Herb Denenberg Column For February 08, 1999


Most people make costly insurance mistakes. That happens for many reasons. One is that insurance companies often deliberately make the transaction complex, and intentionally keep the public in the dark, by resisting disclosure of information both to the public and the media. This is most serious in the life insurance field, but permeates the whole business. That's why it is so difficult for consumers to buy the right policies in the right companies at the right price.


Here are some more of those most common mistakes:


MISTAKE NUMBER EIGHT: Failure to use deductibles properly. One of the most painless ways to save money on insurance is to take the highest deductibles you can afford. This applies to auto, homeowners, and some forms of health insurance. For example, Jeanne Salvatore of the Insurance Information Institute says that under the rules of some insurers, by going from a $250 deductible to a $500 deductible, you can cut your collision premium 12 percent. by going to a $1,000 deductible you can save up to 24 percent; by going to $2,500 you can save 30 percent; and by going to $5,000 you can save 37 percent.


Here's another way to see the power of deductibles with a specific auto insurance illustration from State Farm, the largest auto insurer in the country. If you have a collision coverage with a $250 deductible billed at $191.33, you can cut the premium to $157.13 by going to a $500 deductible; and to $102.22 with a $1,000 deductible.


Waiting periods, also called elimination periods, and co-insurance provisions are forms of deductibles that can also dramatically cut premiums, but are used in different kinds of policies. For example, you can notch down your disability premiums almost as much as you want, by selecting a longer waiting period (say delaying payment of disability benefits to 30, 60, 90 days, or more after the disability commences).


MISTAKE NUMBER NINE: Failure to consider other money-saving options. Under no-fault in Pennsylvania, you can elect limited tort rather than full tort coverage. If you elected limited tort, you can't recover for pain and suffering losses unless you incur certain serious injuries as defined by the law. If you elect limited tort you can save about percent across the board on your auto coverage. With auto insurance being so expensive in many areas, that can be a sensible option. It's not ideal, but for many it is a sound trade-off. Everyone doesn't want to pay for the Cadillac of coverages. Limited tort is underutilized as some agents don't like to recommend limited tort as it cuts their commissions. They also fear that if there's a claim not paid because of limited tort (for example, pain and suffering in a minor whiplash), their customer will complain and not remember the limited-tort election.


MISTAKE NUMBER TEN: Buying whole life rather than term. The life insurance industry has been traditionally geared up to sell whole life, and downplay the benefits of term. For most buyers, term makes more sense, carries a much lower premium, and makes coverage more affordable. Another advantage of term is that it is more easily understood and price comparisons are easier to make. There are occasions when whole life makes sense but they are the exception rather than the rule.


MISTAKE NUMBER ELEVEN: Assuming that all claims denials are well-founded. It is not uncommon for claims adjusters to make mistakes or to unfairly deny or scale down a claim. Critics of the industry say that some adjusters actually engage in nullification of contractual rights by denying legitimate claims on the assumption that the policyholder will just give up and go away. So if your claim is turned down make sure you understand why and check to be sure the denial is justified. Ask the company to explain the denial in writing, citing the provisions of the policy that are relevant and explaining their decision.


MISTAKE NUMBER TWELVE: Many consumers still do not fully appreciate the huge variations in premiums in almost all lines of coverage. Price comparisons are sometimes readily available, sometimes free and sometimes for a fee. Insurance departments, including Pennsylvania, now publish shopper's guides with premiums for auto, homeowners and other forms of coverage. Consumer Reports will make an auto insurance premium search for you for a fee. It also often prints surveys of premiums in various lines as do other consumer magazines. Many companies provide a free-service of providing premium quotations from different kinds of companies for term life insurance.


If you're using agents or brokers, make sure they've shopped for you. Agents often have access to many companies, but may not give you the best deal unless you push them a little.


MISTAKE NUMBER THIRTEEN: Overlooking the special insurance problems for the home based business. Your homeowners policy may only cover business equipment for up to $1,000 and provide no coverage for business liability. So you check your exposure, and consider amending your homeowners policy or buying a separate policy to cover your home business exposure.


You should read everyone of the "special" limits of liability in the homeowners policy, as it will give you clues as to gaps in the coverage. Here's the way one provision reads on the limit of coverage for home office property: "$1,000 on property used or intended for use by a business, including merchandise held as samples for sale or for delivery after sale, while on the residence premises. This coverage is limited to $250 on such property away from the residence premises."


For some free publications on insuring a home business call the Insurance Institute's National Insurance Consumer Helpline at 800-942-4242. You can also check its web site at http//


MISTAKE NUMBER FOURTEEN: Failing to appreciate the disadvantages of group insurance. Most people see the words "group insurance" and assume it is better than coverage purchased on an individual basis. But group insurance often has serious disadvantages. For example, you may carry group disability insurance for years, leave your employment, and then find you cannot convert your coverage to an individual policy.


You may be able to convert life insurance, but it may be to coverage that carries a much higher premium than you would get if you were in good health. If you are in good health, you can shop for a better deal. But if your health has deteriorated during employment, you may have to stick with the group coverage at the inflated premium. What's more, your group coverage may give your employer access to confidential medical information that may be used to your



MISTAKE NUMBER FIFTEEN: Not keeping old policies. Don't throw away your insurance policies after their expiration date. On some kinds of policies, covered claims may arise long after the expiration date. So you'll want to hang onto them beyond the date of expiration. 


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


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