Insurance Maze: Interview with Kiplinger's Kim Lankford

Kim Lankford has been writing about the business of insurance for over ten years now. Investigating insurance from the inside and out, Kim has helped to educate consumers as the chief insurance writer for Kiplinger's Personal Finance Magazine and author of the Ask Kim column.

Kim's new book, The Insurance Maze: How You Can Save Money on Insurance - and Still Get the Coverage You Need, comprehensively covers the topic of insurance and offers readers information on how to get the insurance coverage they need at a fair price.

Recently, Kim took time to answer a few questions for LoveToKnow readers in regards to shopping for all types of insurance coverage. Her insights were very valuable and we are confident that they can save you a significant amount of money each year. Enjoy!

Deciding what type of insurance coverage to buy can be overwhelming for most people. Can you offer an idea of the types of insurance coverage that people shouldn't go without?

Having the right insurance coverage is one of the most important things you can do to protect your financial plan. Otherwise, an unexpected event - whether it's a medical emergency, death in the family, car accident or natural disaster - could quickly wipe out the savings you've taken years to build. The good news is that you can buy insurance to protect your finances against those possibilities.

Everyone with a car or house should have auto and homeowners insurance, and everyone should have some kind of health insurance - medical expenses are some of the most common causes of bankruptcy. Most workers need disability insurance to help pay the bills if they can't work. Your employer might provide some coverage, but it's usually limited to just 60% of your income, not including commissions or bonuses, and some cap coverage at $5,000 or $10,000 per month (even if it's much lower than 60% of your income). If that isn't enough money to cover your expenses, then you might need to buy your own disability policy to fill in the gaps.

Life insurance is essential when you're supporting young children and have a big mortgage. It's a good rule of thumb to get eight to 10 times your income in coverage, but you can get a more precise figure by using the life insurance needs calculator at Kiplinger.com. You might not need as much life insurance after your kids move off. At that point, it's a good time to consider long-term care insurance, which can pay the bills if you end up needing nursing home or home care in the future, which currently costs more than $75,000 per year and continues to increase by about 5% every year.

When purchasing insurance, is it better to buy all of your policies from one agent/company, or should you spread your business around?

Buying both your auto and homeowners insurance coverage from the same company can get you a discount - reducing your premiums by up to 15% on both of your policies. But even if you buy both types of coverage from the same company, it's important to compare prices from several insurers before you make a decision because the price range can be huge from company to company.

You can get auto and homeowners insurance price quotes from many companies through an independent insurance agent (you can find one in your area at www.iiaba.org), who tend to know from experience which companies offer the best deals for someone like you. Some big insurers, like State Farm, don't work with independent agents, however, so you'll need to contact them separately. And you can get auto insurance price quotes online from Progressive.com and Insure.com.

And it's a good idea to shop separately for life insurance - the companies offering the best deals tend to be different than the lowest-cost auto and homeowner's insurance companies. You can get price quotes from dozens of companies at Insure.com or Accuquote.com.

Before you choose the insurer for any type of coverage, check out the company's complaint ratio at your state insurance department's Web site or through the National Association of Insurance Commissioner's Consumer Information Source (www.naic.org/cis). It can be worthwhile to pay a little extra for a company that has a better reputation for customer service - and is less likely to hassle you if you have a claim.

What are some of the most common mistakes people make when shopping for insurance for their home and auto?

The most common mistake is figuring out how much homeowners insurance to get. Your home's insurance value has nothing to do with the market value. The sale price is based on both the building and the land - if your home burns to the ground, you still own the land. Instead, you need enough insurance to rebuild the house. You can get a general idea by asking a local builder about building costs per square foot and multiplying it by the size of your house. But the price will vary significantly based on your home's materials and special details. You'll get a more precise answer by inputting that information into the insurance calculator at AccuCoverage.com ($7.95), which provides replacement cost estimates based on the building-cost databases that insurers use. Then, be sure to update the coverage amount if you do any major home improvements, especially if you add an addition on to your home. It can cost less than $100 per year to increase your coverage amount by more than $50,000.

