Archives for August 5, 2015

Consumer Reports on Auto Insurance: Watch Your Credit Score, Shopping Behavior

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

cr_auto0Consumer Reports (CR) has released a multi-part Special Report on Auto Insurance, included in their September 2015 print issue but also available online without a subscription (at least for now). They analyzed over 2 billion quotes from over 700 companies across 33,419 zip codes. Here are some highlights of what they found.

First, here’s a big picture view of which major car insurers are more expensive on average.

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The biggest individual factor in your premium may be your credit score. Clicking on your state on this 50-state interactive map will give you an idea of the effect of having a “poor” or merely “good” credit score as opposed to an “excellent” one. California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices.

Often, having a poor credit score with clean driving record is more expensive than having an excellent credit with a DUI/DWI! Here’s a screenshot for Florida:

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Another important factor is your loyalty and tendency to comparison shop other items like cable TV. You often think “Loyalty Discount”, but often there is a “Loyalty Penalty”. If you don’t shop your auto insurance, some companies don’t see something to be rewarded; they see a sucker. In my limited experience, the companies with the lowest quotes to entice you from another company are also the ones to hike up the rates every year afterward. Here’s what CR found:

Geico Casualty gave us whiplash with its $3,267 loyalty penalty in New Jersey and its $888 discount just across the state line in New York for longtime customers. State Farm Mutual consistently provided discounts of a couple of dollars up to a few hundred dollars; Allstate Fire and Casualty and Allstate Property & Casualty tended to prefer penalties.

As noted in a previous post, Big Data knows if you’re comparison shopping or not. Such “price optimization” occurs when they find out you could have saved money somewhere else like broadband internet, but didn’t. Not a price-sensitive shopper? You may get the higher rates. Even states that officially ban the practice don’t really have any foolproof way to know if it’s happening. Here’s what CR found:

Amica Mutual and State Farm told us they don’t use price optimization. Representatives from Allstate, Geico, Progressive, and USAA declined to discuss price optimization.

Here’s the general conclusion:

What we found is that behind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors. These include your credit history, whether you use department-store or bank credit cards, and even your TV provider. Those measures are then used in confidential and often confounding scoring algorithms.

What can a consumer do about all this? Consumer Reports wants you to write to your state’s insurance commissioner, and they have a petition template ready for you. David Merkel of The Aleph Blog says you should simply fight back the market-based way: comparison shop your personal insurance lines every 3 years.

Bid it out. Bid it out. Bid it out. What do you have to lose? If loyalty means something to the insurer, they will likely win the bid. If it doesn’t, they will likely lose. Either way you will win. If you have an agent, they will note that you are price-sensitive. The agent will become more of an ally, even if it doesn’t seem that way.

[…] You don’t need transparency, or more regulation. You don’t get transparency in the pricing of many items. You do need to bid out your business every now and then. You are your own best defender in matters like this. Take your opportunity and bid out your policies.

I tend to agree with Mr. Merkel. However, I am still a long-time customer with State Farm. I’m happy to see that State Farm was found to consistently providing loyalty discounts and claims not to engage in price optimization. I shopped around for auto quotes in 2013 and GEICO was cheaper by about $372 a year. However, I had to balance that with the knowledge that GEICO will probably hike my premiums every year and also I’ve had excellent claim service from State Farm. Perhaps it is time for another comparison shop.

PolicyGenius Review: Long-Term Disability Insurance Quotes for Bloggers and Freelancers

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

policygenuis_logoI would say that the insurance with the highest ratio of most-needed to least-bought would be long-term disability insurance. According to the Social Security Administration, just over 1 in 4 of today’s 20-year-olds will be become disabled at some point before reaching 67. According to a Harvard study, lost income due to illness was a contributor in 40.3% of all personal bankruptcies in the US. Here is a chart that shows the average duration of disability claims lasting more than 90 days, measured from the start of disability to (at most) age 65.

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Sometimes your employer offers group LTD coverage, but what happens when you switch to another job that doesn’t have it, or you get disabled while unemployed? Not all group plans are convertible to individual policies. Finally, what if you are self-employed? Many people are freelance graphic designers, writers, and other hard-to-define jobs.

PolicyGenius is one of many sites that offer online insurance quotes, but their specialty is straightforward information and non-pushy quotes for “young, self-directed people”. They sell:

  • Term life insurance
  • Long-term disability insurance
  • Renter’s insurance
  • Pet health insurance

I have to admit, the fact that they actually listed “blogger” as a legitimate job was the spark that made me want to get a quote from them. I also liked that they only sell term life insurance, and not whole life, permanent life, or indexed-confusing-whatevernot.

Another is that they have quotes from all seven major LTD insurers, and the quotes you get should be identical to everyone else’s for the exact same policy from the exact same insurer. That is, there are no various levels of markup depending on where you buy it from, like there is for Tide detergent or a Toyota Camry. The commission to the seller is already baked into the premiums.

I applied for a long-term disability insurance quote, which they call “insurance for your paycheck”. PolicyGenius has a modern, comfortable user interface. First, they’ll ask for basic information like gender, birthdate, and state of residence. Click on any screenshot to enlarge.

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Income. Usually a policy won’t pay more than about 50% to 60% of your current income. I’m guessing they don’t want to make it too appealing an option!

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Health info. Pre-existing conditions are usually excluded. The worse your health, the more likely you’ll become disabled.

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Monthly benefit. Obviously the higher that is, the higher your premium.

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Waiting period. The longer you are willing to wait before claiming a disability, the lower your premium.

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Benefit period. How long do you want to be able to claim benefits?

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Additional riders. There are coverage options which you can add or remove.

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I made a quote with my own personal details, but also an additional quote for the following theoretical situation. The quotes still require additional underwriting, meaning you’ll probably have to submit supporting financial documents and complete a physical examination (blood, urine, body measurements). Here’s a rough outline:

  • Female, non-smoker, California resident, age 33.
  • Current income $5,000 a month. Policy benefit $3,400 a month.
  • Self-employed blogger for 5 years (classified as Reporters and Correspondents).
  • 90 day waiting period, claim until age 65.
  • Own occupation, residual disability, and non-cancelable.

After 3 business days, I was e-mailed a quote of $265 a month from Principal Financial Group for this situation. This was significantly higher than the $130 to $175 a month estimate that was given initially, and much higher than the $98 a month quote I got for myself. My guess is that my monthly benefit was relatively high at 68% of current salary? I have also read that women are quoted higher premium when statistically likely to have a baby since pregnancy causes a lot of disabilities. I wrote back to them asking what things I could tweak (like a lower monthly benefit and/or a 180-day waiting period) in order to get the premium down to around $100 a month.

If you do get a LTD quote yourself, be sure to read all the tips during the quote process and also wade through the entire detailed proposal package for what is excluded. My thoughts are to treat this as true insurance (as opposed to a payment plan), which means you are trying to just cover catastrophic events and hope to never make a claim. That means I tried to make the benefit just big enough, the waiting period as long as I could bear, but I kept the claim period to age 65 in case I become permanently disabled.

I’m sure there are other quote comparison websites out there and also good (human) independent insurance brokers. I chose to run a quote at PolicyGenius because it was easy, convenient, and less intimidating than other places that I’ve tried. If you’ve gotten individual long-term disability insurance, please share your own experiences in the comments.

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