How to Buy Classic Car Insurance

May 17th, 2013 by No comments »

Collector Car Insurance and Classic Car Insurance

If you are fortunate enough to own a classic car – or any collectible automobile – then you want to ensure that your luck does not run out because of having inadequate insurance coverage. Call it covering your butt – or covering your “asset” – but by all means, call one of the major providers such as American Collectors, Haggerty, or Parish Heacock insurance companies and let them put you in the driver’s seat in terms of professional protection of your cherished automotive investment.

How to Kick the Tires on Classic Car Insurance

The whole idea of insurance is that it needs to do what you expect of it in an emergency, when the rubber really hits the road. And classic car insurance is as different from conventional auto insurance as, well, a classic car is from your run of the mill generic vehicle.

When you buy a classic car insurance policy, you are essentially purchasing protection for those times when – God forbid and knock on wood it doesn’t happen – disaster strikes in the form of a fire, a collision, or an act of theft or vandalism. Just as we now have modern airbags to save us in the event of a crash, we also have collector’s car insurance, to protect us with adequate moneybags when calamity throws a wrench in the works.

The time you invest in choosing the right classic car insurance coverage is well worth the value and peace of mind that a quality collector’s insurance policy delivers for owners of classic motor cars.

The Nuts and Bolts of Classic Car Insurance Coverage

Collector car insurance is not the same as the insurance you buy for normal coverage of your daily transportation. Collector car insurance, or classic car insurance, is made especially for the needs of the car collector. And while ordinary insurance does offer some protection, no matter what you drive, it can leave you high and dry in the event of a loss that it not effectively covered by the terms of the insurance contract.

For example, you may have a garage-kept Cadillac Sedan DeVille with swooping fins your grandparents bought for $7,000 brand new back in the 1960s. But dealers have offered you three times that much, and you saw another one sell at an auto show for $35,000. If you don’t have special collector car insurance or classic car insurance, and the car is totaled, you will be lucky to get $7,000 for it. With depreciation calculated in, the insurance statisticians may decide that it is worth only half that much, or less, and you could wind up with two or three grand in exchange for your dream machine.

Stipulations or requirements normally encountered while shopping for collector car insurance or classic car insurance:

  • A decent driving record.
  • At least 10 years driving experience
  • No teen drivers on the policy or drivers with poor driving records
  • Secure and out of the weather garage
  • Proof that you have another car for daily transportation
  • Collector vehicle insurance is sometimes limited by the age of your car, and if your car is too young it may not qualify for a particular policy.
  • Limited mileage. You probably don’t want to drive your creampuff car all the time, and your insurance company doesn’t want you to either. Mileage limits have increased recently, though, so if you can live with 250 miles a month you’re probably okay.

Coverage with collector car insurance or classic car insurance: Three kinds of value are important to understand when buying your policy. 1) Actual cash value: This is what you usually get with ordinary insurance, and is based on replacement cost minus depreciation.

2) Stated value:

The insurance company pays up to the stated value of the car, but may not guarantee the full stated value. And deductibles of up to $1,000 usually apply.

3) Agreed value:

In most jurisdictions, those who provide collector car insurance or classic car insurance are allowed to insure for a value that you and your insurer agree upon. And for most autos, there is no deductible. If your $100,000 vintage Rolls get trashed, you get a check for 100 grand, plain and simple – which is exactly why collectors use special classic car insurance coverage.

Do a periodic review of your coverage limits, because classic car prices are rising. What you insured your cherry classic for ten years ago may be a fraction of what it’s worth today. And if you are restoring a vehicle, ask your agent to give you appropriate insurance. There is no need to pay extra based on mileage statistics, if your car is up on blocks with no engine inside it. And as the car’s value increases thanks to your hard work of restoring it, you should raise the coverage to keep up with the added value of the restoration.

Keep all your receipts and paperwork – for everything from parts and labor to expenses incurred to take it to a classic car show – so that you can document the total investment your collector’s car represents. And take photos and keep them updated, for the same reason. And Last But Not Least: Special Savings Opportunities

As long as you meet the criteria in terms of how you use and take care of the car, you can usually buy a policy.

Traditional insurers will either refuse coverage, offer only a replacement value based on the nuts and bolts (minus heavy depreciation) of the car, or will charge you a prohibitive amount for the premium. But many collectors find that special collector’s coverage saves them money – as much as half – while insuring them for higher limits, sometime three or four times what a traditional company gave them.

