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Financial Literacy 411 Survey Results—Insurance

Friday, April 9, 2010
Survey indicates only 45 percent of Americans feel confident making insurance decisions and 86 percent do not fully understand terms used in current health care reform discussions.

Washington, DC — In today’s challenging economic environment and with questions about the implications of the newly passed health care bill, it’s never been more important for consumers to understand their insurance options. Yet, according to a new survey by the DC Department of Insurance, Securities and Banking (DISB) and the National Association of Insurance Commissioners (NAIC), only 45 percent of Americans feel confident making insurance decisions, and more than 60 percent failed to correctly answer basic questions about insurance coverage, including: Does auto insurance cover personal property stolen from your car? At what age do most people become eligible for Medicare? Can credit scores affect your auto insurance premium? The answers—no, 65 years of age and yes—eluded the majority of the 1,000 American adults who took the survey, which was made up of two sections—one section gauging broader consumer perceptions on insurance and a second 10-question IQ component that tested specific knowledge. In fact, most respondents only answered four out of 10 questions correctly on the IQ component. That’s an average score of only 40 percent—a failing grade by most US educational grading standards.  Also troubling is the fact that 86 percent of respondents said they do not understand all of the terms being used in the current discussion on health care reform. “Consumers today are being forced to make difficult decisions about their insurance coverage—decisions that could have a very profound impact on their financial future,” said DISB Commissioner Gennet Purcell.  “At the same time, they are being overwhelmed with new and sometimes conflicting information about changes to our nation’s health care policies. By doing their homework, and brushing up on the facts during this year’s Financial Literacy Month in April, they can improve their Insurance IQ, which will ultimately enable them to make the best decisions for themselves and their families.” Other key findings related to knowledge of health care and insurance coverage include: More than half (55 percent) of all Americans do not understand what a pre-existing condition is, which is critical when selecting health care coverage. A pre-existing condition is any health problem that existed before someone applies for a health insurance policy or enrolled in a new health plan. Forty percent do not know the age (65 years of age) at which most people become eligible for Medicare. More than half of Americans (53 percent) think that they can only make changes to their group health insurance coverage during the open enrollment period provided by their employer, and 16 percent admit they have no idea when changes can be made. In actuality, certain exceptions apply for new employees or employees with life-changing events such as pregnancies or marriage. The DISB and NAIC survey also found that some of the basics of auto insurance are not well understood, even though it is one of most commonly purchased types of coverage by people of all ages and demographics. The survey found that: More than six in 10 Americans (63 percent) do not understand that if property gets stolen from their car, it is covered by their homeowners/renters policy—and not auto insurance. More than half (54 percent) do not realize that, depending on their state of residence, their credit history may be one of the factors considered by insurance companies when determining premium. Other factors that can affect your auto insurance coverage include: driving record, type of vehicle and the deductibles chosen. 86 percent of Americans do not know that when their liability coverage is 100/300/100, the last figure represents the maximum amount that their insurance company will pay in property damage for an accident. How to Improve Your Insurance IQ During Financial Literacy MonthAlthough many people rely on their insurance agent or human resources department to help them make their insurance decisions, it’s important that they become knowledgeable as well since they are the ones taking on the risk. Here are some useful tips: 1) Test Yourself.  Want to see how your insurance knowledge stacks up against the rest of America? Go to this link and take the Insurance IQ quiz to test your knowledge. 2) Get Savvy.  Before shopping for a policy, learn as much as you can about insurance. The NAIC’s award-winning “Insure U” consumer education website is on DISB’s website.  Insure U is an unbiased, expert resource to help you understand the types of insurance available, the factors that affect price and the insurance options for your personal situation. 3) Shop Around; Do Your Homework.  After learning the insurance basics, get premium quotes from several companies for the amount of coverage you require. While it is smart to rely on personal experience and recommendations from family and friends when making insurance decisions, it is also important to gather information from other, more reliable sources of information, such as DISB, the District of Columbia’s regulator for the financial-services industry. DISB offers several online tools to assist consumers with the insurance-buying process, as well as offer many consumer-based protections as well. The NAIC’s Consumer Information Source also provides fundamental facts about insurance companies, including complaint ratios, licensing details and key financial data. 4) Before Committing: Stop. Call. Confirm.  If you are unsure about an insurer or agent you are working with 1) Stop before signing any paperwork or writing a check; 2) Call DISB (easily reached by phone at (202) 727-8000); and 3) Confirm the company or agent is legitimate and licensed to do business in the District of Columbia. Visit DISB’s website. 5) Review Your Policy.  Do not wait until you need to file a claim before evaluating the scope of your coverage. By understanding your policies, you can be prepared for any situation and, potentially, save money by avoiding unnecessary costs. About the SurveyDISB and the NAIC conducted the Insurance IQ study March 2-12, 2010 to highlight consumer concerns and questions; uncover misinformation and insurance myths; and underscore the financial and emotional impact of poor decisions. The Insurance Intelligence Quotient was based on a 10-question quiz on different types of insurance. Participants were given a grade based on the number of questions answered correctly. The participant sample included a nationally representative sample of 1,000 American adults ages 18 and older with a margin of error +/- 3.1 percent in 95 out of 100 cases.