A Risky Choice

Canceling insurance may cost consumers more in long run

By Jim Sullivan | The Tribune

Published Sunday, July 5, 2009

IRONTON — Matt Thompson had a gut feeling. It was the sensation a person gets when their head and heart are separately torn. It was like he knew.

Thompson had been furloughed from his job as a laborer and money was not going to be coming in regularly. So on a chilly Friday night in March, he sat down at his dining room table, pulled out a pen and calculator and for the first time in his life put together a monthly budget.

“I drew the line right there and told myself I wasn’t going to spend a single nickel more than I had coming in,” said Thompson, who is single. “I really didn’t have much saved up, so I needed to budget smart and trim where I could.”

Some cuts were easy.

The Ironton resident got rid of the expanded cable package he subscribed to. He changed rate plans with his cellular phone carrier, set a monthly food budget and limited his entertainment and miscellaneous spending.

But he was a little short. He did the math again and was still short the second time around.

It was on the third round of calculations that Thompson got an idea. One of the bills that he had coming due was for a term life insurance policy that was up for its annual renewal. Another was the bi-annual payment for insurance on his 2003 Triton 186 boat.

“I looked at it this way, since I was cutting out a lot of my personal spending, I felt deferring the boat and life insurance bills could bring me to the number I needed. I was only going to do it for six months,” Thompson said.

He knew it was risky, but felt the risk was worth it.

“I thought the chance of me dying in the next six months and anything happening to my boat during that stretch was unlikely,” Thompson said. “I know there’s Murphy’s Law, but I felt somewhat safe in my decision.”

It was a safe decision until a stormy night last month when Murphy made a visit to Lawrence County along with a strong spring thunderstorm.

It was about 5 a.m. when Thompson was awoken by the sounds of thunderclaps and then a muffled thud. Stepping out into his yard, the feeling in his gut three months ago, made a return. His boat had a major portion of a 50-year-old tree on it.

The impact was so heavy that it partially bent the trailer the boat was sitting on.

“I knew it. I just knew it,” Thompson said. “I stood there for at least three minutes just saying that over and over.”

Now he sits without a life insurance policy along with a damaged and still uninsured boat. But Thompson is not alone.

Recent statistics show that with money becoming tighter, many individuals across Lawrence County are making that risky choice — deleting or reducing their current insurance coverage.

For people like Thompson, it has lead to costing them more than they originally planned on saving.

A tough decision

Ask any Lawrence County resident and more than likely they are going admit to being a little more frugal in 2009 than they were in 2008.

Besides being stylish, saving money and clipping coupons have become a “must” for many area families trying to ride out the current economic storm.

But while reducing insurance coverage to save money does come with instant cost savings, it also comes with inherent risks. It leaves homes, cars, boats and even individuals underinsured and opens the door to major financial hardship should disaster strike.

In the case of life insurance, it also makes immediate family members vulnerable.

Mike Hurley of the Joe Hurley Insurance Agency of Ironton said his clients are inquiring about ways to save money on their current policies — mostly cars.

“The biggest things we are seeing are people looking to delete or reduce the physical damage portions of policies for cars that are paid for,” Hurley said.

Ohio law requires all drivers to carry liability automobile insurance. If a driver is in accident, liability insurance covers any damages (medical and repairs) the policy holder may have incurred by hitting another person’s vehicle. It also is needed as it protects the insured from being sued.

However, what liability insurance does not pay for is the damage to their own vehicle should they be in an accident and it is their fault. Hurley said many are now determining the value of their cars and the trade-off of having the physical damage coverage on or off their policy.

According to the Insurance Resource Council, an insurance-supported research organization, 28 percent of the policy holders they recently surveyed have shopped for lower insurance rates based on the current state of the economy while 15 percent increased their insurance deductible or reduced coverage.

Nine percent said they cancelled or did not renew insurance on a vehicle they owned.

Five percent of homeowners surveyed said they had canceled or not renewed their homeowners insurance, as did 14 percent of renters.

While many insurance policies can be altered or changed, many are required by law. Besides liability insurance for cars, homeowners are required to carry insurance if under a mortgage.

But according to Hurley, new business on discretionary coverage is where he has seen the economy affect policy holders.

“People are price conscience. Actually, rates have been pretty steady in this economy,” Hurley said.

Hurley added that while it is smart to be conscience about prices, those looking to reduce or delete coverage should consider both the benefits and difficulty doing so could bring.

“Anyone who reduces or deletes their coverage is assuming more risk. In other words, they are self insuring themselves.”

And for Thompson, lessons were learned from self insurance.

“There are times you have to make tough decisions. I got a little unlucky, but once I get back on my feel, getting my policies reactivated will be one of the first things I do,” Thompson. “As for now, the fish get a pass for 2009.”

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