Herb Denenberg Column For February 08, 1999


Every year American throw away billions of dollars because of common insurance mistakes. They may buy coverage they don't need. They may not buy coverage they do need. They may overpay and fail to collect on legitimate claims. They may grossly overpay for coverage. They may insure in companies that are financially shaky.


The catalog is endless, but here are some more of the most common mistakes of consumers in the insurance marketplace.


MISTAKE NUMBER FIVE: Failing to document your property so you can prove your loss when it occurs. Assume the worst: you have a fire that destroys your house. Could you remember all of the property in that house and what it was worth? And could you prove it to some claims adjuster? The Insurance Information Institute suggests a test: Sit down and from memory try to list all the property and its value in one of your rooms. You'll learn fast you'd be in a hopeless situation if you wait till after your property is destroyed and then try to construct an inventory.


You should make an inventory of your household property, listing your property in each room. If possible you should also include any appraisals you have, receipts, and purchase contracts.


You can supplement your inventory with video camera record or still picture record of each room in your home.


Put your inventory and other records in a safe deposit box or someplace else where they won't be destroyed in the event of a loss.


Chances are you'll get your claim settled faster and more satisfactorily if you keep a detailed inventory, says Jeanne Salvatore of the Insurance Information Institute.


You can get a free booklet explaining all this by calling the National Insurance Consumer Helpline at 800-942-4242. The booklet is entitled "The Home Inventory." That hotline is maintained by the Insurance Information Institute, and is a useful source of insurance information. The III is an association established by the property and liability insurance industry.


If you have property of high value, such as an expensive diamond ring, you should have an appraisal by a qualified jeweler. That appraisal should include a picture of the diamond, a diagram of it showing all inclusions and other distinctive features of the stone, and a full description of it. An expert appraiser and jeweler, David Craig of Bucks County (PA), says the key to proving an insurance claim on a diamond is a good appraisal. Without one, you're likely to get into a major dispute with the claims adjuster after a loss.


MISTAKE NUMBER SIX: Buying unnecessary insurance. There's a long list of policies that don't make sense for most people, but yet are aggressively marketed and sold. I've noticed that most of the solicitations I get are for unnecessary, not necessary coverage. Accident insurance probably leads the list. Most people don't need it. If you die by accident, your dependents don't need more insurance protection than if you die from a disease. So accident coverage typically doesn't make sense. It's just a piece of a life insurance policy, and leaves you unprotected unless you die by accident.


Other unnecessary coverage include, for example, cancer insurance and other forms of dread disease coverage, life insurance on children, life insurance on those without dependents, and airline flight insurance and double indemnity in a life policy (which are other kinds of accident insurance).


MISTAKE NUMBER SEVEN: Neglecting necessary coverage. Perhaps the most neglected kind of insurance is disability. The marketing of life insurance is so over-emphasized, with the traditional selling of the wrong kind of coverage, and coverage to those that don't even need it, that disability often gets neglected or overlooked altogether.


Disability can sometimes create more catastrophic losses for a family than even the death of the breadwinner. With disability, especially if long-term, you not only have loss of income but also huge medical and maintenance expenses.


Another coverage often neglected is liability. It may be carried in the homeowners and auto, but it is often carried in inadequate amounts. Someone may carry only the minimum limits required by the law, but that may be woefully inadequate. For example, in Pennsylvania you can carry as little as $30,000 of coverage for liability for personal injury or death. Just imagine your car hitting another vehicle loaded with high-paid executives or doctors. Or you may have the minimum of $5,000 coverage for liability for property damage. Imagine yourself hitting a $100,000 tractor-trailer loaded with $500,000 in cargo. Most people who have substantial assets to protect would do well to rethink their liability limits.


One way to solve the problem of inadequate liability limits is to take out an umbrella policy. It provides protection against lawsuits after your auto and homeowners policy limits are exhausted. It is often sold in amounts of one million and up. It does require certain minimum limits in the underlying auto and homeowners policies. A one million dollar umbrella costs about $200.


(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate).

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