6 Home Insurance Myths That’ll Cost You Big-Time

When you’re plunking down a big bundle of cash for a house, you need to protect it from all that could go wrong—and that means you’d better buy home insurance. Pronto. Without it, your biggest investment could fall prey to floods, theft, and all other sorts of natural disasters. That explains why most mortgage lenders require borrowers to purchase home insurance; they want their investment safe and sound, too!

Unfortunately, there are some big misconceptions about home insurance. Here are six common myths, plus a reality check on each so you know what to do.

Myth No. 1: Home insurance is a rip-off

While home insurance costs vary by state—as well as factors like the square footage of the house, building costs in the area, and the location’s likelihood of damage from natural disasters—the average annual premium runs about $952 nationwide. But when broken down, that’s only an extra $79 that you need to add to your monthly housing budget (i.e., mortgage premium, property taxes, and interest).

Also, “considering the financial protection that you’re getting, it’s well worth the cost,” says Jeanne Salvatore, chief communications officer at the Insurance Information Institute.

For example, let’s say the average home insurance claim was $9,779 in 2014, with the average fire damage claim clocking in at a whopping $39,791. Many consumers don’t have anywhere close to that kind of cash lying around. (Indeed, 69% of Americans have less than $1,000 in savings, a recent survey by GOBankingRates.com found.) So if you’re in that group, experiencing a loss without home insurance could force you to rack up massive credit card debt in order to repair your house.

Myth No. 2: All of a home’s belongings are covered

Like car or health insurance, home insurance has limitations.

“A homeowners insurance policy is not designed to cover everything,” says Salvatore. “Each policy clearly states what’s covered and what’s not.”

While most standard home insurance policies cover damage caused by a natural disaster such as a fire, hurricane, or snowstorm, some types of personal belongings aren’t covered under basic insurance.

“If you have valuable art or fine jewelry inside your house, you might need a scheduled personal property policy to cover those items,” says Laurie Pellouchoud, a vice president at Allstate.

Myth No. 3: All injuries within a home are covered

If a visitor gets hurt at your house or on your property, your home insurance policy’s liability coverage will typically kick in to cover any claim that’s filed. But that’s not the case if you or a family member gets injured in your own home. If you slip in the kitchen or fall down the stairs, for instance, “your health insurance is what protects you from injuries, not your homeowners insurance,” Pellouchoud says. Got that?

Myth No. 4: I should base my coverage on the market value of my house

More than half (52%) of home buyers mistakenly think they should buy insurance coverage based on their home’s market value, a recent survey by Insure.com found. But for most home insurance policies, rates are based on the cost to rebuild the home—not the value of the house. In fact, “in most cases you need less coverage than the market value of your house,” says Salvatore.

Myth No. 5: My home business is covered under home insurance

Sadly, 61% of home-based businesses in America lack adequate business insurance, according to the Independent Insurance Agents & Brokers of America. That high percentage might be a reflection of confusion among home-business owners, because many people assume that they’re covered by their home insurance. However, “business liability and business equipment is not covered by homeowners insurance,” says Salvatore. Therefore, if you run a home-based business you’ll want to purchase a separate insurance policy for the company.

The good news is purchasing business insurance is easy. In most cases you can simply attach a business rider to your existing home insurance policy for about $100 a year, which will provide about $2,000 to $3,000 of additional coverage.

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How your credit score may affect what you pay for home insurance

Consumers with poorer credit may be paying much more than others

Most financially literate consumers know how important it is to have a good credit score. This three-digit rating lets lenders know how likely you are to stick to your financial commitments and make timely payments; basically, it’s a way for them to measure risk. But did you know that it also has a large bearing on the rates you pay for home insurance?

In a recent insuranceQuotes study, researchers found that policyholders with only fair credit paid an average of 36% more on their home insurance than those who had excellent credit. And, depending on where you live, those figures could change drastically.

“Many consumers aren’t even aware that, in most states, credit plays a significant role in determining how much they pay for home insurance,” said insuranceQuotes senior insurance analyst Laura Adams.

