How To Make Your Insurance Company Pay
Raymond J. Cross
Smashwords Edition
Copyright 2010 Raymond J. Cross
Smashwords Edition, License Notes
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Limit of Liability and Disclaimer of Warranty
Much of this publication is based on personal experience and anecdotal evidence. Although the author and publisher have made every reasonable attempt to achieve complete accuracy of the content in this book, the information provided herein is provided "as is" and you should use this information as you see fit, and at your own risk. The author makes no representation or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaims any implied warranties of merchantability or fitness for any particular purpose and shall in no event be liable for any loss of profit or any other commercial damage, including but not limited to special, incidental, consequential, or other damages.
Any trademarks, service marks, product names or named features are assumed to be the property of their respective owners, and are used only for reference. There is no implied endorsement if we use one of these terms.
Finally, use your head. Nothing in this book is intended to replace common sense, legal, medical or other professional advice, and is meant to inform and entertain the reader. Your particular situation may not be exactly suited to the examples illustrated here; in fact, it's likely that they won't be the same, and you should adjust your use of the information and recommendations accordingly.
Copyright © 2010 Raymond J. Cross. All rights reserved worldwide.
Acknowledgements
Going beyond the study of insurance company policies (double meaning) and insurance law, this book is a compendium of the experiences and opinions of many trained professionals and troubled consumers, as well as views developed during our family’s struggles with insurance negotiations. To each I express my appreciation. You helped me to see deeper into the methods insurance companies use against consumers. I hope what I have brought together from what you shared, will assist many to protect their insurance coverage from being plundered.
A special thanks to Bob Watson, a true crusader for the rights of policyholders, and managing adjuster for the public adjusting firm, National Fire Adjustment Co., Inc., in Toronto, Ontario. His tireless efforts enabled us to survive very difficult insurance negotiations. For us, his honourable methods of defence stood in stark contrast to the treatment we received at the hands of our insurance company. In answering the almost endless questions from my inquisitive mind, he was unwaveringly patient and always informative.
Thank you all.
Table of Contents
Foreword
Introduction
The Safety Net
Chapter 1
Eleven Suggestions For Purchasing Fire Insurance
Chapter 2
Ten Mistakes That May Rob You of Insurance Protection
Chapter 3
Seven Issues Foundational to Insurance Policy Provision
Chapter 4
Eleven Steps in an Insurance Claim
Chapter 5
Nine Issues Essential to Insurance Claim Management
Chapter 6
Seventeen Factors to Understand the Psychology of an Insurance Claim
Chapter 7
Twenty-Four Issues Related to Fire Insurance Coverage
Chapter 8
Fifteen Problem Areas in an Insurance Claim
Chapter 9
Ten Progressive Personal Pressure Tactics
Chapter 10
Six Issues Related to Two Types of Professional Help
Chapter 11
Seven Attitudes and Actions Contributing to the Vicious Cycle of Insurance Abuse
Addendum
Foreword
It is often too late to learn how to manage an insurance claim when it explodes at your doorstep. You must arm yourself with knowledge in anticipation of the event, plan and purchase your insurance with wisdom, and keep the information concerning claim management on file for the time you or someone you care about needs it. In this way you may be prepared to defend yourself if or when your insurance company decides to attack.
What we need to win battles with insurance companies is not a book by generals for generals, i.e. by lawyers for lawyers. We need a strategy that is simple enough for you and I to understand. We need a book from the viewpoint of a foot soldier on the front lines, who has been in the trenches, knee-deep in the mud. We need a book that teaches the hand to hand combat strategies that we ourselves can implement without requiring professionals to do it all for us. We need a book to save us anguish and expense. We need this book — a practical book of step-by-step strategies for pushing insurance companies back when they draw their weapons.
The vision for this book grew out of my discouragement and disappointment with an insurance claim that went very wrong. As I describe in my book, And the Pink Snow Fell... (© 1995, Essence Publishing, ISBN: 1-896400-03-5) and in the Addendum of this book, a gas explosion on November 10, 1993 damaged our home. Though innocent of any wrong doing, our insurance company refused to treat us fairly. People we know who have been guilty of negligence or carelessness were treated better than we were. If we had been guilty of any indiscretion, we might have felt they had some right to be upset, but not in the presence of complete and evident innocence. No matter, every step of the way we had to fight for consideration, and every step of the way I journalled the things I learned.
