Spring 2024 in Bloom: Insurance Guide
By Michael Giusti
As the days get longer with Spring approaching, the season of new beginnings offers a great opportunity to take stock of the key insurance issues impacting our daily lives. t
From students getting ready to graduate, to renovations inspired by the thawing weather, to bracing for stormy weather, Spring is prime time for an insurance check-in.
Insuring Graduates
Springtime means high school juniors across the country will be visiting colleges and seniors of all stripes will be getting ready to move to their next phase in life. And it’s key to make sure the latest graduating class is properly insured.
When it comes to health insurance, don’t assume the old coverage is still going to work. While in many cases, graduates can simply stay on their parents’ plan (thanks to the Affordable Care Act, people under the age of 26 are allowed to stay on that old plan), that doesn’t mean they should be complacent.
For one, graduating often means moving. If that move stays within the policy’s coverage area, then there is no problem, and the parents’ existing policy is likely the best, most affordable option. But often, health policies are geographically limited, especially once the move is to a new state.
If the move takes the graduate to a new state or region, then the student would still be covered by their parents’ plan for emergency care, but any other care would be considered out of network, if it is covered at all.
If the senior is going on to college, then that school likely has at least one option for coverage. Most require that the student is covered by a sufficient plan as a condition of enrolling, and so the school auto enrolls the student into a plan. If the student can show proof of adequate coverage, then that premium is waived from the bill. But if families aren’t paying attention, they may end up with a redundant plan added to their tuition bill.
If students are moving outside of the parents’ coverage area, then the graduate should compare the price of the school’s automatic plan with the potential option of paying the parents’ insurer to extend its coverage area.
If extending the coverage area isn’t affordable or possible, considering an Affordable Care Act policy in the student’s name may be a good option. ACA policy subsidies count the cost of all the insurance policies the family has, so if the parents and student both have a policy, then the cost of both policies will be considered for the purposes of the tax credit.
If the plan provided by the school is still the best option, then opting for that is an easy choice.
Students moving out of their parents’ house should also take a close look at a renter’s insurance policy. If the student is living in a dorm on campus, then the parents’ homeowner’s policy likely offers some limited coverage. However, parents’ homeowner’s policies never cover a student living in an apartment. That requires a separate renter’s policy.
Both homeowner’s and renter’s policies cover damage or theft of the student’s belongings. The liability portion also steps in if the student damages the campus property, or if the student is sued for defamation for flaming someone on social media.
Even if they are living in the dorm, a separate renter’s policy might be the best option if the student has pricier belongings, because the homeowner’s coverage is typically limited for belongings outside the home – often just 10% of the property coverage. Parents might also be leery about paying a deductible or filing a claim against their homeowner’s policy, which might lead to higher rates and even being dropped by their insurer.
Neither homeowner’s nor renter’s insurance covers flood damage, so a separate flood policy might make sense if the student is moving in to a first floor or basement apartment.
It isn’t common to think of life insurance for younger people, but in some niche cases, life insurance makes sense for students. One would be if the student has a child of their own. Another would be if the parents are taking on sizable private student loans in their child’s name, or if they are charging the tuition to their home equity line of credit and expecting to be paid back later.
In the case of federal student loans, the loan is forgiven if the student dies. This applies both to loans students take out themselves and to Parent Plus loans. But for those other scenarios, if the parents would be left holding a sizable bill for tuition if their child dies, an inexpensive term life insurance policy would be an easy way to clear that debt.
The auto policy is another area that needs to be considered when students graduate. Auto policies need to take into account the residents’ ZIP codes when setting rates. Depending on where the student is moving, their premium may either go up or down.
If the student goes off to school but the car stays at home, there could be a discount because the vehicle is likely just sitting in the driveway.
Auto insurance policies also often give good student discounts for good grades, so keeping their grades up can come with a financial reward.
And as tempting as it may be to shop a new policy when the child goes off to school, it is almost always best to keep student on the parents’ policy. But once they graduate, if their move is permanent, they will have to get their own policy when they set up their new home.
Spring Home Improvements
Many people also consider spring to be the season to spruce up their homes. Small jobs probably fit neatly inside the existing homeowner’s insurance plan, but there are some cases that need specific consideration.