Yes, it’s possible to get collector’s insurance coverage for full market value for your car, and save up to 50 percent off of the premium you’d pay with ordinary insurance. That makes classic car insurance a must-have for any serious car buff.

Below is information about three of the most reputable and dependable collectors and classic car insurance companies in the USA (All information listed below subject to change, please contact the insurance companies listed to be sure.):

Hagerty Insurance P.O. Box 1303 Traverse City, MI 49685-1303

Email: auto@hagerty.com Toll Free: 800-922-4050 begin_of_the_skype_highlighting 800-922-4050 FREE  end_of_the_skype_highlighting

Qualifications:

  • Similar to the others listed below, but please contact Haggerty for details.

American Collectors Insurance P.O. Box 8343 Cherry Hill, NJ 08002 Email: info@americancollectors.com Toll Free: (800) 360-2277 begin_of_the_skype_highlighting (800) 360-2277 FREE  end_of_the_skype_highlighting Qualifications (subject to change or regional laws so check with the company for specific up-to-date information).

  • At least 15 years old
  • Garage-kept
  • Driven on a limited, pleasure-only basis (up to 5,000 annual miles – available in most states)

You may also qualify by:

  • Having at least 10 years driving experience
  • Having a good driving record
  • Having at least one “regular” vehicle for every licensed driver in the household You may request a policy application either directly from American Collectors Insurance or through your local insurance agent (rates are the same either way).

Parish Heacock Classic Car Insurance P.O. Box 24807 Lakeland, FL 33802-4807 Email: info@parishheacock.com Toll free: (800) 678-5173 begin_of_the_skype_highlighting (800) 678-5173 FREE  end_of_the_skype_highlighting Qualifications (subject to change or regional laws so check with the company for specific up-to-date information).

  • Each household member of driving age must have at least 10 years driving experience or be excluded.
  • Each household member must have a regular use vehicle less than 15 years old that is insured with liability limits equal to or higher than the limits being applied for on the collectible vehicle.
  • All licensed members of household and any other drivers of the vehicle must be listed on the application.
  • Maximum of two accidents or violations in the household, maximum of one per licensed household member in past 3 years. No major violations permitted in past 5 years.
  • A Driver Health Questionnaire must be completed for all drivers over 70 years old.
  • Auto must be stored in a locked permanent garage facility when not driven.
  • Auto may not be used for commuting to or from work or school, used for business purposes or as a substitute for another auto.
  • Autos not covered while on a racetrack or when being used for: racing, speed, driver’s education, or timed events.
  • Must display pride of ownership: well maintained, in restored or well-preserved condition.
  • Vehicles under restoration must be stored at residence or a restoration shop, with a target date for completion. Agreed value coverage is not available on cars under restoration. Eligibility subject to company review.
  • Replica Vehicles and Pro Street vehicles are subject to company review.
  • Trucks and Jeeps must be over 25 years old, and not be used for towing, hauling, off-road or utility use.
  • Generally do not require appraisals, but may ask for one if vehicle value is difficult to determine.

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Whole Life Insurance Basics

May 13th, 2013 by No comments »

If you’re shopping around for life insurance, you start with two big questions: How much insurance do I need? And what type of policy should I buy?

When you’ve calculated your short- and long-term obligations, it’s time to decide what type of policy is right for you: term life or whole life insurance.

Term life insurance provides coverage for a specified period of time, such as 10, 15 or 20 years; premiums go up over time unless you buy a “level term” policy, which guarantees that premiums stay the same. It’s possible that you could outlive the term of your policy, in which case your policy expires and you’d have to shop for another policy if you wish to still have coverage.

With a whole life policy (also called permanent insurance), you don’t have to worry about possibly outliving your policy term because your contract gives you coverage for your entire life, as long as the premiums are paid. With a whole life policy, unlike term life, you also build up “cash value” in the policy that you can tap in the future.

Premiums are significantly higher for permanent insurance than term life due to charges and fees (see sidebar) that you don’t pay with term life.

Cash value is a crucial selling point for whole life: It’s an account within your policy that builds up over time, tax-deferred, fueled by a portion of your premiums and interest paid by the insurance company. In fact, the whole life contract is designed for you to take advantage of that money in the future. When you die, your beneficiaries receive the death benefit, not the cash value, with the exception of some universal life policies.

Whole life insurance policies [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] build up cash value slowly at first but then pick up the pace after several years, when your earnings start to grow faster than your “mortality” cost (the cost of insuring you). If you would like whole life insurance explained in more detail, your life insurance agent should be able to show you a few types of policy illustrations.

