Insurance

Is Switching to Allstate Worth 4,500 United Miles?

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Allstate United Offer

Last week I received a mailer about the partnership between United Airlines and Allstate Insurance. The little envelope promised up to 4,500 United Mileage Plus award miles, trying to encourage me to switch insurance providers.

The offer goes on to say we can earn 2,500 bonus miles if we switch auto insurance providers. Second, earn an additional 2,000 miles by switching your home insurance. Sounds fair enough, but is it worth it? This was not one of those offers to get free miles just for getting a quote. We actually have to make the switch of insurance providers to earn the miles.

I wondered if maybe I was targeted for this offer, but looking at the United website, they do list the Allstate offer as an option for everyone; however, the offer is only limited to those residing in Arizona, Colorado, Idaho, Illinois, Kentucky, Maine, Missouri, New Hampshire, New Jersey, Nevada, New York, Ohio, Oklahoma, Utah, Washington, Wyoming and Washington D.C.

I found a couple of things interesting about this promotion.

1) There is no way to request a quote online, as you must call your local agent or 1-866-705-4397. Make sure you tell the agent you are applying under the United Airlines promotion, and include your account number.

2) While the online details state nothing about when the promotion is scheduled to end, the mailer we received did say the partnership will end April 14, 2013.

So if you are in the market for a new insurance provider, you may want to consider how Allstate compares to others.

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Since I am not an insurance expert, I asked my lifelong agent for some commentary on how Allstate’s rates might generally compare to others. What I received back was a terrific commentary on the insurance industry that I feel really helps make a case for switching insurance providers.

As a customer, you may have noticed certain things are common and have always been throughout the insurance industry. For example, larger companies that spend huge amounts of money on brand building (such as Allstate) do a good deal of advertising, running promotions, and offering “innovative” coverages. Coverages such as vanishing deductibles, return bonus checks for safe driving, or United Airline miles did not exist 10 years ago. That is because the insurance industry is just as susceptible to trendy spending as any other industry and these companies spend billions figuring out the state of their customer base, the economy, and what appeals to them.

What does that amount to? Well, in a country where commercialism plays such a major role in spending, it is easy to make it look like you are getting more for your money when you throw out things that look like returns, or offer coverages that really do not mean much but sound fancy. You have to then ask, where does the money for all the very costly advertising, the guest spokesmen for the commercials, the airtime, the “bonus” coverages, the airline miles, come from? The answer without question is the consumer and always has been.

Brand building is a very expensive business, and traditionally the companies that are very vested in building their brand by commercialism will have gimmicky ways of attracting your attention away from the price of the premium for which you are actually paying for their product. It is a game of distraction and illusion. Magic always appears to be magic unless you know the trick. It is no coincidence then that traditionally those same companies have higher rates, or lower their rates for a time to move customers and then raise them again the next time they will be doing a major public relations spree.

Rolling the dice on insurance premiums

Meanwhile, the customers who keep jumping ship for the better rates do not know that in the insurance industry everything is based on risk, and if you continually move companies for a better rate you look flighty. Flighty equals more risk, and while they may have saved a few hundred dollars over a few years, should they make this their habit they will actually increase their rates because they have now increased their risk factor, which increases their premium. The magic here is knowing that most consumers do not look at their savings over ten years, but over one year so they will never do the math to know they are losing in the deal. There is actually a discount (and by the way discounts are not actually ever discounts they are just another illusion that make you think you are paying less by highlighting where you are of lower risk, safe driver, customer loyalty, low mileage, etc.) for having multiple terms with the same company as this phenomenon works in reverse.

Once you learn the trick to the insurance magic, the benefits all disappear. The trick to the magic is, how much risk do you, your family, and your belongings pose to the company in terms of them having to pay claims (and what size claims) on you? That is it; that is what all the commercials, coverages, and gimmicks boils down to and what your premium is based on. There are intensely complicated logarithms that I do not pretend to understand that each company uses to assess your risk to them and they charge you accordingly based on which risk factors they value most.

Do rates vary greatly from company to company? Absolutely. Do stores have sales to get you in? Of course. It is the same premise, like the insurance company is having a “sale” and getting you in, and once you are there, most people are too comfortable to leave, especially if the rate increases magically happen on a small scale over a long period of time.

Now say you file a $50,000 claim and have only been with a company for a year. Will the insurance company raise your rate to try and re-coupe some of that loss? You betcha; you have not paid, nor will ever pay enough, into their system to cover the loss they just took on you. There is no magic there that is just simply your risk factor affecting your rates.

The other factor to consider before switching insurance providers is the customer satisfaction rate. The bigger a company is the more claims they have serviced, the more claims they have serviced, the more diluted their customer service reports become. They would have to have a lot of positive or negative customer service ratings at a time to impact their overall service rating. So people looking at a large company are not seeing the real picture unless the large companies makes some very major mistakes all at once. Nationwide experienced this a few years ago when they raised the homeowners rates by near 20-50% in one term, and went through major customer service revamping and changed their brand from the eagle to that empty box symbol. It did not work out so well for Nationwide and they are trying to recover now. The industry is very fluid.

my neighborhood

One of the biggest and most difficult changes all the insurance companies, big and small, have had to face in recent years is the weather. The amount of claims based on weather is by far the biggest factor affecting rates in our area over the past 5 years, and it is a risk factor that is completely out of the industry’s control. So you will see a ton of industry shifting as the homeowner industry is now a negative profit proposition for the insurance companies, and they have to try and figure a way to suffer through this time. The insurance issuers will raise their homeowners rates without a doubt, but in different ways depending on what their sense of their industry is for their particular client base.

