A quirky law known as Barth's Distinction goes as follows: There are two types of people: those who divide people into two types, and those who don't. For the record, I'm one of those people who separate the public into two groups.
For example, here are two types of people: those who buy insurance, and those who don't. Then again, it's perfectly understandable why some people choose to avoid insurance. After all, as I warned in How To Win Insurance Claims, getting a payout from some firms can be like squeezing blood from the proverbial stone.
Nevertheless, we should not tar all insurance policies with the same brush, as there is a huge variation in the peace of mind and value for money on offer. So, without further ado, here are five types of insurance which I've put to the test. For each policy, I've provided three ratings (each on a scale of one to ten) and an overall mark, as follows:
• Likelihood of making a claim. In other words, what are the chances that you will need to ask for a payout? I've included an average figure, but you may wish to adjust this to reflect your own personal circumstances.
• Impact of any loss. What will the impact of this unforeseen event be? The answer could range from the trivial to the catastrophic. For example, having your bicycle pinched is fairly trivial, but dying and leaving your partner without enough money to pay the mortgage could be catastrophic.
• Value for money. Taking various financial factors into account, such as payout ratios and profit margins, how competitively priced is this cover?
I should point out that this isn't an entirely scientific test, but it is backed by my two decades of experience in the insurance industry. Anyway, let's start with one of the most widely held insurance policies in the UK...
1. Car insurance = Must Buy
It's a legal requirement to have a minimal level of car insurance, which explains why we Brits spend over £10 billion a year on this cover. The market for car insurance is fiercely competitive, with hundreds of providers, which makes it easier to shop around for lower premiums.
Likelihood of making a claim: 9/10 (very few drivers go through life without making one or more claims)
Impact of any loss: 7/10 (although, of course, claims range from petty thefts and vandalism to total write-offs and road deaths, so the impact can differ widely)
Value for money: 9/10 (but only 4/10 if you always renew with the same insurer!)
Further reading: Get 60% Off Your Car Insurance
2. Extended warranties = Don't Buy
As I warned in this article, you should be careful when Christmas shopping and, indeed, at all other times of the year. That's because eager salespeople will be queuing up to flog you rip-off extended warranties. My advice would be to reject these every time and, instead, rely on the manufacturer's guarantee and your wide-ranging rights under the Sale of Goods Act.
Likelihood of making a claim: 3/10 (most modern appliances are fairly reliable)
Impact of any loss: 2/10 (we can get by without almost all of our consumer durables)
Value for money: 1/10 (that's a Worst Buy rating, of course)
Further reading: When Electrical Goods Go Wrong
3. Home insurance/buildings and contents = Wise Buy
If you own your own home, then I believe that it's essential to have buildings insurance. Otherwise, a flood or fire could destroy your greatest asset. As for contents insurance, it all depends on how much you have to lose. I know one Fool writer who (like a quarter of UK households) doesn't have contents insurance, purely because his family possessions are fairly modest. Still, a low-cost home insurance policy provides solid peace of mind and, at the very least, catastrophe cover.
Likelihood of making a claim: 6/10 (events range from accidental damage and burglary, to fire, flood and storm damage)
Impact of any loss: 6/10 (but fire or flooding could be particularly disastrous)
Value for money: 8/10 (but only if you shop around)
Further reading: How To Buy Home Insurance
4. Life insurance = Wise Buy
If no-one would suffer financially as a result of your death, then you don't need any life insurance whatsoever. On the other hand, if you have a partner and/or dependent children, then your demise could have serious fiscal consequences. The good news is that life insurance premiums have tumbled over the past decade, making this protection more attractive than it's ever been.
Likelihood of making a claim: 1/10 (few of us die before reaching retirement age)
Impact of any loss: 10/10 (assuming that you have a family when you kick the bucket)
Value for money: 9/10 (nowadays, this market is intensely competitive)
Further reading: Top Tips For Buying Life Insurance
5. Payment protection insurance (PPI) = Don't Buy
Of all the insurance policies which I've come across in the past twenty years, payment protection insurance takes the wooden spoon for being the worst. This protection against accident, sickness and unemployment is hugely overpriced, widely mis-sold and difficult to claim against. Yuk!
