THE MOST COMMON INSURANCE MISTAKES: PART I
Herb Denenberg Column For
Here are some of the most common insurance mistakes that cost the
American people billions of dollars every year. Chances are you've made some of
these mistakes so eliminating them can save you money and prevent uninsured and
underinsured disasters which are all too common.
MISTAKE NUMBER ONE: Thinking that insurance is so complicated that
you let an insurance agent or company make decisions without your understanding
or input.
Insurance is complicated merchandise, but you can understand
enough of what you need to know to make sound decisions in buying and using
coverage. Don't make this mistake and let someone else make your insurance
decisions.
Remember how hard it is to find a competent doctor, dentist or
lawyer. So you can be sure it's much tougher to find a good insurance agent.
But even if you're lucky enough to find an honest and competent agent, the more
you understand the insurance transaction the better off you'll come out. No
professional, from insurance agents to doctors and lawyers, can give you the
best advice and recommendations without your input. And the more informed your
input, the better advice and recommendations you'll be getting.
I know a highly competent agent and one of his customers. Yet, he
forgot to give one of his auto policyholders a discount even though she was
entitled to one because her car had airbags. Only after she called this to the
attention of the agent, did she get the discount. That kind of oversight is
common.
Knowledge is power and no more so than in the insurance market.
MISTAKE NUMBER TWO: Selecting agents and companies out of the
Yellow Pages or in some other fashion with little or no thought given to the
quality of the agent or company.
Whether you're selecting a doctor, lawyer, dentist, pharmacist,
insurance agent or any other professional give it some thought. Select an
insurance agent with the same thought you'd use in selecting an
doctor, lawyer or other professional.
With agents, check out their experience in the business? Are they
rookies who are still in the process of being trained or are they the kind of
seasoned professionals you should seek out.
Check out his educational background and his specialized
professional training. For example, is the life insurance agent a Chartered
Life Underwriter (CLU), the life insurance equivalent of the CPA in accounting. Is the homeowners and auto insurance agent a
Chartered Property and Casualty Underwriter (CPCU), the CPA of that segment of
the insurance business? Those designations are not absolutely essential; there
are good agents without them. But the point is you do want an
well-trained agent as well as an experienced agent. Ask friends and associates
what agent they use and what experiences they've had.
Check out the company. Ask the agent (or company, if you're
dealing directly with one) to provide you with the financial rating of the
insurer from each of the rating services -- A.M. Best, Duff & Phelps,
Moody's Investor Services, Standard & Poor's, and Weiss Ratings. You want a
company with high ratings. For example, the three top ratings from A.M. Best
are A++, A+, and A. A good company will provide potential customers with their
financial ratings without even being asked.
The best summary of ratings for life insurance companies can be
found in a newsletter, The Insurace Forum, published by Joseph M. Belth. It
gives the ratings of four of the major rating firms. The
October 1998 issue of the newsletter, which contains the ratings for $20 by
writing The Insurance Forum, POB 245,
Financial ratings can be obtained in many libraries, by a direct
call to the rating service (sometimes for a fee), or on the Internet.
You may also want to check how the company is rated for claims,
services and complaints. Consumer magazines, such as Consumers Reports, publish
such ratings. Some insurance departments also publish complaint ratings.
MISTAKE NUMBER THREE: Waiting to try to understand the policy
until after there's a claim or some later date -- instead of understanding the
policy before buying the policy. Too many people do their work and study when
it's too late. For example, when you buy a life insurance policy you get a
10-day free look during which time you can return the policy and get a full
premium refund. So make sure you understand the policy and the deal before you
finally accept the policy. When buying other kinds of insurance, there may be
no free look, so understand the policy before you buy it.
There's another reason to know what is in your policy. You may
discover coverage for losses which you would otherwise assume to be uninsured.
The best example of unexpected coverage is that provided by the homeowners policy, which is remarkably broad and sweeping.
For example, the homeowners policy considers a family
cemetery plot or burial vault as part of the insured premises. So your coverage
under the homeowners policy applies to a graveside
which you may own in a far off cemetery. Another example.
Along with the dwelling, the policy covers "materials and supplies located
on or adjacent to the residence premises for use in the construction,
alteration or repair of the dwelling or other structures on the residence
premises." There are other countless examples of coverage you might not
expect.
Equally important, your policy will tell you what it doesn't
cover. That suggests you may need other kinds of coverage. Most notably, the homeowners policy doesn't cover flood. If you have a flood
exposure, you need a separate policy.
MISTAKE NUMBER FOUR: Buying coverage and then forgetting about it
for years despite changes in circumstances. This has led to disaster for policyholders.
For example, after a major fire, windstorm or other disaster, policyholders
typically find out they did not carry enough coverage on their homeowners policy. You can't take out a homeowners
policy and years later assume the amount of coverage will still be adequate.
The Insurance Information Institute says, "If the limits of your policy
haven't changed since you bought your home, then you're probably
underinsured."
You should periodically reevaluate your coverage. The same goes
for other policies. If your family situation changes, you may have to change
your life and other coverage. For example, after a divorce you should take your
ex-spouse out of the beneficiary designation of your life insurance policy
(unless for some reason you still want the ex-spouse to collect after your
death).
A first rate company or agent will systematically question you
upon each policy renewal to make sure no updating is necessary. For example,
here's what USAA, a highly regarded insurer, asks upon renewal of its Personal
Articles Floater (which covers jewelry, silverware, fine arts, cameras, musical
instruments, and golfer's equipment that may not be adequate insured by a
homeowners policy): "Do you still own all of the property (insured)? Are
the values of the items accurate? Have you acquired any additions jewelry,
etc.? "
If your agent or company fail to
systematically check on whether your policies need updating, you should
consider looking for a better agent or company. Quality agents and companies
maintain their interest in policyholders, even after they've collected the
premium.
(Herb Denenberg is a former Pennsylvania Insurance Commissioner
and consumer advocate.)
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