Life Insurance Lessons from Japan’s Disaster
Whenever there is a natural disaster causing human death and suffering on the scale of what we’ve seen in Japan, all human beings do a few things:
We grieve.
We recover.
We learn.
While scientists and policymakers try to learn about the true risks of nuclear energy, earthquakes, and tsunamis, consumers should be learning about how they might be affected in such a disaster.
Why the Earthquake, Tsunami, and Nuclear Meltdown are Insurance Disasters as well
Despite this being the largest earthquake on record and the tsunami hitting widely and severely in the worst possible places, this is nowhere near the largest loss of life. Still, compared to the Indian Ocean tsunami of 2004 that killed over 230 thousand people and destroyed the way of life for many more, or the even more recent 2010 Haiti earthquake that killed 316 thousand so far, the few thousand killed in Japan doesn’t seem like it should have the largest insurance impact. But it does.
This is because very few people killed in Haiti Earthquake and in the Indian Ocean Tsunami had insurance policies.
These would have been less disastrous to human life had 1) facilities been more prepared for destruction on such a scale (a lesson we must learn perhaps) and 2) people had health insurance that would cover treatment.
Think about this as well: insurance companies don’t plan to pay out so many life policies all at once. Japan has perhaps the highest rates of health and life coverage in the world, which is great in terms of saving lives and livelihoods. However, there is some worry that paying out so much money could financially cripple the insurers. Analysts fear some insurers will collapse and be unable to pay out.
Insurance Rates Astronomical in Disaster Zones
The average cost of insuring a life in the United States is roughly $1,600 a year. In Japan, it is approximately $3,200.
However, perhaps because the Japanese people know how high risk they are, they buy insurance in greater amounts than the United States. The ratio of the total premiums paid to gross domestic product (called insurance penetration) is over 8% in Japan compared to about 3.5% in America. Were widespread disaster to strike the United States, say in the form of famine (deadliest of natural disasters), the impact would be horrendously incredible.
Life Insurance in US Hit, Responds
Policies in Japan tend to pay out more than they do in the United States. However, many insurance providers in Japan are American companies. They may lose many billions of dollars as a result of this disaster, and consumers in America could suffer as well. While these life insurance companies insist they will stay solvent, it may be at the cost of cheap life insurance policies. Financial impact could be distributed through US policies and debt, according to analysts.
As scientists and actuaries learn more about the impact of these natural disasters and how financial systems respond, they may upgrade the risk of natural disasters in many parts of the world. Live near a nuclear power plant? Look out for an increase in premiums.
If your rates go up, get some life insurance quotes.
Retirement health care
Planning retirement has been growing more challenging over the last twenty or so years. In part this is caused by the increase in life expectancy. When we were all expected to die shortly after we retired, the government could assume it had enough cash in hand to cover the costs of looking after our health. Now the statistics show more people living into their 80′s, the federal government and individual states have been doing calculations. They have all realized there will not be enough money in the funds set aside to deal with this commitment to provide health care. The first sign of this was the change in the linkage between Social Security and Medicare benefits. Originally, we were eligible to get both benefits at the age of 65. Now you can still get Medicare at 65 but, depending on your birthday, you may have to wait until 67 to get retirement benefits.
To trigger the Medicare coverage, contact Social Security within the three month period before your 65th birthday. It’s better to do this even if you intend to keep on working and a group health plan covers you. There’s a Special Enrollment Period that applies if you or your spouse has a Plan. If you want guidance on the costs and benefits, you should call Social Security. However, the issue of health care retirement funding has become a legal hot potato as more states find their budgets under pressure. One of the most interesting examples is in Michigan. First Gov. Jennifer Granholm and now Gov. Rick Snyder have been leading the efforts to make major savings across all aspects of the state’s activities. The plans calls for a reduction in next year’s projected deficit of $1.4 billion, with measures to save not less than $3.5 billion over the next ten years.
In 2010, the lawmakers required public school employees to pay 3% of their earnings into the retirement and health care funds. In particular, this was intended to avoid a projected loss of about $360 million in the School Aid Fund. The important feature of this fund is that it covers the health care costs and pays out pensions to current retirees. The cost is about 24% of the school districts’ budgets but, as the courts have pointed out, there’s no guarantee that younger people paying into this fund will ever receive benefits. This has led the judges in two separate cases to hold the laws unconstitutional. It would probably be lawful to increase the deductions from pay if the teachers were guaranteed a benefit. As it is, the courts have knocked a big hole in Michigan’s efforts to close the deficit gap.
Health insurance plans come under pressure from all sides. The employees find their contributions inching up. This eats into their disposable income. The employers find their own budgets going into deficit, while the healthcare insurers find everyone reluctant to continue paying higher premiums when nothing is done to control the healthcare providers’ costs. No one objects to paying when they feel the benefits they receive are good value for money. But when health insurance as part of the retirement process may be compromised because the states have not been making adequate provision for payment, everyone is right to be angry.