Whole life could be an attractive option for any of these reasons:

  • Others are relying on you for long-term financial support.
  • You’re worried about outliving a term life policy and being unable to buy further insurance due to age or deteriorating health.
  • You want to build up cash value in addition to protecting your beneficiaries.
  • You want to create an estate for your beneficiaries after your death.
  • Your beneficiaries need the benefit to pay estate taxes on other assets.

“Whole life insurance is suited for anybody who loves somebody,” says Scott Berlin, senior vice president in charge of the Individual Life Department at New York Life Insurance Co. “Whole life does two things for you: protects your family and allows you to save for the future.”

Berlin says whole life’s advantages are that you don’t have to worry about outliving your policy (as is possible with term life) and there is the “forced savings” component of the cash value account, which grows tax-deferred. Once your cash value is built up, you can access it for anything – retirement, your child’s college tuition or the vacation you’ve always wanted. Whole life policies are also eligible to earn dividends (depending on the company and not guaranteed) which can be used in a variety of ways, such as providing paid-up additional life insurance, which increases both the life insurance benefit and policy cash value.

“Buying term is like renting your insurance,” says Berlin. “You don’t build up any residual value. Whole life is like owning a home – you build up equity.”

Berlin cautions against buying term life insurance just because of the premium difference.

“When you’re 35 you think that 20 years is a long time, but life doesn’t always work out like you think,” he says. “People who buy permanent insurance understand the value of what they’re providing to their family.”

If you decide that a whole life policy is right for you but feel you’re currently unable to afford the premiums for the face value you desire, Berlin recommends buying as much whole life as you can afford and filling in the rest of your face amount with term life. Later, you can convert your term life policy to whole life.

For the wealthy with large estates, putting a whole life policy into a trust is a way to pay estate taxes when they die.

A smorgasbord of choices

If the features of whole life insurance [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] fit the bill for you, there are multiple varieties depending on your needs and your tolerance for financial risk.

  • Ordinary whole life insurance: Premiums are level as long as you live and your policy builds cash value. The initial annual cost will be much higher than the same amount of term life insurance, but as you get older that gap closes.
  • Limited payment whole life insurance: This policy lets you pay premiums for only a specific period, such as 20 years or until age 65, but insures you for your whole life. Thus, premium payments will be higher than if payments were spread out through your lifetime.
  • Single premium whole life insurance: This policy is paid up after one substantial initial payment.
  • Universal life (UL) insurance: This policy lets you vary your premium payments and adjust your death benefit as beneficiaries’ needs change. You have to be aware of how much is in your account and whether you need to make payments in order to keep the policy in force. There are also UL policies that can provide level premiums, as well as UL policies with a planned premium option and guaranteed death benefit for life. These policies may offer lower premiums in exchange for a slow accumulation of cash value, if any.
  • Variable universal life (VUL) insurance: Here your cash value and death benefit are tied to a particular investment account. Your cash value and death benefit increase if the underlying investments do well, or they may shrink considerably under poor investment performance. Read the prospectus for VUL carefully and never buy a policy that you don’t understand. There may be an extra premium required to guarantee a death benefit amount.
  • Survivorship life insurance, also called second-to-die life insurance: This type of whole life policy insures two lives as once (typically a husband and wife) and pays out upon the death of the second individual. This is good for people who need to provide for beneficiaries only after both have passed away. It is also less expensive than insuring two lives under separate policies.
  • Participating or non-participating whole life insurance: Any type of whole life policy listed above could be “participating” or “non-participating.” You have a participating policy if your life insurance company pays dividends to policyholders when it has a good financial year. Dividends are not guaranteed and they will vary year to year when they are paid, but if you have a participating policy you can take your dividends as cash, use them to pay your premiums or use them to purchase additional insurance to increase your policy’s face value. Dividends are not taxable as long as they don’t exceed the premiums you’ve paid in.

The life insurance illustration

If you’re considering a policy in which premiums and death benefits fluctuate depending on investments or interest rates, you should receive a life insurance illustration from your agent. This is a picture of what could happen with your policy. Or again, maybe not.

The illustration should show you what the insurance company will guarantee (such as any guaranteed interest rates or death benefits) and what will be left open to market conditions. You’ll be asked to sign a form stating you understand that some parts of the illustration are not guaranteed.

