Are you Up on Your Insurance ABC's?

As consumers look for ways to save money in a tough economy, understanding the business of insurance is important so you can navigate the waters and save money on different types of coverages.

The best way to go about saving money on insurance is to fully understand what you are buying and why you need it.

Unfortunately, a recent survey from the National Association of Insurance Commissioners (NAIC) shows otherwise.

The survey states that less than half (45 percent) of Americans surveyed exhibit confidence when it comes to making insurance decisions.

Even more frightening is that more than 60 percent were not able to correctly answer basic questions regarding insurance coverage.

Among the questions consumers had problems with was:

• Does auto insurance cover personal property stolen from your car?
• At what age do the majority of individuals become eligible for Medicare?
• Can credit scores impact your auto insurance premium?

The answers - no, 65 years of age and yes - escaped many of the 1,000 American adults who took part in the survey.

The survey was made up of two sections - one section looking at broader consumer perceptions regarding insurance and a second 10-question IQ component that looked at specific knowledge.

The majority of respondents were only able to answer four out of 10 questions correctly with the IQ component, which made for an average score of only 40 percent.

Industry experts were also concerned that 86 percent of respondents indicated they do not understand all of the terminology being presently used in the health care reform debate.

The survey also provided these findings:

• More than half (55 percent) of all Americans don't know what a pre-existing condition is. A pre-existing condition is any health problem that existed prior to someone applying for a health insurance policy or enrolled in a new health plan;
• Forty percent do not know the age (65 years of age) at which the majority of individuals become eligible for Medicare.
• More than half of Americans (53 percent) believe they can only make changes to their group health insurance coverage during the open enrollment period provided by their employer, and 16 percent report they have no idea when changes can be made. In actuality, some exceptions apply for new employees or employees with life-changing events like pregnancies or marriage.

The NAIC survey also reports that a number of the basics of auto insurance are not well understood, even though it is one of most commonly purchased forms of coverage by people of all ages and demographics.

The survey reported that:

• More than six in 10 Americans (63 percent) do not comprehend that if property is stolen from their car, it is covered by their homeowners/renters policy—and not auto insurance;
• More than half (54 percent) do not understand that, depending on the state in which you live, your credit history may be one of the items considered by insurers when determining your premium. Other factors that can impact your auto insurance coverage include: driving record, kind of vehicle and the deductibles you select.
• Eighty-six percent of Americans do not understand that when their liability coverage is 100/300/100, the last number represents the maximum figure that their insurer will pay in property damage for an accident.

So how can you improve your insurance IQ and help yourself make better decisions related to your premiums and selections?

A good start is by testing yourself on your insurance know-how. Become better acquainted with the types of coverages available, the factors that impact pricing and the options that are best for your individual situation.

Another idea is to shop around for multiple quotes so that you have a number of options with which to choose from.

You can obtain insurance information from sources like your state insurance department, which offer a number of online tools to help you in the insurance-buying process.

The most important thing for consumers is not to be put in the position of having to evaluate their coverage when they file a claim.

Be knowledgeable of your insurance needs and insure yourself that you are properly covered should you need your insurance.