Helping the poor
One of the saddest trends in our culture has been the increasing level of selfishness. We now seem unsympathetic to the poor, believing them to be scroungers who decide not to work to support themselves and their families. Even though this means poverty, we stereotype them as preferring to live on state benefits and handouts. Although there will undoubtedly be some people who game the system, it’s incredible a Christian nation like ours should turn on the poor. Why would the ordinary person refuse work when it’s offered? Why would anyone chose to live in rundown tenements if a living wage could pay for something better? The practical reality is that people find themselves in a poverty trap. They are an army of people competing for the few jobs that mostly don’t pay a living wage.
When it comes to insurance, we find the levels of uninsured drivers creeping up to 20% in many states. As a result, this forces the law-abiding drivers to pay more. If you have collision cover and an uninsured driver crashes into you, it’s unlikely this driver has the cash to pay your medical expenses and for the repair of your vehicle. Even though the accident is not your fault, your own premium rate is likely to rise. Indeed, everyone’s rate will rise to fill in the gap with if at-fault drivers are not paying for a mandatory liability policy.
Premium rates only fall when the number of people buying insurance rise significantly. For vehicle insurance, this means actively enforcing the mandatory rule for liability cover. If all the one-in-five uninsured drivers paid their way, everyone would pay less. But we now run into a problem. Nationally, the rate of unemployment still shows more than 9% of the adult population without work. In fact, this figure is a joke. In many states, the real rates of people without work can be more than 20% with the young and old particularly badly hit. If people are not working or only earn a few dollars a month, they cannot afford the current premium rates. You can’t get blood out of a stone. That’s what makes the proposed law in Nevada so interesting.
Kelvin Atkinson has been promoting a bill to provide a low-cost program for drivers earning less than $20,000 per year. It’s estimated such a law would save local drivers more than $180 on current premiums. Suddenly the Republicans are saying the poor should take a bus or ride bicycles, and leave the car at home. They also point to California where a similar program is already in effect and less than 50,000 uninsured drivers signed up. The argument seems to be you should not even make the offer to help the poor because so few will respond.
Well, we wish Kelvin Atkinson every success in steering the bill into law. Even if only a few uninsured drivers take up this offer of cheap auto insurance, it establishes an important principle best captured in Deut. 15:7. If there’s a poor man, don’t harden your heart, but freely open your hand and give him enough to meet his needs. It’s Christian to offer cheap auto insurance to the poor and needy.
Manufacturing at home
With the recession, there’s something quite strange happening to established businesses. Ten tears ago when our labor was expensive and China and india were cheap, there was a move to outsource all the major work to China and India. Now the recession has hit our industries and China has grown more expensive, our industries are discovering it may now be cheaper to bring the work back. There’s just one problem. Most of the people with the right skills have now grown older and moved away. It’s a challenge to find enough people to work the machines again. Except some who were thrown out of work decided it might be good to run a small business from home. They quietly established small workshops in the basement, keeping the noise down, hiding away. So what are the implications? What should you do if you can afford the machines and have the right skills to make products in demand?
The first question is whether you live in a purely residential zone. Local government has many different regulations defining the use of property. Most require you to get a license, permits and certificates before you can manufacture at home. This is not the simple matter you might imagine. It’s more than just filling in a few forms and paying a fee. It takes time to get all the approvals. Worse, the same regulations that apply to a big company also apply to the machines you have in your basement. So when it comes to connecting up to the power supply, there are real safety issues to be addressed. Then what are you going to do with any waste? Can you avoid polluting the neighborhood? It’s a big hill to climb if you want to stay legal. So why not just start up and hope for the best?
The answer is depends on the level of risk you want to run. Without all the necessary paperwork in place to show you have complied with all the local ordinances and regulations, running the business from home will be illegal. If your operation is illegal, you cannot get a valid insurance. Although you may lie, get a policy and pay the premiums, the insurer will cancel the policy once it becomes obvious you do not have the permits and licenses. So if you have claims, they will be denied by the insurer and it will all fall on your head to pay whatever losses have arisen. Most people decide it’s not worth the trouble to manufacture from home.
Instead, they rent a small space in a building that does have the right licenses, and run all the paperwork out of their homes. Now your business is more likely to be legal and the small business insurance policy enforceable. All this assumes, of course, that the business proposal itself is going to make money. You have identified a market? You do know you can sell what you make at a sufficient price to cover all the bills and leave you with a profit? All business ideas should be properly appraised before you start. Just going on a wing and a prayer is not enough. In all this, business insurances can make the difference between instant failure and long-term success should anything go wrong.
