In this article, we will discuss first dollar coverage. We will also talk about how you can explain the 1st dollar coverage plan to clients. Let’s begin.

What is first-dollar coverage?

A first dollar coverage is an insurance policy that does not have any deductible. In this type of insurance, the insurer assumes the payment when an insurable event takes place. When an insurable event or loss occurs, the client will not have to pay anything from their pocket. In other words, the insurer bears the entire expense of the losses. 

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The Basics of First Dollar Coverage

First Dollar Insurance is a policy that is usually available on homeowner’s insurance, car insurance, and health insurance. Other policies may also be obtainable in this form. Typically, this policy is a subtype of a complete insurance package. 

However, there are a few limitations to the first dollar insurance. As the insurer is bearing a high risk by making the full payment, there is a limit to how much the insurance will cover for a damage. The coverage provided by first dollar policies is much lower than insurances that have a co-payment or a deductible associated with them. Therefore, if one gets first-dollar health insurance, there will be a limit to how much the policy will pay the client.

Another drawback of first-dollar insurance is higher premium. Again, since the insurer is bearing a higher risk, they charge more to the customer. For instance, in the case of health insurance, the customer will have to pay a higher premium since the insurer will cover the cost of all medical services of the customer. For this reason, first-dollar coverage is popular with health insurance policies. However, with the car and home insurance, this type of policy is not so prevalent. 

The first-dollar policy has been criticized a lot because people misuse it, especially in the healthcare sector. This misuse drives up the cost of medical procedures or products. Those without first-dollar coverage do not get the care they need because of the expenses they have to bear. It unintentionally affects those who need medical attention but cannot afford the premiums for first-dollar insurance. 

How First-dollar Insurance Works?

Let us take an example of first-dollar insurance on a car. Say a driver damages their vehicle during a driving incident. Now, they take the car to the repair shop, where the driver is charged $1000. If the driver has an insurance policy with a copay, they will have to pay a certain amount from their pocket as defined by the policy. So, they have to pay an amount between $200 and $500 for the repair, and the insurance company will pay the remaining amount. 

However, if the individual has first-dollar coverage, the insurance policy will cover this entire amount. The customer will only have to file a claim, and the insurer will take care of the rest. However, the claim will have an upper limit to reduce the risk of the insurer.

For medical insurance, first dollar policies are generally available as basic packages. For instance, the insurer will cover the entire cost for a simple screening examination such as bloodwork or a routine test. However, for more extensive medical procedures such as surgeries, the customer will have a deductible or a co-payment. This setup keeps the premiums low for the customer while offering coverage for frequently used services. The risk for the insurer also reduces.

Medicare and Healthcare policies

First-dollar policies can be confusing since the US government has been rolling out Medicare. It is a healthcare program for individuals over the age of 65 and plays a crucial role in covering the medical costs of older people. One must note that Medicare and Medicaid are not the same things. Insurance agents must take special note of this when they are explaining these terms to their clients. 

One must understand that Medicare benefits do not cover all medical expenses. That is where a first dollar policy may become essential. 

Qualifying for Medicare

Any US citizen over the age of 65 and has been a permanent legal resident of the united states for over five years is eligible for Medicare. Besides Medicare, there is also Medigap. Medigap is a supplementary policy that an individual can buy to cover the areas that Medicare does not. Anyone can get such a policy from a private insurer. 

Medicare Plan Naming Conventions

Medicare plans are named using different alphabets starting from A. US taxpayers with social security numbers are automatically enrolled in part A. There are also parts B, C, D, F, G, K, L, M, and N. As you may have noticed, there are missing alphabets. These alphabets correspond to the plans that have the government has dropped over. Every new policy comes with a new letter. 

Explaining First Dollar Plans to Clients

First dollar coverage is easy to understand. When you explain a home insurance policy or an auto insurance policy to a customer, describe the concept of zero deductible or co-payment. The customer will not have to pay anything out of their pocket for an insurable event in such cases. However, they will have to pay a higher premium monthly or yearly. 

Recent changes in Medicare

When it comes to health insurance, first-dollar coverage becomes tough to explain. Explaining first-dollar coverage for Medicare can be a challenging task as most of the Medicare jargon is quite confusing. Furthermore, Medicare plans have changed every year. Insurance agencies also have to update their products accordingly to provide their clients the best possible policies. The recent changes are straightforward. The difficult task is understanding how these changes will affect your existing clients and explaining it to them. 

First dollar coverage for Medicare

Medicare plans A and B come with deductibles. So, the individual will have to pay a part of their medical expenses. There were supplement plans F, C, and J that offered first-dollar coverage. However, part J was discontinued way back in 2010. Part F and C were retired last year. Those who were eligible for Medicare plans before these dates could apply for plans C, F, or J. But new applicants will no longer get access to plans C and F.

As explained earlier, the government discontinued the first-dollar coverage because of misuse by some policyholders. For instance, a person would visit an ER even though they did not have any medical emergency. Therefore, when a beneficiary has to pay out of their pocket, they are more likely to seek care only when they need it. 

