
ANSWER: D. 30%. The good news is that more households seem to recognize the need for life insurance. Nearly five million more U.S. households had life insurance coverage in 2016 than in 2010, according to the most recent data available from Limra.
6. When choosing an insurance company, consumers should consider _______________.
A. Whether the insurance company is licensed in their state.
B. The cost of the insurance policy.
C. The financial strength of the insurer.
D. All of the above.
ANSWER: D. There were nearly 6,000 insurance companies to choose from in the U.S. in 2016, according to the National Association of Insurance Commissioners, so consumers should do their homework before choosing one. A good place to start is with their state insurance department, which can help identify which insurers are licensed to do business in the state. The department may even publish a guide that shows what insurers charge for different policies. Independent credit-rating firms — such as A.M. Best, Fitch, Kroll Bond Rating Agency (KBRA), Moody’s and S&P Global Ratings — are another source of information. They rate insurers’ financial strength, which can be an important indicator of whether a firm will have the assets and liquidity to pay claims as promised. Consumers should also gauge the level of service insurers are providing and their comfort level with the company’s representatives.
7. True or false: While not required, business-interruption insurance is a good idea for entrepreneurs and startups.
ANSWER: True. After a catastrophe or disaster, about 40% of businesses don’t reopen and an additional 25% fail within a year, according to data from FEMA and the U.S. Small Business Administration. Businessinterruption insurance can help compensate small-business owners for lost revenue due to closure. This type of insurance can also help owners cover the cost of fixed expenses such as rent and utilities, as well as mitigate the expense of operating from a temporary location.
8. True or false: People who don’t have health insurance in 2018 will still face a penalty when they file their taxes in early 2019.
ANSWER: True. While the penalty under the Affordable Care Act for not having health insurance has been repealed, the change doesn’t take effect until 2019, according to Louise Norris, a health-insurance broker who has been writing about health insurance and health-law overhaul since 2006. People who are uninsured in 2019 and beyond won’t be subject to a penalty, she says.
BY CHERYL WINOKUR MUNK