Home insurance premiums by state
When we use the term “drastically,” that isn’t just an idle buzzword. The study found that a drop in credit from excellent to poor could have home insurance premium implications ranging from 0.2% to 288.1%.

The researchers say that the following states have the greatest home insurance premium increases when credit scores drop from excellent to poor:

  • South Dakota – 288.1%
  • Arizona – 268.6%
  • Oklahoma – 248.0%
  • Nevada – 235.3%
  • Oregon – 234.9%

You can contrast that list with the states that have the smallest increases when credit scores drop from excellent to poor. While North Carolina is far and away the most forgiving of the states, consumers living in the other four won’t feel the financial pain nearly as much as their counterparts in South Dakota.

  • North Carolina – 0.2%
  • Florida – 25.7%
  • New York – 29.3%
  • Wyoming – 43.1%
  • Hawaii – 53.1%

Note that California, Massachusetts, and Maryland are excluded from the list because it is prohibited in these states to set home insurance rates based on credit.

Differences by insurance companies
To make matters more confusing, the researchers say that different insurance companies also use credit score data in different ways. So, a consumer who is covered under one carrier may have their credit score reflect on them much more heavily than another consumer under a different carrier.

The bottom line, the researchers say, is that consumers should do everything they can to build and maintain their credit score.

“My advice to consumers is do everything you can to build and maintain excellent credit so you pay less for credit accounts and home and auto insurance. To maintain good credit make payments on time, keep balances low, and avoid opening many new accounts,” said Adams.


How To Use Life Insurance In Your Retirement Planning

Investing in the market without taking losses — is it too good to be true? Not according to the University of Michigan’s head coach Jim Harbaugh. In August, University of Michigan helped Harbaugh become the top-paid college football coach in the nation, according to USA Today figures, by creating a deferred compensation package utilizing cash value life insurance called Indexed Universal Life Insurance (IUL).

Just like in Harbaugh’s case, IULs appeal to many executives and business owners because of the advantages they provide. IULs allow cash value within the policy to grow tax-free over time. IULs are funded with post-tax dollars which allow clients to withdraw money tax-free at any age, and provide financial security in the form of a death benefit for the family after the client passes.

One of the main advantages of IULs is that the cash value is protected from drops in the market. An IUL is a cash value policy that has both a death benefit and a savings portion. In an IUL the investments are not placed directly in the market where they would be subject to a loss. Rather, they are put into a strategy that mirrors an index such as the S&P 500, which allows the participant to realize all or most of the gains in the market. These gains are then locked in to protect against potential losses.

In addition, when compared to an IRA or a 401(k), IULs provide more flexibility. Unlike IRAs and 401(k)s, there is no limit on how much money can be added annually, as long as the added cash does not create a Modified Endowment Contract (MEC), which is taxable. An MEC is where the funding has exceeded the IRS limitations known as the “7-pay test,” which limits the amount of excess cash that can be put into a policy in any seven-year period before it loses its tax advantages. IULs allow for a high cash value at the beginning of the policy. There are no restrictions on when the money can be taken out, unlike an IRA. Also, the money inside an IUL can be taken out at any age by the client tax-free and without extra fees.

An IUL is beneficial to those who are looking to invest their extra money tax deferred after they have fully utilized their other retirement accounts, such as a 401(k). IULs are also beneficial to those who clients who do not qualify for a Roth IRA. IULs provide an opportunity for individuals to allocate premiums to flexible and accessible tax-deferred accounts. For younger clients, savings can be rolled over from a previous retirement plan. IULs can also help people who started retirement planning later, due to the fact that an IUL can be over-funded, unlike a 401(k) or IRA, which have strict contribution limits.

Along with tax-free wealth building, IULs provide a source of financial security to the family in the event of death or disability. In an event of the death of the policyholder, the death benefit is received tax-free by the beneficiary of the policy in a lump sum. Some policies can be constructed to include living benefits in the event of disability or chronic illness. In this way, IULs provide a way in which individuals can grow and protect their income, as well as provide extra funds for retirement.