If the renovations are particularly large and cause the family to relocate while they are under way, then they need to reach out to their insurance agent to ensure that the vacant house is still covered. Policies often have a clause requiring fulltime residency.
If the renovations involve energy efficient upgrades, they can qualify for some nice tax credits, and in a few cases, could even qualify for some insurance breaks. That is especially true if the homeowner puts on a new roof or storm-resistant windows. Asking for armored roofing, which includes hurricane straps, can deepen those discounts.
If the upgrades are permanently affixed to the home, such as solar panels on the roof, or a backup battery in the garage, then they will automatically be covered by the homeowner’s policy — unless the policy specifically excludes them, which some do.
If the improvements are not permanently attached to the home, they are worth paying attention to. If they are attached to a separate structure, such as a detached garage or another outbuilding, then they will still get coverage, but they will be at the lower rate that applies to that detached structure – typically 10% of the main structure’s coverage.
If the renovations are substantial, then it makes sense to talk to the agent to make sure they didn’t raise the home value to the point that the existing policy needs to be increased.
If the additions are stand-alone or separate from the home, a conversation with the agent is essential because they may not be automatically covered and may require a floater or other additional coverage.
Many policies now offer a “green upgrade” rider. These say that if the home is damaged or destroyed, then the insurance will pay an increased amount to make sure that the repairs are done in an environmentally sustainable way – like ensuring materials are recycled – and that the new materials and methods are done to environmentally friendly standards.
If the upgrades include plumbing, it might be worthwhile to have the plumber add an automatic cutoff switch to the main plumbing line. These monitor water usage to identify leaks or burst pipes and automatically shut off the water supply to prevent further damage.
Many insurers are offering premium discounts if these cutoff valves are installed.
And if the renovations include an all-in green upgrade, the homeowner might consider applying for a LEED certification. Leadership in Energy and Environmental Design is a program that sets standards for buildings. LEED certified buildings use less energy and water, saving the homeowner a bundle. And a few insurers offer premium discounts if the home is LEED certified. But unless the home is new construction, renovating an existing home to LEED standards may be prohibitively expensive.
Homeowner’s Crisis
Looking just at national numbers, it might seem odd to say homeowner’s insurance is facing a crisis — premiums are up 11% nationally compared with a year ago. That’s a big jump, but hardly a crisis.
A more granular look reveals that many markets are teetering on the edge, if not past their tipping points.
In California, the story comes down to water and fire. Atmospheric rivers have been deluging many communities, causing floods and mud slides. While other communities have been under siege from wildfires.
Because of this, many major insurers are refusing to write new homeowner’s policies in California, while others are setting caps on how many they will write in each community.
The story in Florida and Louisiana is largely one of hurricane risk. Both states have been reeling from several costly hurricanes, which have chased many major carriers out of the state and driven many smaller ones into bankruptcy, leaving the states on the hook for many of those claims. Both states are experimenting with different market reforms to make their states more appealing to insurers, but even still, the insurance rolls for the state insurers of last resort are still swelling.
In Colorado, insurers are facing a challenging market thanks to wildfires and hail.
Wildfire risk is also driving huge increases in Arizona and Idaho. Many Texas insurers are announcing double-digit rate hikes. Costal Mississippi homeowners are facing rate increases and nonrenewed policies.
And insurers in North Carolina tried to hike rates 42% before the state insurance commissioner nixed their request.
Auto Insurance
Auto insurance sprang into the headlines this winter as premiums jumped 21% compared to previous years.
In some ways, those increases were a long-time coming and were driven in the most part by pandemic and post-pandemic realities.
The much-reported supply chain problems, especially with the microchips being used in nearly every component of a new vehicle, caused a huge shortage in the number of new vehicles for sale. With fewer new vehicles available, used car inventories plunged.
Fewer vehicles meant higher prices. Higher prices meant insurers were on the hook for a bigger bill if a car got totaled and needed to be replaced.
Supply chain hiccups also made replacements parts harder to come by, raising their prices, and subsequently, post-accident repairs more costly. Tight labor markets meant mechanics were more expensive.