Being paid up

One happy stage of whole life insurance is when the policy’s dividend values and anticipated future dividends are sufficient to cover your future premiums and you no longer need to make premium payments out of pocket. This is called a Premium Offset Proposal, or “POP” arrangement. “POP” means that your cash value is now large enough that it can be used by the insurer to pay your premiums for the rest of your life. You can still withdraw your cash value, but you’ll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support.

You could also choose a “limited pay” policy, for which your premiums are calculated for a set number of years or a certain age, like 65.

New York Life has introduced “New York Life Custom Whole Life”, a life insurance policy that lets you choose your own guaranteed paid-up date. (You must pay premiums for at least five years and cannot pay premiums past age 75 for this policy.) So, say you want to retire in 12 years and you want your policy to be guaranteed paid-up at that time. New York Life will calculate the premium necessary to have your policy fully paid-up in 12 years so that you won’t have to worry about paying life insurance premiums during your retirement. If your need for the full life insurance benefit is reduced during your retirement, you can also begin withdrawing or borrowing from your cash value to supplement your retirement income.

Planning for all situations

Life insurance companies offer a number of riders that can be tacked on to whole life policies. (All riders may not be offered by all companies, and many insurers offer other specialized riders not listed here, so check with your agent.)

  • Accidental death benefit rider: Pays an additional benefit if you die in an accident.
  • Disability income rider: Provides regular income from the insurance company if you become totally and permanently disabled.
  • Level terms rider: Adds a fixed amount of term insurance to the whole life policy for a specified period.
  • Living benefits rider, also known as accelerated death benefit: Pays an portion of your death benefit during your lifetime if you are diagnosed with a terminal illness and have a specificed life expectancy (such as 12 months). You can add this rider after buying the policy.
  • Long term care (LTC) rider: Pays for LTC expenses if you meet certain criteria.
  • Policy purchase option: Gives you the contractual right to purchase additional insurance without evidence of insurability. For example, you may need additional life insurance after the birth of a child.
  • Waiver of premium rider: Waives premiums if you become disabled or unemployed. (Terms vary by insurer.)

Watch out for:

  • The hard sell: An unscrupulous insurance agent may push whole life insurance when term insurance is sufficient for your needs; the whole life insurance sale could provide him a larger commission.
  • Churning: If your agent suggests your current policy needs to be replaced, be wary. “Churning” is when an agent convinces you to surrender an old policy and buy a new one because he makes a new commission off you.
  • You thought you were paid up: You may have signed papers allowing your cash value to be used to buy another policy.
  • Term vs. perm: A comparison service

You’ve probably heard the advice “buy term and invest the difference.” And to make that work you must have the financial discipline to actually invest that difference every year. And if you did, how much would you come out ahead, or would you?

The Consumer Federation of America (CFA) offers a Rate of Return (ROR) service that provides you with a report comparing the estimated “real” investment returns on a cash value policy versus a term policy with the premium difference invested in a savings vehicle. The service is manned by James Hunt of the CFA, a life insurance actuary and a former insurance commissioner of Vermont.

An analysis can be run for policies you’re considering or already own. The cost is $70 for the first illustration and $50 for each additional illustration submitted at the same time. The cost for variable life policies you’ve already bought (unless within the free look period) and for survivorship life (also called second-to-die) is $80/$50.

Maximizing your cash value policy

Hunt, who has analyzed life insurance policies for almost 25 years, says that because of the high fees associated with whole life, you want to look for ways to maximize your premium dollar within the policy. He suggests these strategies:

  • Decline all riders (except term riders on your own life and waiver of premium disability riders) because they’ll eat into your cash value potential.
  • When you look at the illustration, make sure your first year’s cash surrender value is a significant portion of your first year’s premium outlay. (A good number would be 50 percent or higher.)
  • Consider buying direct rather than through a fully commissioned agent. Examples of direct sellers are Ameritus and TIAA. Returns on these “low-load” policies are generally higher than returns on comparable policies purchased through agents.

If you are looking at cash value life insurance to possibly supplement retirement income, Hunt advises that you may be better off by buying term life and maximizing other tax-advantaged retirement plans first, such as your 401(k), 403(b), IRA or Roth IRA.

Wanting out

Perhaps you committed to a whole life policy many years ago and no longer want or need it. If you simply stop paying the premiums, this will “lapse” your policy and you’ll have to chalk it up to an expensive mistake. If you have held the policy long enough to build up cash value, your insurance company will start using the cash value to cover premiums until the cash value runs out.