Some issuers will raise the auto rates to make it appear that the home rate did not increase as much if their auto rates were traditionally lower. Other companies will take small increases to home and auto yearly until they feel comfortable. Some will just take huge raises in the homeowners but keep the auto rates lower so people still feel like they are getting a deal if the auto rate is much higher somewhere else because of violations.

The major trick to the last model is that if you raise your rates up high at once, then people leave. When the next company raises their rates after the move, you can lower your rates back down, and boom you just got all those customers back plus probably more because now they are mad at the other company.

The major difference in those rate adjustment decisions is that homeowners rates are based partially on personal information and risk, but the other factors like weather and location play a major role in rates. On the contrary, auto policies are based on risk assessment that is based much more on the driver’s history with driving and paying. So the risk base between the two is vastly different and the companies have to do something to clot the bleeding wound that is now the homeowners insurance industry in this country.

Each company will address it differently but they will no doubt address it. They are losing money hand over fist and have been for several years so they have to stop the bleed or go broke. Whatever illusions they need to use to accomplish that will be up to the individual companies. Some companies have more money from previous rate increases to spend on creating these illusions than those that choose not to make major use of commercialism but rely more heavily on good service ratings.

So there you have it. Is it worth switching insurance companies for a couple of miles? If you are going to switch anyways, then you might as well sign up for this offer. However, it is not worth it to switch just for the sake of the miles.

Save Money, Travel More!

Source: InACents

Have You Protected Your Assets and Family?

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Our lives changed drastically over the past several years. First, we got married in 2008. Then we had our first son in 2009, followed by our second son in 2011. Add to that we purchased a new home together for our growing family, and became landlords at the same time because we could not sell our previous home. So what happens if something would happen to either of us?

Lesson 1: Life Insurance

The first major step we took to securing each others future was getting life insurance policies. I will admit as much as I love finances, I knew very little about insurance. Actually I was raised to be afraid of insurance in a way. My father was always of the mind set of why waste money on insurance? We are the type that does not place claims all the time, especially if it is something we can easily cover out-of-pocket. Our opinion was always “why alert the insurance company of a claim if it will raise our rates?” In addition, if it costs under $1,000, or what ever dollar amount, to repair, why would you turn it in? So in a way we were always self insured (when it came to insurance coverage beyond auto and home).

After meeting my wife, I was introduced to her friends from college, who the husband happened to be a financial planner, and handled some assets of my wife’s through her employer. About the time we had our first son, we wanted to discuss possible life insurance benefits should something happen to either one of us. I was against term life insurance, for the most part, because I did not like to “rent” and throw my money away. We were introduced to some Universal life insurance policies that built cash value over time, in addition to being able to provide tax-free retirement income in the future. It was a win-win for both of us because we were not only providing life insurance coverage, but also future retirement income.

We probably should reevaluate our insurance needs now that we have a more expensive home; however, we purchased what we could afford coverage wise, and should be more than adequately covered should it ever be needed. In actuality, looking at our budget, we may need to scale back our contributions to start to make the numbers work.

Lesson 2: Will and Power of Attorney

The second most important document(s) that will be required to protect our assets and family is a Will and Power of Attorney. We were finally able to wrap up both of ours last week, and will look to create a Living Will, and possible other documents shortly.

The hardest part of our estate planning documents was determining who would receive custody of our children. When you really sit down and think about it, it is an incredible powerful moment to decide who will raise your children to your standards. My wife and I first sat down and discussed custody of our children on a date night back in March 2011.

During the decision making process, there are several things to consider.

1) Make a list of possible custodians of your children. This is harder than you would think. In our case, we each had a sibling in different stages of life, but there were few other options to consider.

We did not want to put either of our parents as custodians of our children, and you might want to consider these things also. My wife’s parents are recently retired while mine both will work for years to come. There are two main reasons we chose not to go with our parents though as custodians of our children.

a) Both of our parents raised two children and are either in or approaching retirement. We did not want to burden our families with supporting young children again. We want them to really be able to enjoy life without the possible need to raise kids.

b) As our parents age, we did not want to have to go back and revise our estate planning documents should our parents no longer be able to take care of our children should something happen.

Once we looked at our narrowed down list, we knew are siblings were the best choice to raise our children. In addition, in reality we know our parents would also play a tremendous role in our children’s lives, even with our siblings having formal custody.

2) Once the list is narrowed down, really think through the whole child raising process through the eyes of the future custodian.

In our situation, my sister is married, childless, and responsibly limited. Meaning, my sister and her husband do not want children of their own, pets, or even a yard. That is why they live in a fancy downtown condo with limited responsibilities other than themselves.