Add to all of that the factor of medical costs, which have been going higher, meaning that post-accident injuries were also costlier.
All of that was happening while drivers hit the road more once the lockdowns were lifted – leading to more accidents overall.
But most of those drivers have now been priced in, and many of those factors have leveled off. Used vehicle prices fell 3% year over year, and new vehicle prices were up less than 1% year over year.
And looking at the cost side of the equation, the producer price index for auto insurers was up only 6% year over year — much lower than the premium increases.
With luck, that might hint that this year’s huge premium increases may have brought the premium equation closer to balance, meaning future hikes might not be as dramatic, if they are needed at all in the short run.
Based on that backdrop, according to TransUnion’s Q1 2024 Insurance Personal Lines Trends and Perspectives Report, consumers are expected to step up their shopping for new policies in the coming year, potentially putting some downward pressure on premiums.
Spring Travel Insurance
Spring break conjures images of sunny beaches and long-off destinations. If springtime beckons travelers, then travel insurance may be an appropriate thing to consider.
Travel insurance is meant to protect against the non-refundable deposits that travelers need to put in up front in advance of a trip.
Most airline fares are typically refundable, or can at least be credited toward future tickets. And many hotels are refundable up until a few days before the stay. So, for some trips, travel insurance is less important.
But if the destination calls for an Airbnb, many reservations ask for the whole amount up front. And some all-inclusive resorts or cruises also might have limited refund policies.
Travel insurance protects against unexpected cancelations caused by weather, illness, or something else outside the traveler’s control.
Some policies are called Cancel For Any Reason policies, which allow the traveler to call off the trip for any reason, within some time limits. The cancel for any reason policies are pricier, though, and often only cover a portion of the trip as a way of getting the traveler some skin in the game.
Beyond covering a canceled trip, though, travel insurance does have some added benefits. One major benefit is the health coverage, which steps in to offer coverage if the trip takes the traveler outside their health insurance’s coverage area. This would take the edge off of out-of-network costs, and make sure routine care is still available. This is especially handy if the trip takes the traveler overseas.
In a worst-case scenario, travel insurance also steps in to cover emergency evacuations, like if a traveler has to be airlifted from a cruise ship to a hospital on shore.
Election Implications
With 2024 being an election year, it does raise the question of what insurance issues are at stake.
Although Donald Trump made some headlines by saying he would like to repeal the Affordable Care Act, legislative leaders shrugged it off, implying the popular health insurance program should remain safe.
But that doesn’t mean there are no serious insurance implications. For one, many of the officials who are elected in this cycle are going to have to face down Medicare’s looming insolvency.
Despite the fact that it is still a few years off, nobody denies that Medicare is running out of money. There are a number of suggestions for how to shore it up, from raising the eligibility age to raising payroll taxes, and even changing how the program operates.
Particularly divisive is a class of policies known as Medicare Advantage. These policies partner with commercial insurers to deliver health care to Medicare-aged people, and they have grown increasingly popular. More than half of Medicare recipients have now opted for a Medicare Advantage plan.
Critics say Medicare Advantage plans serve as an unnecessary – and expensive – middleman, racking up billions of dollars in administrative fees. In the worst case, some critics say they game the Medicare system.
But Medicare Advantage supporters say these plans inject a much-needed bit of market economics and free-market influence into the federally run Medicare program.
Whomever gets elected will likely have to take a clear stance on what the future of Medicare, and likely Medicare Advantage plans will be.
Future Implications
Making sweeping predictions about the future of the insurance industry is impossible, but one factor that seems to be looming large over everything is global climate change, and lately, global conflicts.
Both climate change and global conflicts have cost the insurance industry billions in claims. Backstopping the insurance industry are the massive companies known as reinsurers. Reinsurers protect insurance companies from catastrophic losses, and their rates undergird the premiums for almost every consumer policy.
In 2024, many reinsurance premiums charged to insurers trended way up, with increases of up to 50% for insurers in many U.S. markets.
That said, less risky communities didn’t necessarily see those dramatic increases, meaning that the effect is going to be hard to nail down.
For the time being, it looks like a little uncertainty is going to be the order of the day this spring. Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com