Instead of lapsing your policy, inform your insurance company that you want to surrender the policy. You’ll then receive the current cash surrender value, minus any loans against cash value you took out and unpaid premiums. You may also be hit with a surrender charge for getting out of a UL or VUL policy. Surrender charges can amount to 100 percent (or more) of the first year’s premium and usually start to grade off over 10 to 15 years, according to Hunt. With some policies it may take 20 years before surrender charges disappear.

Or, if you have enough cash value, you can ask the insurer to consider the policy “paid up” at a lower death benefit.

Lapse and surrender rates for life insurance show that indeed there are many folks who end up with buyers’ regret. Statistics from LIMRA International, a financial services industry research group, show that by policy year five, 69 percent of whole life policies are still in force; that drops to 50 percent in year 13 and 39.6 percent in year 20.

No matter your reasons for considering whole life insurance, rule No. 1 is to never buy a policy you don’t understand.

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Auto Insurance Principles Should Apply to Health Insurance

May 9th, 2013 by No comments »

Many Americans rely on their automobiles to get to work. No automobile means no job, no rent or mortgage money, no food. A single parent, struggling to make ends meet in the suburbs with 100,000 miles on the odometer, would presumably welcome the guaranteed opportunity for low-priced insurance that would take care of every possible repair on her auto until the day that it reaches 200,000 miles or falls apart, whichever comes first. Especially if the insurance is valid regardless of whether she even changes the oil in the interim.

So why aren’t the auto insurance companies writing such coverage, either directly or through used auto dealers? And given the importance of reliable transportation, why isn’t the public demanding such coverage? The answer is that both auto insurers and the public know that such insurance can’t be written for a premium the insured can afford, while still allowing the insurers to stay solvent and make a profit. As a society, we intuitively understand that the costs associated with taking care of every mechanical need of an old automobile, particularly in the absence of regular maintenance, aren’t insurable. Yet we don’t seem to have these same intuitions with respect to health insurance.

If we pull the emotions out of health insurance, which is admittedly hard to do even for this author, and look at health insurance from the economic perspective, there are several insights from auto insurance that can illuminate the design, risk selection, and rating of health insurance.

Auto insurance comes in two forms: the traditional insurance you buy from your agent or direct from an insurance company, and warranties that are purchased from auto manufacturers and dealers. Both are risk transfer and sharing devices and I’ll generically refer to both as insurance. Because auto third-party liability insurance has no equivalent in health insurance, for traditional auto insurance, I’ll examine only collision and comprehensive insurance — insurance covering the vehicle — and not third-party liability insurance.

Bumper to Bumper

The following are some commonly accepted principles from auto insurance:

* Bad maintenance voids certain insurance. If an automobile owner never changes the oil, the auto’s power train warranty is void. In fact, not only does the oil need to be changed, the change needs to be performed by a certified mechanic and documented. Collision insurance doesn’t cover cars purposefully driven over a cliff.

* The best insurance is offered for new models. Bumper-to-bumper warranties are offered only on new cars. As they roll off the assembly line, automobiles have a low and relatively consistent risk profile, satisfying the actuarial test for insurance pricing. Furthermore, auto manufacturers usually wrap at least some coverage into the price of the new auto in order to encourage an ongoing relationship with the owner.

* Limited insurance is offered for old model autos. Increasingly limited insurance is offered for old model autos. The bumper-to-bumper warranty expires, the power train warranty eventually expires, and the amount of collision and comprehensive insurance steadily decreases based on the market value of the auto.

* Certain older autos qualify for additional insurance. Certain older autos can qualify for additional coverage, either in terms of warranties for used autos or increased collision and comprehensive insurance for vintage autos. But such insurance is offered only after a careful inspection of the automobile itself.

* No insurance is offered for normal wear and tear. Wiper blades need replacement, brake pads wear out, and bumpers get dings. These aren’t insurable events. To the extent that a new car dealer will sometimes cover some of these costs, we intuitively understand that we’re “paying for it” in the cost of the automobile and that it’s “not really” insurance.

* Accidents are the only insurable event for the oldest automobiles. Accidents are generally insurable events even for the oldest autos; with few exceptions service work isn’t.

* Insurance doesn’t restore all vehicles to pre-accident condition. Auto insurance is limited. If the damage to the auto at any age exceeds the value of the auto, the insurer then pays only the value of the auto. With the exception of vintage autos, the value assigned to the auto goes down over time. So whereas accidents are insurable at any vehicle age, the amount of the accident insurance is increasingly limited.

