Beware these 5 insurance traps

You might think your pets, your kids' toys and your personal problems are your own darn business. But insurers watch these things -- and they could cost you.

By Liz Pulliam Weston

If you smoke like a chimney, you're going to pay more for life insurance. If you wreck your car, your auto premiums are going to soar. If you live on the edge of a wildfire-prone forest, you'll pay a lot more for homeowners insurance than someone in the suburbs.

All these situations make sense to us consumers. Greater risks, bigger premiums.

But insurers also care about other, seemingly obscure stuff: How you give birth, what you have in your backyard, what breed of dog you own, whether you max out your credit cards and how well your brain works.

If you don't know about these concerns, you may find yourself getting turned down for coverage or paying a lot more than you expect. A little knowledge can help you prepare and find a policy you can afford.

Here's what you need to know about:

Caesarian sections

If you're not covered by an employer plan and you're trying to buy an individual health insurance policy, you'll typically pay more for maternity benefits, which help cover the costs of carrying and bearing a child.

But maternity coverage may be more expensive, or not available at all, if you've had a child by Caesarian section.

C-sections typically cost insurers nearly $3,000 more than vaginal deliveries, and a woman who's had a Caesarian delivery in the past is more likely to have one in the future. Some insurers refuse to provide maternity benefits to such women, while others charge them more for coverage.

How much of an issue this is depends on where you live and on your individual circumstances.

For example, a woman in her early 40s may be deemed at low risk of having another child and offered a policy with a premium that's 25% to 50% higher than what she would have paid without having had a previous C-section, says Amir Mostafaie, a training manager for eHealthInsurance.com who is a licensed agent in all 50 states.

"If she's in her 20s or 30s, there's generally a higher chance she'll get pregnant again," Mostafaie says. "She may be issued a policy with exclusions" so that maternity coverage isn't included.

Where you live can also have a profound effect on your options.

In "guaranteed issue" states -- New York, New Jersey and Washington -- insurers aren't allowed to cherry-pick their risks or charge more for things like previous C-sections, Mostafaie says. In other states, insurers have few restrictions on what they can do.

"If you're turned down, you might not have other options," Mostafaie says.

If you're in the market for individual health coverage and this issue affects you, consider working with an experienced insurance broker familiar with various insurers' policies. You don't want to risk being turned down for coverage, as that can be a red flag for other insurers, so it's best to find out in advance which companies may penalize you.

Trampolines

Kids love them, but many insurers don't. Some will charge a higher rate to cover the increased liability for injuries, while others won't cover you at all.

"Even with the proper safety measures in place, trampolines are considered a big risk and account for more injuries requiring emergency-room treatment than backyard swimming pools do," says Loretta Worters, spokeswoman for the Insurance Information Institute, a trade group. "On average, trampoline accidents run about $300 million annually in medical, legal and insurance expenses."

• Video: Your biggest investment -- your credit scores

One of my readers bought a trampoline, complete with surround frame and safety netting, as a birthday present for one of her children. She didn't think to mention it to her insurer. When she switched insurance companies a few months later, the new insurer sent out an agent to take pictures of the property.

"Someone from the company saw the trampoline in one of the pictures from the agent," she wrote. To keep the coverage, "we had to take down the trampoline and write that we would not put it up on the property as long as they insured it."

Some insurers will cover a trampoline as long as it's inside a locked fence, to prevent unsupervised children from playing. Others will issue a policy that excludes coverage for injuries from the trampoline.

"Trampolines are what's considered an attractive nuisance, something that invites trespassers," Worters says. "No matter what precautions are taken, there is the possibility that a court case will find the owner of the trampoline guilty of negligence, even if the homeowner posts signs or takes preventative measures."

If you're considering buying a trampoline, ask your insurer about its coverage policies first. But also consider the recommendation of the American Academy of Pediatricians, which has long advised against trampolines.

"Despite all currently available measures to prevent injury, the potential for serious injury while using a trampoline remains," the academy says. "The need for supervision and trained personnel at all times makes home use extremely unwise."

'Bad' dogs

As I wrote in "Your dog's bite could bankrupt you," insurers are increasingly concerned about the rising costs of dog-bite claims. (Dog bites now make up one-third of all homeowner liability claims, and the average cost was $24,511 in 2007, up 28% in five years.) Some insurers have blacklisted certain breeds, such as pit bulls. Others will cover any dog until it bites, and then you could lose your coverage, pay more for it or be forced to sign a waiver that excludes any further damage done by the animal.

Insurers don't necessarily make these policies clear upfront. If you're shopping for homeowners coverage, make it clear you own a dog and what breed it is so you don't wind up getting canceled later. Before adding any dog to your household, call your insurer. Consider getting a different breed, or a different insurer, if the two are incompatible.

Bad credit

In most states, insurers that provide homeowners and auto policies are allowed to consider your credit history when deciding whether to issue or renew a policy, as well as how much to charge. (California and Massachusetts, which both ban the use of so-called insurance scoring, are among the exceptions.)