In the case of coach Harbaugh, an IUL was used to save millions in tax-free retirement. This was possible due to the growth of the cash value inside of the policy that increased his retirement funds, which are accessible tax-free at the age of 70. Upon being hired at Michigan, Harbaugh entered a split-dollar loan agreement, in which the premium, cash value and death benefit is split between two parties. This split-dollar agreement was funded by cash value life insurance policy or IUL.

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An Understandable Life Insurance Analogy

Clients need to make corrections to account for changes in interest rates.

There’s such a lack of understanding about how life insurance actually works (not conceptually) that sometimes it’s difficult to have a meaningful conversation because you have to back up so far to establish a point of commonality. Even when people don’t fully understand it, they still have a fundamental, base level understanding, but even that’s generally wrong. It isn’t easy to destroy a foundation that someone believes is sound.

Advisors should have a working knowledge of life insurance so they can help lead their clients through the process. When I’m working with someone who has a policy that’s dramatically underperforming and I explain to him how the policy works, that the drastically reduced interest rate market will cause his policy to collapse when the cash value is exhausted, he’ll nod dutifully as though he understands. Until I see a visceral reaction, I don’t know if he really gets it. He’ll look at me and say, “I get that, but my death benefit is still there so do I really care?” See what I mean? Until his face turns red and he starts yelling about the crooked industry, I have to keep pushing and prodding because telling someone that even though he dutifully paid his premium out of pocket each and every year, as illustrated on the original sales ledger, doesn’t translate into actually getting a death benefit. By the way, most permanent insurance works this way, even most of the whole life policies I see.

I’ve tried to come up with an analogy that almost anyone can understand as to why most life insurance acts the way it does. Following is my best stab at it.

Retirement Planning Analogy

Let’s look at your client’s retirement planning. Hypothetically, as the plan is visualized, when your client is working, he’s earning more than he’s spending. Earnings over and above living expenses are put into a side fund that earns a return and grows over time. Then, in the future, when your client is retired and his living expenses exceed his earnings, expenses are subsidized by the side fund so your client doesn’t starve to death.

With life insurance, your client’s premiums today are more than the actual cost to insure him. The excess is put into a side fund that earns a return over time. Then, in the future, when the cost to insure your client is greater than the premium, expenses are subsidized by the side fund so the policy doesn’t starve to death.

So far so good? Let’s go a little further. Your client’s retirement funding is based on some assumptions and expectations. To know how much your client should put away into his retirement plan side fund every year, he has to make decisions regarding his expenses in retirement and what his investment earnings will be over the coming decades. Sometimes this works out and sometimes it doesn’t. Sometimes his expenses will be greater than he thought. Sometimes he won’t earn as much on his investments as he expected. When this happens, your client intellectually knows that the formulas he originally worked by aren’t going to pan out and he has to adjust. Sometimes the adjustment is putting more in the side fund and sometimes it’s reducing expectations regarding what your client can live on later.

With life insurance, the funding is also based on some assumptions and expectations. To know how much to pay in premiums for a certain number of years, your client has to make decisions. These decisions include how much insurance he wants in force and for how long, as well as his expected earnings over the coming decades. Sometimes this works out as expected and sometimes it doesn’t. If it doesn’t earn as much cash value as expected, your client needs to understand that the formulas he originally worked by aren’t going to pan out and he has to adjust. Sometimes the adjustment is putting more in the side fund and sometimes it’s reducing expectations regarding the death benefit that can be supported later and for how long.

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How Much Life Insurance Should You Have?

This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

Most people are aware of the function of life insurance: it is a contract you enter into with a financial institution, most often an insurance company, to pay out a predetermined cash amount to a designated beneficiary, or beneficiaries, at the time of your demise. The purpose of legitimate life insurance policies is to give you the assurance that those you most care about will be provided for financially after you can no longer look after them yourself. But it’s a sad fact that many people nowadays procrastinate initiating a life insurance contract, or never bother to do it at all. These people are not really selfish or lazy — they just don’t ‘get it’ when it comes to the vital importance of good coverage.

