Much of the discussion around The Patient Protection and Affordable Care Act (PPACA) aka Affordable Care Act aka Obamacare has been about politics. But it’s the law, it’s constitutional, and a lot of things are happening soon. For most full-time workers that wish to keep their employer-provided health insurance, little will change. However, things will be very different for the self-employed, unemployed, uninsured, and those seeking semi-retirement or retirement before age 65 and Medicare. You can use it even if you already have employer-provided insurance, although you may become ineligible for certain tax credits. There’s way too much information to cover everything, but here’s my summary of the developments.

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Life insurance tends to be one of those things that you know may be good for you, but is so easy to put off. For one, it makes you confront something uncomfortable: possibly untimely death. On top of that, some insurance products are so complicated that even the people selling them often don’t fully understand. Who designs these things anyway?

A life actuary works for an insurance company and analyzes the many factors involved: the likelihood of death in various circumstances, the investment returns generated by premiums charged (minus expected payouts), and pricing decisions that balance profit margin with market competitiveness. They have strong mathematical and analytical backgrounds and passing all the exams for full credentialing usually takes several years. In other words, these people make sure the insurance company makes money in the end no matter what happens.

(Fun fact: Being an actuary consistently ranks as one of the best jobs out there due to the combination of high pay, solid demand, and low stress.)

So I was happy to see a post on an investing blog I read called “What Insurance do Actuaries Buy?“. What beer do brewmasters drink? What toothbrush do dentists use? The author David Merkel is a CFA and also used to be a life actuary. Excerpts from his response below:

Actuaries avoid complexity in insurance products. Why? In general, complex products hide high profit margins. Products that are easy to analyze, like term life insurance, are competitive, and profit margins are low.

Also, they tend to use insurance as catastrophe cover, because they know that having insurance companies pay on a lot of small claims is expensive on average.

There is an exception to all of this. If you are so rich as to need to stiff the taxman, buying cash value insurance policies can make a lot of sense. In that case, wealthy actuaries with clever tax advisors buy cash value life insurance. Death benefits do not pass through the estate.

This aligns with most of the unbiased advice I’ve read on life insurance. If a death in your household would be a financial catastrophe, then you need life insurance. Don’t waste money insuring on your cell phone or laptop that will be outdated next month. Use that money to secure your family.

Term life insurance is the easiest to compare across providers, which results in the slimmest profit margins and affordable costs. Term is best for the vast majority of people. More complicated types of life insurance may have proper application in very limited situations for the very wealthy with estate planning needs. A good place to start is Term4Sale.com which doesn’t include every provider but does provide good info and the same prices that an insurance broker would charge you.

This post is participating in the Life Insurance Movement, organized by Jeff Rose of Good Financial Cents, a group writing project about life insurance.

In a NY Times Op-Ed piece entitled Money Won’t Buy You Health Insurance, Donna Dubinsky shares her troubles with getting individual health insurance coverage, even though she has many millions from co-founding Palm. Based on this article, here are some ways to improve your chances of getting coverage.

1. Use an independent insurance broker. By going with an experienced broker that represents several companies instead of a sales agent employed by one single company, you have a better chance of finding a policy that best fits your needs.
2. Apply simultaneously to many different companies. Insurers always ask “Have you ever been denied health insurance?”, and you don’t want to have to answer yes. By applying to many at the same time, you won’t have to. Besides, different insurers can also have very different underwriting criteria.
3. Instead of applying as a family, apply to each company as individuals. One insurer might have a problem with one person in your family, and then reject everyone as a result. Dubinsky eventually found coverage for everyone in her family by going this route.
4. Be smart when filling out your medical history. You don’t want to leave anything important out, because that can invalidate your coverage later on. The insurer will be requesting a copy of your medical records. However, on your end it’s best to provide only exactly what is required with short, direct answers.
5. Find a way to join a group plan indirectly. The most obvious is trying to add yourself to a spouse’s group plan. Alternatively, look for potential professional groups and organizations to join in order to qualify for group health insurance plans. In some states, as long as you have a business with at least two total employees (including yourself), you qualify for a group health plan. Consider hiring an employee or even another family member part-time to qualify.

A good resource for learning about the specific health insurance rules for your state is StateHealthFacts.org. Look under “Health Insurance & Managed Care”. Finally, I absolutely agree with the final words of her article:

The new health care reform legislation is not perfect. Nothing that complex could be. But I have no doubt that the system is broken and reform is absolutely essential. If we are not going to have universal coverage but are going to rely on employer plans, then we must offer individuals, self-employed people and small businesses a place to purchase insurance at a reasonable price.

If members of Congress feel so strongly about undoing this important legislation, perhaps we should stop providing them with health insurance. Let’s credit their pay for the amount that has been paid by the taxpayers, and let them try to buy health insurance in the individual market. My bet is that they all would be denied. Health insurance reform might suddenly not seem to them like such a bad idea.

Yes!

Personal umbrella insurance is additional liability insurance, designed to pay out on top of your existing auto and homeowner’s/renter’s insurance policies. For example, you may only have $300,000 in liability coverage on your car insurance. If you are hit with a claim of $1,000,000, you would be on the hook for $700,000 yourself unless you had an adequate umbrella insurance policy. Here is a diagram explaining this from MSN Money:

This was taken from a previous post of reasons why I have umbrella insurance, which included some examples from news clippings. I won’t expand too much further here.

In a recent Bogleheads post, forum member Quasimodo shared an informative CBS Marketwatch article that included several more real-life examples where umbrella insurance coverage kicked in to save the day. Read it for the actual stories, but here are a few example scenarios:

• You are an car accident with multiple people with serious injuries, and the medical bills are astronomical.
• You are in a car accident on the freeway involving a semi-truck carrying $750,000 of cargo.
• An acquaintance gets injured at your house.
• You are a chaperone on a field trip and one of the kids hurts themselves.
• You host a party, someone else brings alcohol, and someone underage gets hurt or DUIs.
• Your son or daughter borrows a friend’s car, and wrecks the car or injures someone.

The article also presents some good questions to ask about coverage details and possible exclusions, which I will need to follow-up on. Mrs. MMB and I pay about $300 a year for $2 million of umbrella insurance covering two cars and a homeowner’s policy. We find it a good value for the peace of mind it gives.

You can get a third-part insurer to be the umbrella over differing auto and/or homeowner’s insurers, as long as you have the required liability amounts underneath. I wouldn’t fall for the argument that if you don’t have significant assets – especially as compared to your current liability limits – then you don’t need umbrella insurance. If you have $100,000 and are covered for $100,000, what if you are found liable for $200,000? You’d still be completely broke – and how long did it take you to accumulate that in the first place?