Likelihood of making a claim: 8/10 (accidents, illnesses and being out of work are common occurrences)
Impact of any loss: 3/10 (assuming that your claim is typical and therefore lasts for under six months)
Value for money: 1/10 (the worst-value insurance imaginable!)
Further reading: Avoid This Enormous Rip-Off
I'm not quite finished with this topic yet, so watch this space for a follow-up article analysing other popular forms of insurance. Be lucky!
Friday, December 7, 2007
Tuesday, December 4, 2007
Health Insurance for All, Only if Everyone Pays?
Re “Mandates and Mudslinging” (column, Nov. 30):
Paul Krugman dismisses Senator Barack Obama’s points about health insurance mandates as “echoing right-wing talking points” on health care. Really?
It was two pragmatic Republican governors, Mitt Romney of Massachusetts and Arnold Schwarzenegger of California, who proposed mandates as cornerstones of their respective health reform plans.
In California, resistance to that approach has come primarily from unions and Democrats. Although I have favored the mandate component of Mr. Schwarzenegger’s plan, Mr. Obama raises valid points about the practicality of immediate mandates as the path to universality.
In California, there are real questions about whether the insurance that people would be required to buy and able to afford, even with subsidies, would be worth having. Massachusetts has already had to grant waivers to many.
In addressing this issue, carrots may prove more effective than heavy-handed sticks.
John Walkmeyer
San Ramon, Calif., Nov. 30, 2007
•
To the Editor:
How can Paul Krugman limit his discussion of health care reform to the competing Obama-Clinton-Edwards “universal coverage” plans with nary a mention of a single-payer system? As Mr. Krugman has noted in previous columns, having insurance does not always equate to being “covered” when needed care is prescribed.
Where all three “universal coverage” plans amount to subsidy schemes for the insurance industry, Representative Dennis J. Kucinich’s single-payer plan would eliminate the unnecessary middlemen — for-profit insurers and H.M.O.’s with their high profits and huge administrative costs.
Ernest A. Canning
Thousand Oaks, Calif., Nov. 30, 2007
•
To the Editor:
It is inconsistent for anyone to oppose an individual health insurance mandate and simultaneously support our current laws that require that emergency rooms provide care whether or not a patient is able to pay. Mandated emergency room care is ultimately what relieves individuals from having to buy insurance.
I doubt that Senator Barack Obama or any Republican candidate is prepared to advocate the repeal of these mandates.
We will never make progress on solving our health care crisis until Democrats accept the notion of a market-based solution and Republicans accept the notion that mandates will be required to optimize how the market operates.
Kim Davis
New York, Nov. 30, 2007
•
To the Editor:
As a devoted reader who agrees with Paul Krugman 99 percent of the time, I urge him to rethink his stand on health insurance mandates.
Consider:
¶We mandate car insurance because of the damage a half-ton of hurtling steel can do to others, but we don’t mandate that a car owner insure himself or herself.
¶If health insurance coverage were mandated, it would be like setting up a parallel taxation. While a single-payer system would be far more efficient, it now seems even more unattainable.
¶If Senator Barack Obama points out why Republicans will defeat the plans of Senator Hillary Rodham Clinton or John Edwards, he’s not “echoing right-wing talking points” but rather anticipating Republican criticisms.
We shouldn’t let the perfect be the enemy of the good, particularly when perfect will be defeated. Good policy is useless if it’s also bad politics.
Mr. Krugman’s policy recommendations may have some merit, but his political advice, in this case, is flawed.
Paul Krugman dismisses Senator Barack Obama’s points about health insurance mandates as “echoing right-wing talking points” on health care. Really?
It was two pragmatic Republican governors, Mitt Romney of Massachusetts and Arnold Schwarzenegger of California, who proposed mandates as cornerstones of their respective health reform plans.
In California, resistance to that approach has come primarily from unions and Democrats. Although I have favored the mandate component of Mr. Schwarzenegger’s plan, Mr. Obama raises valid points about the practicality of immediate mandates as the path to universality.
