Herb Denenberg Column For February 08, 1999


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, Elletsville, Indiana 47429-0245.


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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