* Insurance is priced to the risk. Insurance is priced based on the risk profile of both the automobile and the driver. The auto insurer carefully examines both when setting rates.

* We pay for our own insurance. And with few exceptions, automobile insurance isn’t tax deductible. As a result, the fear of increasing insurance rates due to traffic violations and/or accidents changes our driving behavior and we sometimes select our automobiles based on their insurability.

Each of the above principles is supported by solid actuarial theory. Although most Americans can’t describe the underlying actuarial theories, most everyone understands the above principles of auto insurance at the intuitive level. For sure, as indispensable automobiles are to our lifestyles, there is no loud national movement, accompanied by moral outrage, to change these principles.

Unsustainable Market

In contrast, similar principles are routinely violated in health insurance. To demonstrate this, let’s return to the same suburban mother from the opening paragraph. She’s busy working, driving to and from work, and driving her kids to school and activities. She ends each day exhausted, sitting on the couch with fast food. She’s obese, has a sedentary life, a bad diet, and hasn’t taken the time to go to the doctor in years. After a simple injury doesn’t heal for weeks, she turns up at the emergency room and learns she has type II diabetes. Although type II diabetes is controllable, changing diet and exercise habits and properly tracking her condition takes time and effort and she’s never quite successful in implementing the necessary lifestyle changes.

So the initial emergency room visit is only the first of a long list of health care related to non-controlled diabetes and other problems associated with obesity. Whether she has individual or group insurance, her insurance pays for each episode of care, without singling her out for a premium increase, and without charging her any more cost sharing than is charged to the healthiest and most medically diligent insureds. Her coverage continues until she voluntarily changes insurance companies and/or employers or becomes eligible for Medicare. If she’s covered under group insurance she may not even pay any premium. Her insurance continues unabated, even though the disease was caused by neglecting her body and she maintains her poor lifestyle even after the disease becomes known.

This just wouldn’t happen in auto insurance. This scenario is the auto insurance equivalent of guaranteed access to low-priced auto insurance that takes care of every possible repair, including damage already done, until the day the car falls apart so completely it’s unsalvageable (death) or reaches 200,000 miles (Medicare), regardless of whether she even changes the oil (takes care of herself) in the interim.

As a society, we don’t expect this in private-market auto insurance, but we expect it in private-market health insurance. Furthermore, there’s a chorus of national and state interests, which continuously pushes us further away from the auto insurance principles.

The current private health insurance market isn’t sustainable. Prices have been consistently increasing faster than inflation for decades. Each year, insureds use more health care than ever before and more people have no insurance at all. Most actuaries and other people in the private health insurance market don’t want national health insurance with its bureaucracy and one-size-fits-all benefits. Yet, we’re trying to sustain a private insurance system, which violates the very principles we know are necessary for private insurance markets.

Yes, health insurance involves the sacredness of human life and is therefore different from auto insurance. But if we’re to sustain a private-market solution to health insurance, actuaries need to explain to the larger society, in terms that society understands, the rationale for the following principles:

* As sacred as health care is, it’s still an economic transaction that has to be balanced by individuals and societies, against other economic choices. It can’t be unlimited. Sometimes it will be secondary to other choices. On a given day, for example, the mother in our scenario may value her car more than her health.

* Insurance premiums should be paid by the individual and tied to controllable risk factors. This will provide the best incentive for the control of risk factors.

* Although it’s hard to draw the line between abuse, neglect and ignorance, self-abuse shouldn’t be insured and we need to draw that line somewhere.

* The private market can’t provide unlimited, self-directed health insurance.

* Routine care and ongoing treatments of chronic conditions can be pre-funded, can even be subsidized, but they don’t constitute “insurable events.”

* Insurance can’t be expected to keep every human body in pristine condition. No amount of health care will prevent everyone’s ultimate death.

* Comprehensive, unlimited, non-subsidized private-market coverage isn’t possible for people with severely impaired health.

* The private health market can provide limited non-subsidized health insurance, such as protection from accidents, to even health-impaired individuals.

* Individuals who can afford to do so and who take good care of themselves should be able to “buy up” to better coverage. People have the option of buying up for everything else in life.

Discussion of these principles is lacking from most of the current health insurance debate. If society can intuitively understand how similar principles apply to health insurance, then they should be able understand the principles in the health insurance context. We need to initiate the debate.

This commentary is solely the opinion of its author. It does not express the official policy of the American Academy of Actuaries; nor does it necessarily reflect the opinions of the Academy’s individual officers, members, or staff

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