However, as an insurance agent, you may come across clients who may seek First-dollar coverage for Medicare plan A. At present, plans B, D, G, and N offer full coverage on the deductibles of part A. Plans L and M offer partial coverage. 

Explaining Medigap Coverage

As an insurance agent, you have to explain to clients what all Medicare plans are and how Medigap can help. Also, bring to their notice that the federal government regulates all Medicare plans. The letter-based naming convention of the policies determines the benefits. However, in certain states of the US, the standardization is different. 

Customers must be made aware of all the benefits that they are getting from Medicare plan A. Furthermore, they should also understand the premium they are paying and how much deductible they need to pay. They can supplement Plan A with other Medigap plans that offer first-dollar coverage.

Next, one needs to explain the changes in the Medicare plans. It means that any individual who became eligible for Medicare from 1st January 2020 will not be eligible for Medigap Plan C or F. 

However, those who were enrolled before can keep their Medigap plan that has first dollar coverage. If a customer did not have first dollar coverage, they may enroll for it, but it depends on the region. 

At this moment, Medigap plan G is one of the most popular plans. It provides a good balance between deductibles coverage and premiums. 

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First-dollar insurance is prevalent with home insurance, auto insurance, and health insurance. Customers often pay a slightly higher premium to get hassle-free coverage during an insurable event. However, when it comes to medical insurances in the US, first-dollar coverage is federally regulated. The government provides a basic healthcare plan that has deductibles. But individuals can get supplementary policies that enable first-dollar insurance. Because the insurance plans and the regulations change every year, it is challenging for agencies to keep up with these changes and explain them to their customers. 

To convey the correct information to clients, agents must stay up-to-date with product knowledge and federal regulations. Agencies can create an information repository and email all agents about the changes and steps they need to take.

If you need software to streamline agency operations and automate sales, take a look at LeadSquared Insurance Agency CRM


What is deductible first?

A deductible is an amount the client has to pay for covered health care services before their insurance plan starts to pay. After the client pays the deductible, they have to pay only a copayment or coinsurance for covered services, and the insurance company pays the rest.

What is Medicare first dollar coverage?

Medicare first-dollar coverage is an insurance policy that pays healthcare costs beginning with the first service. It applies to some Medigap policies that cover the deductibles and copayments associated with original Medicare.

Is Medicare Plan G worth it?

According to Medicare Nationwide, Plan G offers coverage with lower premiums than that of Medicare Supplement Plan F. However, Plan G does not pay for Medicare Part B deductible that Plan F does. But Plan G offers significant saving options for seniors.

What is first dollar savings?

First dollar savings corresponds to the HSA tax benefits that clients can avail. 

Also read:

What is bad debt recovery?

Bad debt recovery is the money that your business receives after writing it off as uncollectable. The bad debt recovery process starts when the borrower cannot pay back the lender within the stipulated time. In this case, the lender may take legal action to recover the bad debt. The lender may recover the receivable as a partial payment or as equity. Bad debt recovery can also come by selling off the borrower’s collateral. For example, a borrower takes a car loan but fails to pay it back in time. In such a situation, the lender can repossess the car, sell it off and recover the loan.

From a lender’s perspective, debt recovery is challenging and cumbersome. Often the effort that goes into recovering a bad debt is not worth the repayment. However, in any case, the lending company must take certain actions before declaring a debt as bad debt. For instance, they can attempt in-house or third-party collection or even take legal actions. The collection efforts can still take place before the debt is declared bad.

bad debt recovery: strategies to avert risks and improve collections

If you see, payday loans, credit cards, and medical debt lead to the most unpaid loans in the US. As of 2018, 67% of payday loans caused bad debt. Since prevention is better than cure, preventing bad debts from happening in the first place is the best option for the lender.

Let us look at how financial institutions can reduce lending risks and improve collections.

How to reduce lending risks?

The priority of any lending business should be to prevent bad debts from occurring at all. Therefore, lenders should know their borrowers well and if they can pay back the loan. Every time you give out a loan, you take a risk. Giving out loans to prime borrowers is easy. But when you want to expand your business and service to subprime customers, then the task becomes difficult. 

For ages, traditional credit scores guided lenders. This scoring allowed both banks and lenders to disburse loans with confidence. Those who had lower scores required more time and evaluation. Lenders must go through multiple review processes to see if they can give the loan at all. 

In lending business, declines are common. But there are also numerous exceptional cases. Banks, NBFCs, and other financial institutions can also give out loans conditionally. In these cases, just traditional credit scoring is not enough. Lenders must make use of relevant data and tools to judge the creditworthiness of subprime loan applicants. Rich applicant data and a consistent evaluation process are the keys to reducing lending risks.

1. Get a detailed picture of creditworthiness

There are numerous data sources available today that provide a much more detailed picture of an applicant’s financial health. In the digital banking world, these data sources are becoming increasingly important every single day. Fintech companies are allowing digital lending platforms to bank on these data sources when they make a decision.