In 2016 a national financial insuring association discovered that nearly a third of households in the United States lacked any significant life insurance protection. Their research also uncovered the fact that nearly half of those polled felt the need to upgrade their insurance coverage. To insurance companies and their agents, this is a crying shame.

It is an axiom that the majority of people in the United States have some kind of recognition that life insurance should be an important part of their financial portfolio — and a big reason they don’t follow through on what they know to be true is because of lack of full trust in the insurance industry and the rates they apply to individual policy owners. Most insurers and their agents invoke the basic rules of financial planning when selling to a customer — that is, you should purchase enough life insurance to bring about five to ten times your yearly savings to your beneficiary. This approach, however, is not viewed with a great deal of confidence by the general public anymore.

A lot of CPA’s and CFP’s think that this form of oversimplified calculating does not really serve the needs of most insurance clients today. It’s not very effective. When purchasing a life insurance policy, the vital question is just how much your family or other designated heirs will realistically need when you are gone — and not how much you would like to see them get. An insurance payment should be just one part of a diversified portfolio of financial assets that can be accessed after your demise — such things as property, stocks and bonds, bank deposits, and cash on hand.

What this means is that a person considering life insurance should first scrutinize their current financial status and the status of those dependent on him or her, before deciding on the amount of life insurance to purchase. Life insurance should never be a stand-alone item, divorced from the other financial plans of an individual or a family. It must be integrated into the big picture, financially speaking.

To put it all in perspective, when your finances are properly planned out, usually with the help of a financial expert such as a Ty Stewart from Simplelifeinsure.com, you will be in possession of a unbiased tool for calculating basic and beneficial financial formulas for your own welfare, and the welfare of those you need to take care of, or have decided to take care of. With today’s advanced algorithms, it’s a piece of cake to figure out your financial liabilities and assets in a matter of minutes, and to continuously update these calculations through the years to adjust something like a life insurance policy to make sure it will always be an appropriate monetary instrument for your wants and needs.


Read This Before You Buy Health Insurance

Health-insurance policies can vary widely in how well they’ll serve you and how much they’ll cost you. Here are some critical things to know — such as, for starters, not just to look at the premiums charged.

Food writer Michael Pollan and countless grandmothers are right: Ideally, we should tend to our health, and that should, in general, reduce our medical expenses. But life doesn’t always unfold in ideal ways, and most of us will face healthcare costs in our lives.

Those costs are likely to be hefty, too. Our nation’s healthcare costs recently topped $3 trillion, accounting for more than 17% of our gross domestic product (GDP). Per person, that’s about $9,900, with much of it paid out of pocket. Given that average, and the fact that a course of some medications cost more than $100,000, health insurance is rather vital for most of us.

Don’t buy health insurance blindly, though, as policies can vary widely in how well they’ll serve you. Here are some critical things to know.

Figure out where you’ll get your coverage

First off, give some thought to where you’ll get your health insurance. If you’re 65 or older, Medicare is probably your best bet. “Original” Medicare includes Part A (hospital coverage) and Part B (physician/medical insurance). Part A is free, and Part B costs most people just $134 per month this year. You’re allowed to opt for a Medicare Advantage plan, sometimes referred to as Part C, instead of original Medicare, and some of those plans charge no premium at all.

Next, look to your employer or your spouse’s (or domestic partner’s) employer. This is generally a more affordable route to health insurance than other options, as employers typically pay a portion of the cost — and sometimes a sizable portion. On average, in private industry and in state and local government, employers pay close to 70% of premiums, with workers paying about 30%. (Single workers tend to pay an even smaller percentage than those on family plans.)

The next best option is likely your local health-insurance exchange, created because of the Affordable Care Act (ACA, or Obamacare). A visit to Healthcare.gov can direct you to your local exchange.

