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Americans believe they're savvy about insurance, insurance IQ tells different story

March 10, 2009

Americans believe they're savvy about insurance, insurance IQ tells different story

For Immediate Release: March 10, 2009
Contact: Bill Walsh (651) 296-7531
Scott Holeman, NAIC Communications Director, 816-783-8909

On average, people surveyed only able to correctly answer four out of 10 basic insurance questions

[St. Paul, MN…] — In these uncertain financial times, knowledge is your best policy — especially when it comes to insurance. According to a new survey commissioned by the National Association of Insurance Commissioners (NAIC), a vast majority of Americans believe they are smart about insurance, but a deeper look at the issue tells a different story.

On average, Americans flunked the "Insurance IQ" test with only a 40 percent score — a solid "F" by most U.S. educational grading standards. This apparent lack of knowledge contrasts sharply with confidence levels expressed by survey respondents. Before taking the IIQ, nearly 60 percent said they feel "very confident" when making insurance decisions overall, with only 15 percent voicing any insecurity about their decision-making abilities.

With rising joblessness and falling home prices, Americans need to make sure they understand what their insurance policies cover. By making careful, informed decisions about their insurance, consumers can save money and ensure long-term protection for themselves and their loved ones. 

"The average consumer will spend weeks and months researching the purchase of their next $15,000 car, but only minutes making what could be a million dollar insurance decision," said Commissioner Glenn Wilson of the Minnesota Department of Commerce. "In today's economic environment, consumers need to make sure they are adequately protected, without paying more than they should for that coverage."

If you, too, believe you have a high "Insurance IQ," see if you can answer these three basic questions:

Does auto insurance automatically cover a rental car?
Can you own a house without homeowners insurance?
In general, how much life insurance is recommended in relation to your annual salary?

If you answered, no, yes and 5-7 times your annual salary, you bested the majority of 1,000 American adults who got them wrong in a 10-question quiz designed to test the nation's Insurance IQ.

Among the key findings:

Health: Less than half of those surveyed (49 percent) know that if they leave their job and choose the federal Consolidated Budget Reconciliation Act (COBRA) to continue their health benefits, they must pay the full cost of coverage. However, 58 percent are aware that health insurance will not cover their living expenses if they became disabled and cannot perform their job.

Home: Just one in five respondents (19 percent) realizes that the requirement for private mortgage insurance (PMI) on a newly purchased home depends on the size of the down payment and lender; almost 30 percent think PMI is required by law. Less than 50 percent of people surveyed realize they can legally own a home without homeowners insurance (although lenders will not allow it).

Life: Only 14 percent of respondents correctly know that the amount of life insurance typically recommended for individuals is 5-7 times your annual salary; 29 percent believe 2-4 times an annual salary is the recommended amount; and nearly 40 percent simply say they have no idea. 

Auto: Less than two-thirds of Americans (62 percent) are aware of the top three factors that impact the cost of auto insurance coverage (i.e., accident history, vehicle safety features, geography). And, only four in 10 respondents (41 percent) know that auto insurance does not automatically cover a rental car.

How to Improve Your Insurance IQ
Here are four useful tips to help Minnesota consumers better understand their insurance policies:

Get Savvy:   Before shopping for a policy, learn as much as you can about insurance. The award-winning "Insure U" consumer-education Web site ( ) is an unbiased, expert resource to help you understand the types of insurance available, the factors that affect price and the insurance options for your personal situation.

Shop Around: Do Your Homework: learning the insurance basics, get premium quotes from several companies for the amount of coverage you require. The Insurance IQ survey found that although many Americans rely on personal experience and recommendations from family and friends when making insurance decisions, nearly 90 percent do not gather information from other, more reliable sources of information — such as their state insurance department. The Minnesota Department of Commerce offers several online tools to assist consumers with the insurance-buying process at . In addition, the NAIC's Consumer Information Source ( ) provides fundamental facts about insurance companies, including complaint ratios, licensing details and key financial data.

Before Committing: Stop. Call. Confirm - If you are unsure about an insurer or agent you are working with 1) Stop before signing any paperwork or writing a check; 2) Call the Minnesota Department of Commerce at 1-800-657-3602 and 3) Confirm the company or agent is legitimate and licensed to do business in your state. Visit .

Review Your Policy:   Do not wait until you need to file a claim before evaluating the scope of your coverage. The Insurance IQ study found that 60 percent of respondents do not periodically review their policy — that is, they wait until they are filing a claim or renewing their coverage. Twenty-five percent admit rarely or never looking at their policies. By understanding your policies, you can be prepared for any situation and, potentially, save money by avoiding unnecessary costs.

Also, any time your life situation changes, be sure to review your insurance coverage and make any necessary adjustments. Throughout the year, you may encounter changes in employment, salary, geographic location and/or family dynamics. These factors affect your insurance options and the amount of coverage you need.

Want to see how your insurance knowledge stacks up against the rest of America?  Go to and take the Insurance IQ quiz to see how savvy you are.


About the Survey
The NAIC, of which the Minnesota Department of Commerce is a member, conducted the Insurance IQ study Dec. 4-14, 2008, to highlight consumer concerns and questions; uncover misinformation and insurance myths; and underscore the financial and emotional impact of poor decisions. The insurance intelligence quotient was based on a 10-question quiz on different types of insurance. Participants were given a grade based on the number of questions answered correctly. The participant sample included a nationally representative sample of 1,000 American adults ages 18 and older with a margin of error +/- 3.1 percent in 95 out of 100 cases.

The Minnesota Department of Commerce is the state agency charged with licensing and regulating the insurance, banking, securities, mortgage and real estate industries in Minnesota.

About the NAIC
Formed in 1871, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC has three offices: Executive Office, Washington, D.C.; Central Office, Kansas City, Mo.; and Securities Valuation Office, New York City. The NAIC serves the needs of consumers and the industry, with an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace. For more information, visit .