Why should credit matter to insurers? Several studies, including an influential one by the Texas Department of Insurance, show a strong link between consumers' credit scores and their propensity to file insurance claims. The worse their scores, in other words, the more likely they are to cost their insurers money.

Unfortunately, credit scores don't differentiate between folks who refuse to pay their bills and those who simply can't because of job loss, medical problems or a subprime mortgage they can't handle. (See "Does bad credit make you a bad person?")

That's why some consumer advocates have pushed insurance regulators to suspend or restrict insurers' ability to use credit information, especially as the economy deteriorates. So far, the advocates haven't had much success.

If you've had credit problems, you should shop around for insurance, as not all insurers use credit information. You also should do what you can to improve your credit, such as paying bills on time and not using more than 30% of your available credit limits. Read "7 fast fixes for your credit score" for details.

Mental-health problems

If you've ever taken antidepressants, seen a therapist or been treated for an addiction, you may pay more for life insurance. If your problems are serious or ongoing, you may have to search hard to find a policy at all. (See "Prozac: Hazard to your health insurance.")

Bipolar disorder, ongoing treatment for substance abuse or a history of suicide attempts can make you tough to insure, says Byron Udell, president and CEO of Accuquote, an online insurance broker.

Other problems may be less of an obstacle, particularly as time passes. If you were treated 10 or 20 years ago for substance abuse and have remained clean, for example, you may not get an insurer's best rates, but you won't be turned down just because of your history.

And some "situational" problems may not cause your rates to rise at all, Udell says. If you were treated for depression after divorce or the death of a spouse, for instance, and are fully recovered, "most companies would view this as a nonissue."

• Video: Your biggest investment -- your credit scores

You might be tempted to conceal your troubles and hope your insurer doesn't find out. That's playing with fire. If your insurer discovers your history by, say, talking to your doctors or reviewing your prescription history, it could decide you committed fraud and either cancel your policy (if you're still alive) or refuse to pay out its proceeds (if it conducts the investigation after your death).

"Anything you lie about, if it's material enough to affect their underwriting, that's grounds for fraud," Udell says. "If you lie, you may think you have coverage, but maybe you don't have it. It's better to tell the truth."

Here's another area where having an experienced insurance agent can be an enormous help. The agent should know which insurers are most receptive to applicants with mental-health issues and will be able to advocate for you.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Oct. 13, 2008

50 Smart Ways to Trim your budget

50 ways to trim your budget

You don't have to give up the things you love to save money. You just have to be willing to look hard. Start with your fixed expenses, then review your discretionary costs.

By Liz Pulliam Weston

Lou knows his family is in a vicious cycle with credit cards. He's just not sure how to get out.

Bills and credit card payments eat up most of the Mansfield, Ohio, family's income, leaving them little left over to pay for groceries and other basics. So they wind up charging more.

"My family has about $12,000 in debt to credit card companies," Lou wrote in an e-mail. "We want to stop using these cards and get this fixed. But we are 'bridging the gap' with credit."

Like many families, Lou's clan already has trimmed some of the obvious expenses, such as eating in restaurants. But really getting your budget in line may require rethinking just about everything on which you spend money.

Look at the biggies first

The biggest savings often lie in the areas where you spend the most money: housing, transportation, food, insurance, health care and clothing. Here are some ideas for places to look for savings.

Average household spending
Average income (before taxes)	$82,195	% of expenditures
Average annual expenditures	$62,503	N/A
Housing	$20,283	32%
Transportation	$11,338	18%
Food	$7,920	13%
Personal insurance and pensions	$7,383	12%
Other	$6,250	10%
Health care	$3,713	6%
Entertainment	$3,124	5%
Apparel and services	$2,381	4%

Source: U.S. Department of Labor, Bureau of Labor Statistics' Consumer Expenditure Survey 2006

Housing and utilities

If you're struggling with an unaffordable mortgage or rent payment, moving to a cheaper place or getting a roommate may be options. Otherwise, some ways to lower your housing costs include:

• Refinance your mortgage to get a lower rate or switch from a 15-year mortgage to a 30-year loan.
• Raise your deductibles on your homeowners or renters insurance.
• Challenge your property-tax assessment.

• Eliminate premium channels from your cable or satellite TV service.
• Drop the pay TV services altogether.
• Reduce phone extras such as call forwarding or call waiting.
• Cancel your land line in favor of cell service (or vice versa).
• Seek a cheaper long-distance carrier (try SaveonPhone.com or LowerMyBills.com ) or switch to Internet calling if you have high-speed service.
• Investigate whether bundled service (phone, high-speed Internet and cable television) might save you money.
• Wash only full loads of dishes or clothes.
• Use a clothesline and use your dryer just to soften air-dried clothes.
• Use shades, blinds and drapes to regulate your home temperature: Keep them open in the winter to let in light and drawn in the summer to block the sun's rays.
• Install a programmable thermostat so your home is heated or cooled only when you're actually there.
• Don a sweater in winter and shorts in the summer so you're not overheating or cooling your house.
• Switch to compact-fluorescent bulbs, and turn them off when not needed. Turn off TVs, computers and other electronics when not in use.

