Justia Legal Guides: Insurance Law Center

As a driver, a homeowner, or a patient, a consumer may want to get various forms of insurance. Unfortunately, this industry can be as confusing as it is critical. The Insurance Law Center at Justia aims to shed some light on its rules.

Approximate Read Time: 5 Minutes

Nearly four decades ago, the second half of August saw the enactment of a groundbreaking healthcare law. The Healthcare Insurance Portability and Accountability Act (HIPAA) was signed into law on August 21, 1996 by President Bill Clinton. Texas Congressman Bill Archer introduced the original version of HIPAA as a bill in the U.S. House of Representatives, which eventually passed it by a 267-151 vote. The U.S. Senate then passed the law unanimously, sending it to Clinton’s desk.

One of the most notable protections provided by HIPAA involves consumer privacy, since it requires medical providers to keep patient records confidential. Just as importantly, it helped expand access to health insurance. The Affordable Care Act (Obamacare) has overshadowed HIPAA in recent years, due to the controversy surrounding the newer, bolder law. However, HIPAA helped lay the foundation for the Affordable Care Act. Among other things, it limited the use of exclusions for pre-existing conditions in employer-sponsored health plans. The Affordable Care Act eventually took this approach further, preventing any consideration of pre-existing conditions by both employer-sponsored and individual plans, with a few exceptions.

Health insurance laws like HIPAA and the Affordable Care Act are as complex as they are important. Ordinary consumers may not easily understand their rights and protections. Thus, the Insurance Law Center at Justia summarizes some of the key provisions in these laws, while discussing other health insurance issues. This section of the Justia Legal Guides also informs consumers about many other forms of insurance, such as auto insurance, homeowners’ insurance, and life insurance.

Auto Insurance

Most states require drivers to purchase certain types of auto insurance, and optional types of insurance also are available. The main type of mandatory insurance is liability insurance, which takes effect when the policyholder causes a crash that injures someone else or damages their property. Some states also require drivers to purchase uninsured or underinsured motorist coverage. This covers them if they are injured in an accident caused by an uninsured driver, or a driver without enough insurance to compensate the victim for their injuries. Optional types of coverage include collision coverage and comprehensive coverage. While collision coverage accounts for damage to a car regardless of fault, comprehensive coverage accounts for damage or loss not caused by an accident, such as when a car was vandalized.

Some consumers may want to consider getting gap insurance for their car. This may help people who owe more on their car loan than what their car is worth. Auto insurance for replacing a totaled vehicle generally covers only the cash value of the car, rather than the full amount owed on the loan. A driver without gap insurance thus would need to pay off any amount on the loan that exceeds the value of the car. Long-term loans and small down payments are more likely to create a gap that a consumer might choose to fill with this insurance. A consumer might get gap insurance through their main auto insurance provider, in exchange for a modest increase to their premiums, or they might get it through a separate insurer.

As they evaluate insurance policies, drivers will need to consider the premiums that they feel comfortable paying. They may be able to take certain steps to control these costs, such as getting a car with ample safety features, limiting their time spent behind the wheel, and taking care to drive cautiously to avoid accidents and traffic tickets. However, premiums also account for factors that a driver cannot control, such as weather and traffic patterns in their area.

Homeowners’ Insurance

Amid the excitement of buying a home, some consumers may not think much about the homeowners’ insurance that they will need to protect them. However, they likely will need both hazard insurance and liability insurance. Hazard insurance covers damage to the property, while liability insurance covers injuries caused on the property to people who do not live there, as well as injuries caused by the homeowner and their household members and pets. Homeowners should be aware that hazard insurance does not cover all possible types of damage to a home. While it covers issues such as fire, wind, vandalism, and theft, it generally does not account for issues like floods, earthquakes, or mudslides.

For example, if a consumer buys a home in an area where floods are common, they should consider purchasing flood insurance to cover these risks. If they live in a designated high-risk flood zone, their lender probably will require them to get this type of insurance. Flood insurance provides coverage for the contents of the home and coverage for the structure of the home. It does not cover damage to the property outside the structure of the home or living expenses while a home is repaired after a flood.

When they buy a property, a homeowner can get title insurance to cover any concerns that may arise over the ownership of the property. Title insurance companies charge a one-time fee for this coverage, rather than recurring premiums. A buyer can get title insurance at the closing, which concludes the process of purchasing a home. Their mortgage provider may require them to get lender’s title insurance to cover the interest of the lender in the property. Meanwhile, buyer’s title insurance can help recover costs such as the down payment if it turns out that the buyer does not legally own the property due to a title problem.

Life Insurance

Consumers should carefully weigh the pros and cons of life insurance before purchasing a policy. It could help cover costs related to their funeral and burial, as well as any debts and taxes owed by their estate. However, a consumer might not want to purchase life insurance if they have no dependents, or if their dependents receive income from other sources that could cover their expenses without assistance from life insurance. A life insurance agent can help consumers evaluate their options and choose a policy that meets their needs.

Life insurance may take the form of term life insurance or permanent life insurance. While term insurance lasts only for a certain length of time, permanent insurance lasts for the rest of the policyholder’s life. In other words, term insurance will pay out only if the insured dies within the period specified by the policy, whereas permanent insurance will pay out no matter when the insured dies. A consumer who wants some flexibility in how much they pay for life insurance might consider universal life insurance. This allows them to adjust the amount of their premiums and the scope of their coverage each year.

A consumer with significant assets will want to consider the tax implications of a life insurance policy. If they owe estate tax under federal law, the payout of a life insurance policy will be included in their taxable estate unless they transfer ownership of the policy to someone else, or unless their spouse is the sole beneficiary. Thus, a policyholder might try to avoid taxes on the policy proceeds by making the beneficiary the owner of the policy if its terms permit this transfer. They also might consider transferring ownership to an irrevocable life insurance trust.

Final Thoughts

Insurance policies and their terms and conditions tend to be complex, and a consumer may need to consider a wide range of factors in choosing the right policy. They might consult a financial adviser, an insurance agent, or even an attorney for advice tailored to their personal circumstances. In the meantime, the Insurance Law Center at Justia provides an overview of some key concepts and legal issues that may arise in this area. Like the other Justia Legal Guides, it aims to make the law transparent and accessible to all.

• Justia Legal Guides: Home Ownership Center
• Justia Legal Guides: Disability Law Center
• Justia Legal Guides: Administrative Law Resources

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