The ACA appears to be in the process of being repealed and replaced by the present administration in Washington, but it’s not gone yet. For now, it offers subsidies to keep policies affordable to those with limited means — and more than 80% of people who enroll through the exchanges receive a subsidy to help them afford their premiums.

The ACA also requires all plans to offer certain minimum levels of coverage that are greater than what many plans offered in the past. In some circumstances, such as if you’re quite young, a plan on your local exchange may even be more affordable than what your employer offers.

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Health insurance companies guessing at 2018 prices, as Trump sows uncertainty

As Congress struggles to repeal and replace the Affordable Care Act, a different, far less visible problem is playing out in state capitals and in health insurance offices across the country.

This is rate-setting season, the time of year health insurers must tell state and federal regulators how much they plan to charge for premiums, starting in January. The filing deadline for Ohio insurers is Monday, June 5.

Companies including Medical Mutual of Ohio, Anthem Blue Cross and Blue Shield, Akron-based Summa and Canton-based AultCare have no firm idea how much to charge — and it’s not because of the healthcare bill stirring up so much dust among the public. Rather, it’s because of a political calculation by President Donald Trump over an arcane feature of the Affordable Care Act, better known as Obamacare.

Trump hasn’t said whether the federal government will continue to make payments called cost-sharing reductions — next year, or even next month. And he’s hoping the uncertainty he creates drives Democrats to get on board the Obamacare repeal-and-replacement bill he backs, called American Health Care Act.

If the cost-sharing reductions stop, companies will have to raise rates dramatically — if state and federal governments let them amend those rate requests — or exit the Obamacare market. Healthcare policy analysts say Trump is playing a reckless game.

“It’s either a total misunderstanding of the market or an attempt to destroy it,” J. B. Silvers, a former insurance executive who teaches health care finance at Case Western Reserve University’s Weatherhead School of Management, said. “There’s no middle ground.”

“Unfortunately,” said Sabrina Corlette, a research professor at Georgetown University’s health policy center, “I do think the president perceives the CSRs as some kind of bargaining chip.”

The Trump administration and House of Representatives Republicans say Obamacare, not Trump, has been reckless from the start.

Let’s explain.

What it’s about:

Health insurers are at the mercy of Trump’s executive power over cost-sharing reductions. The feature is one way the federal government until now has picked up a share of health care costs for the working poor.

Cost-sharing operates behind the scenes, with the government paying deductibles, co-payments and coinsurance to keep health care affordable for about 7 million low-wage Americans. It is largely unrelated to the taxpayer subsidies that individuals get to help pay their monthly insurance premiums.

Trump is threatening to take away these cost-sharing payments.

Doing so could drive up insurance prices on the ACA exchange – the online sales channel on which ACA individual and family policies are sold — by an average of 19 percent, according to calculations by the Kaiser Family Foundation. Unless the companies could recoup the money by suddenly raising premiums, the loss would drive more insurers from the market, because the ACA still requires that insurers provide the price breaks – and insurers say they cannot afford to absorb them.

Without a way to recapture the cost, “we would likely have to exit on the exchange,” Doug Bennett, who directs individual market sales for Medical Mutual, said.

Trump won’t say what he plans to do, although the White House recently said it wants another 90 days to decide how to proceed in a court case challenging the cost-sharing payments. In a different discussion, Trump budget Director Mick Mulvaleny told Congress last week that the White House hasn’t yet decided on whether it will even make cost-sharing payments for June.

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New Rules May Make Online Health Insurance Sales Simpler

Signing up for coverage on the health insurance marketplace should be easier for some people this fall because new federal rules will allow brokers and insurers to handle the entire enrollment process online, from soup to nuts.

Some consumer advocates are concerned, though, that customers going this route won’t get the comprehensive, impartial plan information they need to make the best decision due to the financial self-interest of insurers and brokers.

“Facilitating the participation of brokers and getting web brokers involved is a good thing for the market,” says Timothy Jost, an emeritus professor of health care law at Washington and Lee University School of Law in Virginia. But he says there are risks for consumers. “If you’re enrolling with a web broker, you could see ‘best deals’ that often aren’t the best deal for you but are the best deal for the people who are marketing them.”

