Posts Tagged ‘Financial Literacy’

Failing Grades in Insurance

Tuesday, April 13th, 2010
Taking the Test

Taking the Test

The Kansas City office of the National Association of Insurance Commissioners conducted an “Insurance IQ” test on 1,000 Americans with discouraging results: only 45% of those tested feel capable of making good insurance choices. Are you feeling more confident than the average American? The following three questions were answered incorrectly by 60% of the people tested in this study:

1. Does automobile insurance cover personal belongings stolen from your vehicle? The answer is no.

2. Can your credit score affect your car insurance premium? The correct answer is yes.

3. At what age do most Americans become eligible for Medicare? The correct answer is 65 years old.

The “Insurance IQ” test consisted of ten questions and was conducted last month. Respondents, on average, correctly answered only four out of ten questions.

Another troubling finding was that 86% of Americans do not completely understand insurance terms frequently used in recent discussions on health care reform. For example, 55% of participants in the study did not understand the term “pre-existing condition”. It refers to a medical condition that existed prior to applying for an insurance policy or becoming a member of a new health plan. The consequences of this lack of understanding of basic terminology not only limit the ability of Americans to fully participate in the public debate over insurance reform and to make informed coverage decisions as consumers, but also expose them to scams. The Kansas State Insurance Department recently issued an alert to consumers about con artists targeting elderly Kansans to whom they attempted to sell phony “ObamaCare” health insurance policies for the federal government.

Now imagine if a comparable test were performed to assess our level of knowledge about commercial insurance coverage. If the results of the consumer test were this dismal, the small business owners, which deal with more complex issues of commercial coverage, would likely do much worse. Clearly we have to do more to improve our national level of financial literacy, particularly with regard to insurance.