Survey: Americans' low insurance IQ hurts finances

March 10, 2009 6:04:38 AM PDT
Americans are lacking in basic knowledge about insurance that might help their finances during the recession, according to a new survey. In fact, we know a lot less about insurance than we think we know, according to the National Association of Insurance Commissioners, which sponsored the poll. That disconnect can end up costing them money or gaps in their long-term insurance protection, says the NAIC, an organization of state insurance regulators representing consumer and industry needs.

"Now more than ever, consumers need to be mindful of the impact their insurance decisions can have on their financial future," said Terri Vaughan, the group's chief executive. "By arming themselves with the facts - and improving their insurance IQ - consumers can make sure they are adequately protected, without paying more than they should for that coverage."

Survey respondents on average flunked the NAIC's 10-question insurance quiz with only a 40 percent score.

Among the poll's findings, which covered several areas of insurance:

  • Auto: Just 41 percent knew that auto insurance does not automatically cover a rental car.

  • Health: Fewer than half (49 percent) of those surveyed were informed about the cost of coverage if they leave their job and choose COBRA (Consolidated Budget Reconciliation Act) insurance to continue their health benefits. And just 58 percent were aware that health insurance will not cover their living expenses if they become disabled and cannot perform their job.

  • Home: Only 19 percent knew that the requirement for private mortgage insurance on a newly purchased home depends on the size of the down payment and lender; almost 30 percent think PMI is required by law. Fewer than 50 percent of those surveyed realize they can legally own a home without homeowners insurance (although lenders will not allow it).

  • Life: Only 14 percent knew that the amount of life insurance typically recommended for individuals is five to seven times your annual salary.

    The shortcomings in awareness conflict with what respondents thought they knew. Before taking the quiz, nearly 60 percent said they felt "very confident" when making insurance decisions overall, with only 15 percent voicing any insecurity about their decision-making abilities.

    The nationwide survey was conducted by the insurance commissioners' group from Dec. 4-14. Results were based on telephone interviews with 1,000 adults and carry a margin of error of plus or minus 3 percent.

    The NAIC recommends the following basic tips to help Americans better understand their insurance policies:

  • Educate yourself. Learn as much as you can about insurance before shopping for a policy. The NAIC site http://www.insureUonline.org is one resource that provides consumer insurance information for those considering or buying insurance.

  • Shop around. Get premium quotes from several companies for the amount of coverage you require.

  • Check qualifications. Call your state insurance department if you are unsure about an insurer or agent you are working with to make sure they are legitimate and licensed to do business in your state.

  • Review your policy. Periodically evaluate the scope of your coverage; don't wait until you need to file a claim.

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    On the Net:

    Insurance IQ quiz at http://www.insureUonline.org

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