Do You Need Insurance Overseas?
“When I first retired,” writes Retirement Planning Correspondent Paul Terhorst, “I used to go to a nearby retirement home to entertain the old-timers. I played old-time songs on the piano. I specialized in Irish tunes.
“I learned I could put a large part of my audience to sleep within a very few minutes.
“I fear that today’s topic, insurance, might induce sleep as quickly as my piano playing did. But I fear, too, that many of us waste money on lousy insurance bets. Stay awake here. You may save a few bucks and avoid a few hassles.
“We buy insurance because we’re naturally risk averse. To prove risk aversion, consider a coin toss. You have a 50/50 chance of winning. If a friend offers to toss for a dollar, you might accept. You like to gamble, you enjoy a harmless game.
“But suppose your friend offered to toss for your entire net worth. “Ridiculous. The odds are the same, yet no way you’d go for this. Doubling your net worth in a win might improve your life a tiny bit. But losing would destroy you. You’re risk averse. We all are.
“The insurance industry was set up to deal with our risk aversion. The idea first arose in the maritime business. Seventeenth-century ship-owners got together in a mutual association to reimburse each other for losses to ships or cargo. Later they developed insurance for liability–that is, damage that the insured vessel caused to other vessels.
“And so on through the years. We can now insure nearly everything, and often do. We’re so risk averse we often over-insure.
“I believe we waste a lot of money on insurance. And, to exaggerate a bit, I think many insurance products are tantamount to fraud.
“Take travel insurance as an example. We travelers, especially we expat Americans who return to the United States now and again, might want to protect against a travel-related loss. The travel insurance policy I looked at for a two-week trip to the U.S. cost about US$300 per person per week, or about US$1,200 for Vicki and me. The policy offered only a US$10,000 limit on trip-cancellation, trip-interruption, and medical.
“In a U.S. hospital these days US$10,000 doesn’t even get you through the emergency room. A heart attack or stroke in the States could cost hundreds of thousands of dollars. So in the end the policy provides only the tiniest protection.
“Other limits are even lower. The baggage loss limit of US$1,000, for example, barely covers the computer and camera.
“In reading the policy, it seemed to me that, in most cases, we wouldn’t even bother filing a claim. The hassle–from police reports to medical records, from privacy problems to notaries–would cost more in time and effort than the payout far down the line. So why would we bother to buy the policy?
“Most travel policies provide a reasonable limit for emergency medical evacuation. Back in the 1950s and 1960s, say, we might have wanted this feature. But these days emergency medical care can be quite good in many countries. Because it is so difficult to arrange for a medical evacuation and even harder to get an insurance company to pay for it, you might find it better in most cases to get treated on the spot. Then return home on a regular plane for follow-up.
“Sometimes credit card travel protection comes in handy. We’ve heard good things about American Express, for example. But forget the travel policy they try to sell you at airports. We’ve never known anyone who has had a good experience with an airport travel insurance policy. No wonder pretty girls in short skirts try to sell us these policies. Airport travel insurance is a very good deal–for them.
“What about homeowner’s insurance? In Argentina our homeowner’s policy breaks out the cost of insurance–that is, the risk coverage–from other costs. Out of a monthly insurance payment of 65 pesos, only 17 pesos go for insurance. The rest pays for taxes, sales commissions, administration, marketing, and so on. Paying four times what a product is ‘worth’ seems like a pretty lousy deal. And the policy was written in a way that it would be just about impossible to collect for most anything.
“In Paris our landlady insisted that we had to buy renter’s insurance for the apartment. After haggling with her for some time, we finally agreed to pay for the insurance for one year–provided she took care of it. We discovered after we left Paris that we were liable for the payments even though we no longer lived in the apartment. Much to our surprise, the insurance did not have an automatic cancel for non-payment. Our landlady knew she was covered even if we were behind in payments. Unable to trust our old landlady, we had a French friend call up the insurance company, explain the situation, and cancel the coverage. We lucked out in this case, and we learned a lesson: Understand how foreign policies work before buying one.
“Even covered losses can present problems, especially overseas. Most of us seem to take it for granted that insurance companies act in good faith. Often they don’t. A friend driving in Buenos Aires recently stopped at a red light and got hit in the rear. He called his insurance company and was told to call the other guy’s company. He called the other guy’s insurance company and was told to call his own company. My friend’s only recourse was to sue, and who wants to bother to sue for a fender-bender?
“Remember that, in any case, the insurance company has all the power. They decide, not you, whether a claim makes sense. I’ve seen overseas insurance companies follow a simple rule: Deny all claims. You want to collect, you have to sue. Lawsuits take a very long time and cost a lot of money. Insurers figure time works in their favor. Perhaps by the time the courts rule, the insurance company has gone bankrupt, the owners absconded with the reserves, whatever. You win the suit but without any money in your pocket.
“People write books on insurance, very complicated books. I hesitate to tell you to avoid it altogether in your new life in a new country. You’ll probably want to protect your house against fire, for example. But buy only insurance you need, insurance that will make a difference. Avoid insurance that fails to protect you in a big loss.
“In particular I figure many of us should skip insurance for extended warranty, extended service, travel, whole life, air accident, and installment life. You may disagree. You may be more risk averse. But at least read the fine print. Above all, make sure the policy limits will justify a lawsuit should it come to that.”