The biggest auto insurance mistake is keeping your coverage on autopilot. It can be valuable to re-shop your coverage every time your situation changes - whether your teenage child starts driving, you buy a new car, or you move. The company that offered the best deal before your son got his license, for example, may be one of the most expensive when you add a teenage driver. Getting price quotes from several companies every few years could save you hundreds of dollars in premiums.

When it comes to health insurance, is it better to have an employer policy, a policy you found on your own, or a health savings account?

If your employer offers coverage, that's usually your best option because most employers subsidize about 75% of the premiums. But not all employer policies are such a good deal. Some employers have been increasing their employees' share of the premiums, cutting back on coverage, and raising rates especially high for family members. In that case, you might find a better deal on your own - but only if you're healthy and live in a state with a competitive health insurance marketplace (most states other than New York and New Jersey). Your medical condition is key - employer policies must generally cover all employees regardless of their health; but the price for individual policies - and the ability to get them at all - varies depending on your health (except in New York and New Jersey, where insurers can't raise your rates because of your health condition). You can shop for individual policies at eHealthInsurance.com or through a local health insurance broker (you can find one in your area at www.nahu.org).

You can open a health savings account if your employer offers a qualified high-deductible health insurance policy, which may be a good deal if the premiums are lower than your other choices, especially if the employer kicks in some money to the health savings account. And an HSA is usually your best option if you're buying health insurance on your own - having a high-deductible health insurance policy reduces your premium, and the HSA gives you valuable tax benefits.

In order to qualify for a health savings account, you must have a health insurance policy with a deductible of at least $1,100 for individual coverage in 2007, or $2,200 for families. You can then contribute up to the amount of the deductible each year to the HSA, with a maximum cap of $2,850 for individual coverage or $5,650 for families in 2007 (people age 55 and older can contribute an extra $800). Your contributions are tax-deductible and grow tax-deferred, then can be used tax-free for medical expenses in any year. If you still have cash in the account at age 65, you can use it for anything without penalty, providing you with an extra retirement account.

How often should consumers switch insurance companies or look for good deals?

It's a good idea to shop around every few years, and you should check out your options again when you go through any life changes, such as when your child starts driving, you move, get married, divorced, or your children move out of the house. You may need to change your coverage amount at all of those points, and the insurer that offered you the best deal in the past may no longer have the most-competitive price after your situation (and your risks) change.

If you're healthy and you haven't shopped for life insurance in a few years, then it's definitely time to get price quotes again. Life insurance premiums have plummeted over the past 10 years, and you may be able to lower your annual rate - or lock in the same rate for a longer time period - even though you're older. You can get price quotes at Insure.com or Accuquote.com.

Do you have any general money-saving tips that you can offer to those shopping for insurance coverage?

Shop around every few years. Compare costs from several companies. Work with an agent who can help you present the strongest case to insurers. And make sure you have the right amount of coverage.

Another easy way to lower your premiums on auto and homeowners insurance is to increase your deductible. Raising your homeowner's insurance deductible from $250 to $1,000 can reduce your rates by as much as 30%. And you'll save in other ways, too. With a higher deductible, you'll be less likely to file small claims that could cost you a claims-free discount - some insurers lower your rate by up to 25% to 35% if you go for seven to 10 years without a claim. And it's a good idea to avoid filing small claims for homeowners insurance anyway - several insurance companies have been dropping customers after filing just one or two small claims (sometimes for just a few hundred dollars). Raising your deductibles lowers your costs and helps protect your coverage.

Your new book, The Insurance Maze: How You Can Save Money on Insurance - and Still Get the Coverage You Need, answers all of these questions and many more. What do you think readers will like best about the book and where can they pick up a copy?

Thanks for the kind words about the book. I think readers will be most interested in discovering ways they can save hundreds - or even thousands - of dollars on their insurance premiums, while making sure they have enough coverage to protect their financial plans. The book describes cost-saving strategies and key insurance concepts in easy-to-understand terms, which is a rarity among insurance books! Many people end up paying too much for insurance or getting the wrong coverage just because they're intimidated by the insurance language and don't know how the system works. This book will help them know what questions to ask, where to go for help, and how to save a lot of money on every kind of insurance. It's available at many bookstores, and is easiest to order at Amazon.com.

Insurance Maze: Interview with Kiplinger's Kim Lankford