Data privacy laws are crucial when companies collect customer data. The customer must legally agree to share their data, which includes sharing personal and confidential information. This data gives the companies a much clearer picture of the creditworthiness of the applicant. Alternative credit data may include:

  • Banking information and current account status
  • Employment status and income data
  • Purchase habits and spending records
  • Payment history of utility bills, phone bills, and more.
  • Rental history
  • Real estate ownership
  • Records of any previous bankruptcies and more.

Companies are now using alternative credit data for underwriting loans or using it to supplement existing credit scores. Almost 80% of lenders use at least one alternative credit data source. 16% of lenders plan to use data sources such as utility bill payments or rental payment records. Overall, lenders now rely on these data points to help assess borrowers better. This information assists lenders in making better decisions quicker.

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2. Assess thin profiles

Thin profiles can be both – a risk and an opportunity. Millions of US borrowers have thin profiles where it becomes difficult to assess creditworthiness.


Thin profiles are those user profiles that have credit card accounts but haven’t used them actively. Or they may not be paying for several years. Those who use cash for purchases also have a thin profile because their purchase habits are not recorded. A thin profile gives an individual a bad credit score. However, this does not necessarily mean that the applicant is not eligible for a loan.

Dealing with thin profiles always poses a risk for the lender. In such cases, alternative credit scoring may be a solution. Unconventional data sources can indicate whether the individual qualifies for a loan. They can also show if there is considerable risk involved.

3. Use modern loan origination systems

Alternative credit scoring data helps mitigate lending risks. But to make use of these data sources, lenders must digitize their processes. The combination of traditional credit data and alternative data can reveal numerous opportunities for lenders. Modern loan origination systems can help lenders decide if a borrower is creditworthy – in just a few minutes. Previously, the part of subprime applicants deemed unserviceable by banks or lenders can now qualify for loans using alternative data sources. Moreover, with this information, lenders can rule out high-risk applications.

Many loan origination systems offer out-of-box integration with alternative credit data sources. It is also possible to integrate other data sources using APIs. It consolidates data from different sources. All data is standardized. The system can then evaluate the creditworthiness or forward the consolidated data for manual underwriting. AI-assisted underwriting is a growing trend in the digital lending space. Borrowers can apply and get loans without any manual intervention from the lenders. However, borrowers should agree to share data that will allow the platform to assess their financial health.

4. Automate collections

Timely collections help reduce bad debt and keeps the lending business in good health. While a loan origination system allows easy disbursement of loans to qualified applicants, a dedicated collections system encourages borrowers to pay on time. Lenders can make use of collections CRMs that can delegate borrowers to teams and agents automatically. For lending businesses, keeping track of borrowers can be challenging as the business grows. That is why CRM is a suitable option. A dedicated tool can also categorize borrowers and recommend collection strategies. It can remind agents to follow up with clients. It can also automate communications to debtors depending on their actions.

Collections CRM for debt recovery - borrower communication

5. Use analytics to check collections metrics in real-time

Dedicated loan origination systems allow businesses to analyze their portfolio performance regularly. This analysis enables companies to keep their underwriting processes efficient and accurate. For instance, some people with good traditional credit scores may show red flags when using alternative scoring. Some thin profile applicants may have a high risk associated with them. Some applicants without a FICO score may have a lower default rate than those with a low FICO score. These analyses can help you decide better when underwriting loans.

How to recover bad debts?

Bad debts are inevitable in lending businesses. No matter how careful you are, there may be situations when you need to declare debts as bad. Often, the borrower may face unforeseen circumstances for which they may not be able to pay even though they have good financial records. In any case, you will always want to recover the loan as much as possible and with as little effort as possible. Here are some steps which you can take to recover bad debts.

1. Send a formal letter

Not only is this a simple task, but in some regions, it is also a legal requirement. Before writing off debt as uncollectable, you need to send the borrower a letter. A collections CRM can automatically send an email based on DPD (Days Past Due). A hard copy letter exhibits the graveness of the situation much better. You can use a firm tone while expressing your intent to collect the payment.

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2. Contact a collection agency

A debt collection agency contacts debtors through phone calls and emails, and if necessary, through litigation. They persuade the debtors to pay the debt and often help them develop a payment plan. If required, a debt collection agency can assist the lender in filing a lawsuit. A debt collection agency works on a contingency agreement, where they keep a part of the amount they have recovered. A reliable agency knows how to properly communicate with debtors so that it does not destroy the lender’s relationship with its current client base.

3. Issue a court claim

Finally, you may want to investigate legal options if the insolvency is not addressed easily. However, you should note that a court case may not always go in your favor, and the entire process will incur court fees. Unless the amount is high, going to court may not be reasonable.

[Also read: Debt collection strategies for small businesses]


Alternative scoring and digital lending have changed the lending business landscape over the last few years. The massive amount of financial data and the software platforms that allow you to use that data make businesses much easier. It is now also much easier to serve subprime applicants. However, risks remain. Efficient usage of these tools can help mitigate risks and collect bad debts.

If you’re looking for digital solutions to streamline your lending operations, check out LeadSquared Collections CRM. You can also take a 15-day free-trial.