The guidance was released May 17 by the Centers for Medicare & Medicaid Services, which oversees the online marketplaces. It will streamline the enrollment process for people who work directly with an insurer or broker to shop for coverage for 2018 on healthcare.gov, the federal marketplace in more than 30 states. States that run their own marketplaces aren’t affected by this change.

Get Set For Trump Revisions To Your Affordable Care Act Insurance
Get Set For Trump Revisions To Your Affordable Care Act Insurance
The presumption is that people will continue to buy insurance through the marketplace this fall.

In the past, people could start the online enrollment process with a broker or insurer, but then they had to bounce off the broker’s or insurer’s website to go to the federal marketplace website to see if they were eligible for premium tax credits, among other things. In theory, they then could return to the insurer or web broker to complete the enrollment process. In practice, many didn’t — though they may have enrolled elsewhere, either completing the process on healthcare.gov or with another vendor.

This fall, healthcare.gov consumers with straightforward enrollment needs will be able to complete the entire process on one website. Complex cases and those involving a special enrollment period, for example, will still have to go through the original multi-step process.

The staff at online health insurance broker eHealth is thrilled with the change.

“It’s a big deal,” says Nate Purpura, vice president of consumer affairs at eHealth. “Many people, including our CEO, have been to Washington, D.C., multiple times to explain the benefits of being able to help in this way.”

The eHealth website, which works with 180 insurance carriers nationwide, offers about 75 percent of the plans that are available on healthcare.gov, Purpura says.

That’s a problem, say some policy analysts. Federal rules require web brokers to display basic information about all the plans that are available on the federal marketplace, whether or not they actually sell them. It includes the name of the plan and insurer that offers it, the type of plan — HMO, PPO, EPO — and metal level (bronze, silver, gold or platinum.) Web brokers must also publish a disclaimer that says the website information about all the available marketplace plans might not be complete and provide a link to healthcare.gov.

But the information web brokers present about plans they sell and get a commission for may be much more comprehensive than the information provided about plans they don’t handle.

On a broker’s website, “consumers won’t necessarily have the full range of options,” says Elizabeth Hagan, associate director of coverage initiatives at Families USA, a consumer advocacy group. “On healthcare.gov, the plan display is the same for all the options, and consumers have the ability to sort plans based on what they want.”

CMS suggests that brokers not sort their plans in such a way that consumers could be steered to policies from which brokers receive a commission. It also suggests that brokers not run ads or information about other insurance products in the marketplace plan selection area. But these are suggestions, not requirements.

In addition, some analysts are concerned that people who don’t sign up through healthcare.gov won’t receive important notifications about their coverage from insurers and web brokers. In the past, for example, some people have lost their coverage after enrolling outside healthcare.gov because they weren’t directed to make their initial “binder” payment, or first month’s premium, says Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities, which has filed comments on proposed enrollment rules.

Enrollment this fall will run for just six weeks, from Nov. 1 to Dec. 15, a significantly shorter time period than in previous years. Encouraging brokers and insurers to sign people up may help more people get signed up in that time frame.

“This is another important step to help create stability in the health insurance market,” CMS Administrator Seema Verma said in the press release announcing the new process.

But some analysts remain concerned that details about how consumers’ privacy and security will be protected under the new system are still too vague.

“This is really sensitive information, people’s tax information, which needs to be highly protected,” says Jost. “There are a lot of concerns with confidentiality and privacy. I have some concerns about fraud.”


Why Are Car Insurance Rates Still Going Up?

Despite driving well–yielding politely, obeying every stop sign, and racking no tickets or accidents–your auto insurance premiums seem to have steadily risen in recent years. It’s not just you though. Since about 2012, rates to insure vehicles have gone up in all states and for all drivers, even including those with spotless driving records and no claims.