In California, there are real questions about whether the insurance that people would be required to buy and able to afford, even with subsidies, would be worth having. Massachusetts has already had to grant waivers to many.
In addressing this issue, carrots may prove more effective than heavy-handed sticks.
John Walkmeyer
San Ramon, Calif., Nov. 30, 2007
•
To the Editor:
How can Paul Krugman limit his discussion of health care reform to the competing Obama-Clinton-Edwards “universal coverage” plans with nary a mention of a single-payer system? As Mr. Krugman has noted in previous columns, having insurance does not always equate to being “covered” when needed care is prescribed.
Where all three “universal coverage” plans amount to subsidy schemes for the insurance industry, Representative Dennis J. Kucinich’s single-payer plan would eliminate the unnecessary middlemen — for-profit insurers and H.M.O.’s with their high profits and huge administrative costs.
Ernest A. Canning
Thousand Oaks, Calif., Nov. 30, 2007
•
To the Editor:
It is inconsistent for anyone to oppose an individual health insurance mandate and simultaneously support our current laws that require that emergency rooms provide care whether or not a patient is able to pay. Mandated emergency room care is ultimately what relieves individuals from having to buy insurance.
I doubt that Senator Barack Obama or any Republican candidate is prepared to advocate the repeal of these mandates.
We will never make progress on solving our health care crisis until Democrats accept the notion of a market-based solution and Republicans accept the notion that mandates will be required to optimize how the market operates.
Kim Davis
New York, Nov. 30, 2007
•
To the Editor:
As a devoted reader who agrees with Paul Krugman 99 percent of the time, I urge him to rethink his stand on health insurance mandates.
Consider:
¶We mandate car insurance because of the damage a half-ton of hurtling steel can do to others, but we don’t mandate that a car owner insure himself or herself.
¶If health insurance coverage were mandated, it would be like setting up a parallel taxation. While a single-payer system would be far more efficient, it now seems even more unattainable.
¶If Senator Barack Obama points out why Republicans will defeat the plans of Senator Hillary Rodham Clinton or John Edwards, he’s not “echoing right-wing talking points” but rather anticipating Republican criticisms.
We shouldn’t let the perfect be the enemy of the good, particularly when perfect will be defeated. Good policy is useless if it’s also bad politics.
Mr. Krugman’s policy recommendations may have some merit, but his political advice, in this case, is flawed.
Health Insurance for All, Only if Everyone Pays?
Re “Mandates and Mudslinging” (column, Nov. 30):
Paul Krugman dismisses Senator Barack Obama’s points about health insurance mandates as “echoing right-wing talking points” on health care. Really?
It was two pragmatic Republican governors, Mitt Romney of Massachusetts and Arnold Schwarzenegger of California, who proposed mandates as cornerstones of their respective health reform plans.
In California, resistance to that approach has come primarily from unions and Democrats. Although I have favored the mandate component of Mr. Schwarzenegger’s plan, Mr. Obama raises valid points about the practicality of immediate mandates as the path to universality.
In California, there are real questions about whether the insurance that people would be required to buy and able to afford, even with subsidies, would be worth having. Massachusetts has already had to grant waivers to many.
In addressing this issue, carrots may prove more effective than heavy-handed sticks.
John Walkmeyer
San Ramon, Calif., Nov. 30, 2007
Paul Krugman dismisses Senator Barack Obama’s points about health insurance mandates as “echoing right-wing talking points” on health care. Really?
It was two pragmatic Republican governors, Mitt Romney of Massachusetts and Arnold Schwarzenegger of California, who proposed mandates as cornerstones of their respective health reform plans.
In California, resistance to that approach has come primarily from unions and Democrats. Although I have favored the mandate component of Mr. Schwarzenegger’s plan, Mr. Obama raises valid points about the practicality of immediate mandates as the path to universality.
In California, there are real questions about whether the insurance that people would be required to buy and able to afford, even with subsidies, would be worth having. Massachusetts has already had to grant waivers to many.
In addressing this issue, carrots may prove more effective than heavy-handed sticks.
John Walkmeyer
San Ramon, Calif., Nov. 30, 2007
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