Rob Seiss of Pearl River, N.Y., said he's constantly nagging his family to turn off the lights and TV. He also turns down the thermostat at night and when his family is on vacation.

"Now, I don't just sound like my father," Seiss said. "I am my father."

Transportation

Buying used cars and driving them for years is a great way to reduce your lifetime transportation expenditures. But there are other, more immediate ways to save, as well:

• Raise the deductibles on your auto-insurance policy.
• Get all the discounts you deserve, such as good-driver, good-student and multiple-car discounts.
• If you're driving less, tell your insurer; you may get a cheaper rate.
• Cancel collision and comprehensive insurance on cars older than five to seven years.
• Investigate carpools and public transportation. Cities often have online trip planners to help you figure out the system. See if your employer offers any subsidies. Look into car sharing.
• Bike or walk as often as possible.
• Avoid repair bills by maintaining your vehicles properly with regular oil and filter changes.
• Group your errands and, if you have more than one car, use the vehicle with better gas mileage.

"Just because you have a gas-guzzling SUV," said Kevin Schilling of Kansas City, Mo., "does not mean that you have to drive it to the store to pick up a gallon of milk." 

Food

Dining out consumes about half the average family's food expenditures, so eating in more often is one of the fastest ways to trim your budget. (But first, read "Big night out, small price tag.") Other ways to control costs include:

• Bring lunches and snacks to work.
• Cook once, eat twice: Double whatever you're making and freeze the excess for a later meal.
• Make at least one or two meatless meals each week.
• Avoid overpackaged, overprocessed and highly advertised foods. The closer a food is to its natural state, the less it tends to cost.
• Buy fruits and vegetables in season. Also check out your local farmer's market.
• Cruise through your fridge daily to use items before they go bad.
• Give up a vice (smoking, drinking, soda, salty snack foods).
• Use the weekly grocery store circulars to see what's on sale and plan meals accordingly.

John and Carla Robertson of Denton, Texas, have turned meal planning into a family affair, soliciting input from their three young kids.

"Every weekend we sit down and make out the next week's menu," John Robertson wrote. "We refer to old menus for meals that we enjoyed, and we put together a lunch and dinner menu for the entire week. We also plan on cooking extra at some meals so that the leftovers can be used for lunches a day or two later."

Marcia Spires of New York City has another tip: Avoid recipes that require you to buy exotic ingredients you're unlikely to use again. "I'm a lazy cook on a budget," Spires declared. "I look at the elaborate recipes in magazines and count the ingredients (are they capital intensive?) and the number of verbs in the instructions (are they labor intensive?). Too high a score and I skip to the next page."

Personal insurance and retirement

You might be tempted to cut back on your 401(k) contributions to pay off debt, but that's not a good idea, if you can avoid it. Most companies with 401(k)s offer matching funds, so failing to contribute means you lose that free money. You also don't want to drop disability insurance, which protects you should illness or accident prevent you from working. Here are better areas to look for savings:

• Consider "refinancing" your term life insurance; rates have dropped in the past decade, so you might be able to qualify for a lower premium.
• If you have a long-term disability policy, investigate the savings if you opt for a longer waiting period to reduce premiums (if you have an emergency fund or other income to bridge the gap).
• Suspend contributions to annuities and other accounts that don't offer matching funds or tax breaks.
• Make sure you got proper tax credit for last year's retirement contributions if your adjusted gross income was less than $25,000 (for singles) or $50,000 (for couples). The retirement tax credit of up to $1,000 for lower earners is one of the most overlooked tax breaks, said MSN tax columnist Jeff Schnepper in "10 big deductions too many people miss." If you deserved this break but didn't take it, it's worth amending your return. 

Health care

Medical costs are rising at a rate much higher than general inflation, while employers are asking their workers to shoulder a bigger share of the expense. You can fight back if you:

• Buy generic drugs.
• Look for free and low-cost clinics.
• Use urgent-care clinics rather than emergency rooms whenever possible.
• Ask for discounts when you pay cash.
• Carefully review hospital bills for errors.
• Monitor insurance claims to make sure they get paid. 

Clothing and services

Professional organizers say most people wear just a fraction of the clothes they own. If that describes you, consider selling stuff you don't wear and being more careful when you shop. You can also trim what you spend on personal care and other services. For example:

• Find out what looks good on you and stick to classic styles that won't look weird next season.
• Inventory your wardrobe and buy pieces that work with what you already own.
• Avoid dry-clean-only clothing.
• Make hair appointments at beauty schools rather than full-priced salons.
• Drop your health club and form a walking or jogging group with friends.
• Hold a clothing swap with friends.
• Ask friends and relatives for hand-me-downs.
• Give kids a clothing allowance or offer "matching funds" for what they want to buy.
• Check out consignment and thrift stores for lightly used items.

"I always go once a month to a thrift store not far from my neighborhood," said Rebecca Kelly of Holiday, Fla.

"On Wednesdays, they have 50% off all the clothing. It takes a good two hours of time, but I've averaged (spending) about $30 per child, per season. If I were to buy the same clothes at a department store, I would be WAY out of my budget."

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.