I have found that this expertise shortage in personal lines leads to the
majority of consumers having some significant uninsured or underinsured risk
exposures that they don't find out about until the claim occurs and their claim
is denied. I have audited several hundred personal insurance programs over the
years and nearly every one has had at least 10 to 20 major uninsured or underinsured
risks.
In addition, people often need expertise to help them with many other risks
beyond those covered by standard personal insurance policies. Under the traditional
agency commission-only system, that type of help is nonexistent. In my practice,
I have created a solution to both problems.
The Personal Risk Management Solution
I break down personal risk management into two areas. The first area is acquiring
and then applying added expertise in every kind of personal lines policy. That
expertise enables me to better identify risks that are subject to policy exclusions
or limitations and to better implement the insurance needed to plug those gaps.
There is a second area that is equally important to consumers for which help
is virtually unavailable in the traditional insurance marketplace—which operates
on the paradigm that agents must sell policies to receive compensation—helping
clients identify and make good decisions about managing other risks for which
there is no agent commission. This second area is truly a fun area to help clients
with because you know that while you're doing it, you're making a huge difference
in their lives. They could not find this help anywhere else.
There's no better example to illustrate this second area than coaching clients
with their group insurance decisions. The following case serendipitously "appeared"
as I was starting to write this article.
The Facts of the Case
Emily, age 32, is an attorney earning $150,000 a year. She has just accepted
a new job and has a plethora of group insurance options available to her—three
medical plans; short- and long-term disability, with a choice of having her
premiums paid 100 percent by her employer, on a before-tax or after-tax basis;
$150,000 of term life insurance paid for her by her employer, guarantee issue,
with an option to purchase up to an additional $350,000 at her own expense on
a payroll deduction basis. If Emily opts out of the health insurance, she receives
an additional $25 a month from her employer. Emily is 5 months pregnant with
her second child.
Emily's husband, Mark, also age 32, is a salesman earning $85,000, plus bonuses.
At the moment, the entire family—Emily, Mark, and daughter Ada—is covered for
medical insurance under Mark's health plan, for which Mark pays $202 a month.
Mark's employer, like Emily's, will pay Mark an additional $25 a month if he
decides to opt out of the group health plan.
Time is somewhat of the essence because Emily has just 2 weeks left on her
30-day open enrollment period to make her decisions. That's especially important
to avoid any preexisting conditions related to her existing pregnancy.
Identifying the Issues
As a personal risk manager, my job is to identify the issues and then help
Emily make the best overall decision considering both coverage and cost for
each of her group insurance options. The following questions all need answers
to make those decisions.
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Should they all stay insured under Mark's group health insurance plan
and Emily pocket the $25 a month from her employer?
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Should Emily move her medical coverage to her new employer?
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Should she do that and still keep her coverage under Mark? Where should
the two children be covered? Should they stay with Mark or move with Emily?
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If Emily does accept her new employer's medical coverage, which of the
three coverage plans should she choose?
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Should she elect to have the premiums on her group disability coverage
paid for by the employer on a taxable or tax-free basis to her?
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She has a $2,500 a month supplemental, private-pay, long-term disability
policy that she purchased a year ago to supplement her group benefits at
her former job and help offset the fact that her group benefits then would
have been reduced about 30 percent by income taxes. Should she keep this
supplemental disability policy?
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Should she buy the optional $350,000 of term life insurance available
to her? She has $1.5 million already of 30-year level term insurance coverage
that she purchased last year.
Risk identification—identifying all the issues—is a most important benefit
to provide clients. I can't help them make good decisions if I miss the issues.
Evaluating the Group Health Insurance Options
The first step in helping clients evaluate their health insurance choices
is to request either a full copy of each of their group medical insurance policies,
or at least a detailed coverage summary of each, along with the employee share
of group insurance premiums for each family member.
Emily's Group Coverage Emily's employer offers a choice of three plans, all with the freedom to
self-refer to specialists. All have a $3 million lifetime maximum benefit.
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The "Full Coverage Plan", a.k.a. "Gold Plan"—Pays 100 percent of hospital
and doctor bills, subject only to $15 co-pays on doctors' office visits
and $14 co-pays on prescription drugs. The maximum annual out-of-pocket
is $2,500 for individuals, $5,000 for families.
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A "$250 Deductible Major Medical Plan"—Pays 80 percent after the deductible.
The maximum out-of-pocket is $900 per year individual, $1,800 for families.
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A "$500 Deductible Major Medical Plan"—Pays 80 percent after the deductible.
The out-of-pocket maximums are $1,400 for individuals, $2,800 for families.
The pre-tax cost monthly for each of the three plans is shown below (annualized
cost in parentheses).
Gold Plan | $126 ($1,512) | $582 ($6,984) |
$250 Deductible
Plan | $62 ($744) | $411 ($4,932) |
$500 Deductible
Plan | $40 ($480) | $338 ($4,056) |
*There is no single-parent
option through this group plan. |
Mark's Group Coverage Mark has just one plan available, currently covering the three family members.
It is very similar in coverage to Emily's Gold Plan option—same $3 million lifetime
maximum period; same co-pays; same out-of-pocket annual maximum. Mark's monthly
cost options are $58 a month for just himself, $93 a month for himself and the
children, and $202 a month for the whole family.
Doing Your Homework The next step is to compare the annual cost to the family, for each family
member, under the two available group plans. I compared the cost of the two
Gold plans to get an apples-to-apples comparison. There is no point in looking
at the options for high deductibles under Emily's group plan unless there's
at least one person that will be better off in her plan.