Supplemental cover for seniors
It’s a sad fact of life that the older you get, the more you seem prone to health problems. Think “planned obsolescence” and you get the message that, after a fixed number of years, body parts seem to wear out. While there are spares available when people donate them, the science to grow new parts in a lab dish seems slow in developing. We have a biodegradable scaffolding and can extract human cells, but no one has been able to bioengineer the bigger organs like livers, kidneys, lungs and hearts. It should be so easy to crack open the chest and swop a new for old heart. The SF writers have been promising it for decades. Why is the real science so slow in catching up? Well, while we wait for an answer, let’s look at how seniors should deal with the problem of people living longer and needing more medical maintenance to keep them moving.
Before we moved into civilized times, the health care services were built on the reality that most people died just a few years after they retired. Then, as medicine began to get its act together, life expectancy extended. Both men and women can now expect to live beyond eighty. Medicare was not designed with this in mind. This means there’s a crisis looming. The cash in the fund will run out sometime over the next twenty or so years. Quite when the tipping point will come is uncertain. It depends on who you choose to listen to. The reality, however, cannot be avoided. At some point, entitlement spending will eat up the money put by, and the taxpayers will start paying directly. To deal with this, the politicians are talking about moving the retirement age. More interestingly, there are emerging limits on what Medicare will cover. This creates a gap between entitlement and money available. You are expected to cover this gap.
Most health experts now agree it’s better for everyone approaching old age to buy additional insurance cover. Now it comes down to you to do a little research into Medicare‘s limitations. It’s good for most of the “vital” services but do your health needs shade to the less vital? Find out what costs are excluded and where you will be expected to find co-payments. With your retirement savings, are you going to be able to fund the gaps? If not, start off by looking at the Medicare Advantage plans. These are specifically written to cover the more obvious gaps. If you feel these plans will not be adequate, there are specialized private policies available.
Supplementary health insurance policies can cover co-payments, the cost of all drugs and the expenses if you have to stay longer in hospital. As with any policy provided by for-profit insurers, there’s a risk you will not get the best value for money. However, in this instance, most states have rules requiring the private insurers to provide cover broadly similar to that available under the Medicare Advantage plans. This should make you think twice. The supplementary health insurance policies must be “as good as” those available within Medicare Advantage, so why go outside the Advantage plans? Only you can make this decision. It’s possible the private policy is better value given your personal circumstances.
Insuring younger drivers
When you’re a young driver, you should never approach the question of insurance dreaming of low premiums. Under the age of 25, no insurance is ever going to cheap and the sooner you adjust your expectations and set to do a little work, the better. The standard advice is always to shop around. Why bother? The answer is more important when you’re young. Any driver, regardless of age can save money by being prepared to change insurers. The majority of companies will offer a welcome bonus to persuade you to jump ship. The people who make their money researching and crunching numbers will tell you the average man aged 55 will save around $450 by changing insurers. It’s possible, of course, the new insurer will quickly phase out the discounts and equalize the premium rates. That’s business. But a small percentage of policyholders are prepared to move their business when renewal falls due at the end of each year. The industry calls this churning and this helps maintain some level of price competition between the insurers. Sadly, most drivers seem reluctant to change, preferring to stay loyal. This makes the insurers lazy and they all tend to pitch their premium rates quite close together. For younger drivers, it’s a different matter. The number crunchers tell us there can be more than $1,000 in savings available if you make an effective survey of all the insurers in your state. Why is the difference so much greater? The answer comes in track record. The 55-year old driver has spent years proving whether he is safe and so, when it comes to deciding what level of risk he represents, the insurers will all come up with similar premium rates. This leaves a narrow range, only widened because of the welcome bonuses offered. But when you are starting off your driving career, there can be a big difference of opinion between the companies on how to assess your driving. When there’s no evidence on how safe you are, it comes down to company policy. Some argue the earlier the company signs you up, the longer you will stay a loyal customer. It’s possible you may have a few crashes in the early years but, as you learn, you will become a steady contributor to the profit margin. Other companies prefer not to have too many young driver in their groups and so set higher premium rates to deter the average youngster. So, for the first years, it may be better to shelter on your family’s policy. Never do this blindly. Some companies base the premium rate on the most expensive family vehicle. Others ask which vehicle the young driver will be allowed to drive. There are also very different rules about discounts for a good GPA and what is to happen when people leave for college. There are just too many variables. Rather than trying to guess, you should get a full set of quotes from all the insurers. One of them may actually be the cheap car insurance you’re hoping to find. Even if the premium rates prove more expensive than you were hoping to find, remember it’s better to have some car insurance rather than none. Getting caught without insurance is going to be a red flag when it comes to setting future rates.