10 Hard-to-Believe Insurance Facts

No. 1: Insurance is really old

You may be assuming that insurance wasn’t invented yesterday, and that it probably goes back hundreds of years. It actually goes back thousands of years — to China roughly 5,000 years ago, according to some sources, and to Babylon between 4000 and 3000 BCE, according to others. Reportedly, Chinese merchants who risked losing all their freight in a shipwreck would divide their cargo between themselves, so that each ship held a fraction of each merchant’s wares, reducing risk. The Babylonian Code of Hammurabi, dating to about 1754 BCE, included a provision that a debtor who suffered a massive calamity, such as a disability or death, would not have to pay back his debt. Modern insurance policies echo such protections.

No. 2: Insurance in America is really old

You may have heard of the Great Fire of London, which wiped out much of the city in 1666. With most buildings made of wood, the risk of fire was not a remote one — and that risk existed in early America, too. Thus, insurance took hold here early, even before the war of independence. Back in 1752, none other than Benjamin Franklin, with others, founded the Philadelphia Contributionship, America’s oldest, continuously active insurance company. It entailed residents of Philadelphia agreeing to protect one another in the event of fire and requiring them to meet certain building standards and have their chimneys cleaned regularly.

No. 3: Your credit record is important for insurance

You might assume that your credit record is good for just that — credit — such as when you’re borrowing money and want a good interest rate. But it actually influences other things, too, such as the insurance rates you’re quoted. When the folks at InsuranceQuotes.com looked into the issue, they found that if you have a fair (i.e., median) credit score, you may pay 36% more for home insurance (in 2017) than someone with excellent credit. That’s up from a 32% boost in 2015 and 29% in 2014. They added: “What’s more, if you have poor rather than excellent credit, your premium more than doubles, increasing by an average of 114% (up from 100% in 2015 and 91% in 2014).” A 2019 report from TheZebra.com noted that drivers can reduce their car insurance premiums by an average of about 17% if their credit rating moves up a tier, such as from fair to good or from good to very good.

No. 4: Your dog could disqualify you from some home insurance

More than 60 million households have a dog. If you have home insurance and a dog, and your dog causes some damage, perhaps by biting a neighbor, you may reasonably expect your home liability insurance to cover that. Very often, it will, but many home insurers won’t cover a dog that has a record of biting people, and many won’t cover certain breeds of dog, such as Akitas, Alaskan malamutes, chow chows, Doberman pinschers, German shepherds, pit bulls, Rottweilers, Siberian huskies, and more. Others will offer coverage, but with additional cost. Be sure that your insurer knows about your dog(s), as claims may be denied if the insurer was unaware. These rules exist because insuring dogs can be expensive — insurers faced $675 million in liability claims in 2018, per the Insurance Information Institute and State Farm.

A man in a suit, with just his torso showing, holding up a piece of paper with the words Are You Covered?

No. 5: Some unusual risks are covered, but many aren’t

It’s important to know just what risks are and are not covered by your home insurance policy. In many cases, you can always add a rider to include any risk you want covered. Earthquakes are typically not covered, and you shouldn’t assume that your home won’t suffer earthquake damage — earthquakes can strike in unlikely places and significant ones have struck places such as Missouri and South Carolina. Sinkhole damage isn’t routinely covered, either — nor is damage from a landslide. Typical homeowner policies don’t cover flooding from rising bodies of water, either. Those who live in areas with a relatively high risk of flooding are usually required to buy flood insurance, while those in areas with moderate flood risk may be urged, but not compelled, to buy it.

Some risks that typically are covered include meteor and asteroid strikes, ash damage from a volcano, damage from stampeding wild animals, vandalism or theft from riots, and avalanche-related damages. The fine print is important, because, for example, your policy may cover damage from a volcano’s ash, but not from its lava or shaky ground due to a distant volcano eruption. While you might think that all your property is covered by your insurance, in many cases all your jewelry, or gun collection, or fine art collection might not be. There are often limits, which you need to know about so that you can purchase additional coverage if necessary.

No. 6: Car insurance for young drivers costs even more than you think

We all know that young people face much higher car insurance costs, but we may not appreciate just how steep.

Many teens won’t pay quite that much, as they’ll simply be added to their parents’ policies. But teen drivers will still send those parental policy premiums surging. One estimate is that adding a 16-year-old to a family policy for a not-new car will increase the bill by an average 176% for a male teen and 129% for a female teen. Fortunately, the surcharges drop off relatively quickly, as teen drivers tend to get better over time. Indeed, 16-year-olds have twice as many accidents as 18- and 19-year olds.

No. 7: There are more kinds of insurance than you can imagine

Insurance is not limited to our health, cars, homes, and lives. There are lots of other kinds, such as renters insurance for apartment dwellers, pet insurance to cover the health of our pets, and even reinsurance — where one insurance company insures another against the risk of a major claim (for example, a hurricane damaging a major city).

The government offers older and lower-income Americans Medicare and Medicaid coverage, respectively. Employers also offer health insurance to their workers, and the Affordable Care Act permitted those up to age 26 to remain on parents’ health plans, but now there’s such a thing as employers covering workers’ parents. That exists in China, where Starbucks is offering many employees some coverage for their parents’ health. Such a concept could expand in the U.S. one day if companies want to attract workers with aging parents.

No. 8: Many Americans think the Affordable Care Act and Obamacare are different

Speaking of the Affordable Care Act, in recent years it has become clear that many Americans don’t realize that it’s the more formal name of Obamacare. Various politicians have spoken out about Obamacare to many voters who seem to agree that Obamacare is bad, but who like their coverage via the Affordable Care Act. According to a 2017 poll by Morning Consult, “35% of respondents said either they thought Obamacare and the Affordable Care Act were different policies (17%) or didn’t know if they were the same or different (18%).”

No. 9: Obamacare has aimed to transform how healthcare works in the U.S.

Obamacare, aka the Affordable Care Act, is about more than just making healthcare in the U.S. more affordable and accessible. It was designed to achieve those goals in part by revolutionizing how healthcare coverage works. The system in place for a long time has been a fee-for-service one, where patients or health insurers pay providers per doctor visit, per procedure, per service, such as lab work. The new system is a value-based model, focused on outcomes, with healthcare providers being compensated for how healthy they keep their patients — which can be measured via various metrics such as weight and blood pressure and how often those admitted to hospitals end up readmitted soon after.

The expectation is that the new system will be increasingly adopted across the nation and will result in populations with better overall health and lower overall healthcare spending — a win-win for all. Major health insurer Humana “saved $3.5 billion in 2018 through value-based care, reducing both emergency department (ED) use and hospital stays among its Medicare Advantage clients,” according to the American Journal of Managed Care.

No. 10: Unnecessary emergency room visits are a big problem

Many people visit emergency rooms for non-emergencies — problems or conditions that could be more inexpensively treated by their doctor in a doctor’s office or even via a telehealth virtual consultation online. A report by UnitedHealth Group suggested that roughly a quarter of emergency room visits could have been handled via a virtual consultation, and noted that a typical virtual care visit costs less than $50, compared to $130 for an urgent care visit and $740 for an emergency room visit. UnitedHealth also estimated that avoidable emergency room visits, which make up as many as two-thirds of all visits, are costing the healthcare system about $32 billion annually, as of 2018.

Taken from The Motley Fool