And not by negligible amounts. Since 2012, the consumer price index (CPI) for auto insurance has gone up by 21.5%, compared with a rise in the overall consumer price index of 4.5% over that same five-year period. It’s the largest five-year growth of auto insurance costs since the early 1990s, when costs grew by about 30% between 1989 and 1993.

The Profit Challenge

The insurers aren’t raising rates for the sake of just charging you more–there are rules against that, actually. Instead, the driving force in the upward march in premiums is an auto insurance industry that’s been finding it increasingly difficult to sustain healthy profit margins.

Of the top five insurers, only GEICO and Progressive have managed to maintain profits, and the amounts by which they’re in the black have trended downward over the last seven years. It’s even worse for some other insurers like State Farm. The single largest auto insurer in the country has seen its revenue from premiums rise by 26% since 2010, but also suffer a 35% increase in the cost of covering the cost of claims in the same time period.
Another way to look at these numbers is through the combined loss ratio: the ratio between underwriting losses (as well as all other business expenses) and written premiums. In 2010, the average direct combined loss ratio was 99.7% amongst the nation’s ten largest insurance companies meaning they were just barely making a profit off auto insurance premiums. In 2016, the ratio ballooned to a whopping 107.1% average, meaning the major insurers were losing 7% more than earning last year.

So what’s causing the insurers to lose so much money?

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Should the poor pay more for auto insurance?

Car insurers say everyone will pay if a New York regulation, aimed at preventing insurers from using a widespread rating practice, makes them change their business model.

New York Governor Andrew Cuomo has fired a big gun at the auto insurance industry, charging that its practice of rating drivers on the basis of education and job status is discriminatory. That’s likely to echo throughout the country as consumer advocates clash with insurers that say they need tools like this to give everyone lower rates.

Cuomo, a liberal Democrat, has proposed a new regulation — to take effect within two months — that would virtually stop insurance companies from using these yardsticks to determine premiums. “This new protection cracks down on this unfair practice that soaks drivers for not having a college degree or a high-paying job,” said Cuomo in a statement.

Insurers said they’ll challenge the proposed regulation, but their options could be limited. “The New York Insurance Association will be commenting on this regulation and encouraging regulators to consider the impact [this] … will have on a market that is currently competitive,” said association Vice President Cassandra Anderson.

This ruling could raise — or lower — car insurance premiums for about 12 million New York drivers. But it could also have a far-reaching impact nationally. The largest car insurance market, California, had already limited most metrics that insurers used in deciding who pays how much and forced them to focus primarily on an applicant’s past driving record.

With New York, which has 150 licensed insurance companies, moving in the same direction, a snowball effect could result. At least 12 other states have already introduced legislation to keep insurers from peeking at drivers’ educational records and other criteria.

“This is just the tip of the iceberg in removing socio-economic factors that harm the market,” said Robert Hunter, the director of insurance for the Consumer Federation of America. “Credit score, home ownership or any gap in coverage when the person has no car — all have to go too.”

But for a lot of Americans, this could have “the opposite effect and result in many consumers paying more for insurance,” said Vice President Kristina Baldwin of the Property Casualty Insurers Association of America.

“Insurers use factors such as education and occupation because they are actuarially proven to be highly predictive of the likelihood of an insurance loss,” said Baldwin. “For example, some insurers have found that teachers, paramedics and librarians represent lower risks and could be in jeopardy of paying more for insurance.”

Insurers point to numerous studies — by insurance regulators — in Florida and Maryland, as well as other states that show nondriving factors such as education, job status and particularly credit rating, are key to how a motorist will perform on the road.

New Jersey, for example, once had one of the highest premium rates in the nation. Then the second-largest U.S. car insurer, GEICO, began selling insurance in the state in 2004 and brought rates down by rating drivers on these factors and others. Consumer groups cried foul, but New Jersey regulators looked at the bottom line and allowed it to continue.

Auto insurance critics say the only fair ranking criteria is driving accidents, DWIs and speeding tickets accumulated by a driver. But insurers argue that while these are important, carriers are insuring against future bad driving, so unemployment or failing in college has to be considered because they make an applicant more risk-prone.

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