My wife’s brother is still in college. In addition, we know he will want to marry and possibly have kids someday. Quite the opposite scenario than my sister.

Therefore, who would be the best choice to raise our children?

While my brother-in-law is currently in school and unattached, it would be irresponsible of us to turn custody of our children over to him. He is just not in the right place of life right now, not to say he would not do a great job. Down the road, once his life becomes more balanced, we might look at changing custody into his name.

My sister absolutely adores our children, despite not wanting their own. However, they are the more logical solution right now. My wife and I sat down with my sister and her husband and explained our situation. We told them about how we want our children to be raised, and how their posh life style might have to be changed should something ever happen. Realistically, their multi-storied condo and poor school district might not be the best living quarters for two young boys and possible future siblings. The biggest thing we wanted to impress on them is that should they choose to be responsible for our children in the future, we did not want it to cause unnecessary consequences in their lives.

In other words, since they do not want kids, etc., I would not want my sister’s husband to regret my sister down the road for this decision. Therefore, we wanted them to really think about what it would be like raising two or more children and how their lives would need to change. We fully gave them the opportunity to turn down the offer should they choose. In addition, we did not want them to not know they were the custodians of our children ahead of time.

There lies another important point. Make sure you discuss with your beneficiaries any wishes prior to implementing them into a Will.

Besides making the toughest decision of who would be responsible for raising our children, we also expected certain things with that responsibility. There are certain morals and ways we wanted to raise our children. In addition, the most important thing to us was having both families have an equal share of time with the kids. Meaning, just because my sister would be responsible for raising our children, we wanted to make sure they were raised equally among the families, including holidays and events.

So with all of that, we finally wrapped up our Wills and Power of Attorney documents this week. Now we are protected should something ever happen.

Have you made those important decisions to protect your family?

Health Insurance Lesson Learned Almost the Hard Way

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We had our second son back in late February of this year. I suppose we have been in baby mode for the past month and a half because apparently we are not thinking practically. Earlier this week my wife went to the Doctor’s office for the babies check-up, and she was informed that our newborn was not on the insurance policy through my wife’s employer. So I began asking questions about why our son had not been added yet to the policy because her work clearly knew we had a baby?

The big scare came from my wife’s best friend, who told her we only have 30 days from the date of birth to add our new son to the policy. Well we are several weeks beyond the 30-day enrollment period and started to panic. So the phone calls rapidly started to figure out our game plan.

Message left with the local admin. Message left with the corporate office. Waiting. Panicing. What if we are not covered? What could the pitfalls be? How much are we going to be responsible should our new son not be covered? This could cost us a LOT of money. If we can no longer add our son to the policy, when is open enrollment? What do we do in the meantime? Obviously lots of scenarios played out in our heads as we waited for somebody to call us back.

I talked with my wife’s medical insurance provider and they informed me that any changes have to go through my wife’s employer, and it is up to them whether they will accept an additional dependant outside of the enrollment period. So we continued to wait for someone from my wife’s employer to call us back.

Finally about an hour later my wife received the call she had been waiting for regarding our enrollment. Luckily, they said this type of thing happens all the time, and it was not a problem to add our son to the policy, even though we were beyond the new dependent enrollment 30-day period. They were quickly able to add him to the policy over the phone, except I had to stop by the office to pick-up the formal enrollment paperwork.

So the lesson learned was that you need to add any dependents to your health insurance plan ASAP after birth. The hospital does not do it for you. In addition, just because your employer may know you had a baby, you need to follow through to make sure that the dependent is indeed added to the policy. In our scenario, we got extremely lucky.

The insurance bills have just started to come in, so nothing has formally come in yet as being denied. We just happen to find out for some reason at the doctor’s office, which in itself seems particularly strange because in my experience, doctor’s offices always seem to handle insurance submission and billing after you leave the office. Had we not got so lucky with being able to add our newborn son to the policy, our financial outlook, and possilby years of savings, could easily be wiped out by a simple mistake.

If my wife’s employer and the insurance company did not add our son to the policy, we could be responible for 100% of the costs associated with the labor and delivery under his name (in other words, my wife would still be covered under her policy, so we would only be responsible for any bills racked up in our son’s name). The bills could easily be in the thousands of dollars, even up into the five-figure range. In addition, any future vaccines, doctor’s visits, etc. would all have to be carefully coordinated to minimize costs.

Another option we could have considered if feasible would be to add our son as a dependent through my insurance policy. Currently, I have single coverage through my work. My wife has both kids and her under a family plan through her employer. Therefore, by default, I have secondary coverage through my wife’s policy. I actually come out the best on health insurance coverage because I am the only one with primary and secondary coverage. The arrangement to have my wife with the family policy and me as single coverage is the cheapest solution based on our scenarios. If the kids were on a family policy through my employer, we would have a lot higher out-of-pocket expenses both through automatic deductions as well as co-pays and other associated costs.

Note, both my wife and my insurance policies require the spouse to have primary coverage through their own employer. So as long as I have a job with insurance coverage, I must take primary coverage through my work. Likewise for my wife; I can not add her to my insurance plan as so long as she has primary coverage available at her employer. We got lucky, so do not less this happen to you.