In discussing our situation with professionals and others who had suffered loss, I realized how vulnerable consumers are to unjust treatment under the skilled maneuverings of insurance companies. We should not be such easy marks. So the personal concern that has driven me to write this book is a sense of injustice and hurt for those who are suffering, not merely because of a major physical loss, but because they may not be receiving the help and support for which they contracted with their insurance company. I just simply had to do something to level the playing field. So, I continued research from every available source to draw together this hands-on manual for survival in the bewildering world of fire insurance and claim management. I address my book, therefore, to the householder, the policyholder, the insured, the consumer. It is my prayer that God will help you to wisely use what you learn to the benefit of yourself and others.
The result is what I term a Murphy’s Law book. A mutant form of the law Edward A. Murphy, Jr. formulated in 1949 reads, “If anything can go wrong, it will go wrong, and the thing that will go wrong is the thing that will cause the most damage.” For the counsel of this book to be available to the consumer to apply to whatever needs arise in property insurance coverage and claim management it must anticipate anything that could go wrong. What I paint, therefore, is a worst-case scenario. Since it is impossible to consider all the variations among insurance companies and their staff, statements in this book may be validly criticized as generalizations. As with all generalizations, they do not take into account exceptions, of which there are many. For this reason, most of the generalizations will not be complimentary to the insurance industry. Many of them will express strong opinions. These are a composite of opinions expressed by professionals and consumers with first hand experience fighting insurance companies. These opinions are not shared with malicious intent; they merely represent some of the possible factors consumers may have to deal with in insurance negotiations. Generalizations are not intended to communicate that all insurance companies are characterized by all these attitudes and actions, only to condition consumers to cope with insurance company behaviours that endanger equitable settlement of their insurance claims.
The insured should not approach a claim expecting the worst-case scenario. To do so would be to initiate the relationship with a jaundiced perspective. This very attitude would inflame antagonism detrimental to all. When faced with an insurance claim, always seek to work with the insurance company. Only if you perceive some of the twists described, should you compensate on the basis of insights shared here. Then, beware not to over-react. Use only the knowledge and pressure necessary to keep proceedings moving toward equitable settlement. Keep the rest of what you have learned on reserve, to be used only if your insurance company demands a showdown at high noon.
The realm of property insurance has application to any policy put in place to protect any buildings and their contents: industrial, commercial and residential. For the sake of clarity and simplicity, I shall direct what follows to the needs of householders. The business community need only adjust nouns and pronouns to apply the principles discussed to their needs.
Fire insurance policies cover many more perils than fire alone, and we are all aware that many factors other than fires threaten our property. To avoid repetitive monotony, insurable incidents that necessitate claims will be termed: fire, loss, mishap, disaster etc. All of these words mean the same for the purpose of this book. They mean the event that damaged your premises requiring your dealings with an insurance company, whatever its cause.
While reading this book you will find the term ‘adjuster’. Adjusters come in various forms. Some are insurance company Staff Adjusters. These are employees of specific insurance companies, who serve the interests of their employer. Since they are not available for hire outside of the company for which they work, they are not licensed. The other two types of adjusters are available for hire and are licensed by the government for that purpose. Independent Adjusters are available for hire by several insurance companies on a loss-by-loss basis to help them settle claims. Independent Adjusters work only for insurance companies. Public Adjusters are licensed for hire by the general public on a loss-by-loss basis in order to serve the interests of policyholders exclusively. Independent adjusters are not permitted to work for the public and Public Adjusters are not allowed to serve insurance companies. If Public Adjuster is intended, the term ‘Public Adjuster’ will always be used. The word ‘adjuster’ alone may refer to any adjusters who serve insurance companies, but never to a Public Adjuster.
There are variations in insurance law from country to country, province to province, state to state. It is not possible for this book to document all of these variations. My purpose is to expose attitudes, actions and principles that may be applied to all insurance negotiations. Where specific insurance laws or limitations are referred to, they are drawn from Ontario insurance policies and The Insurance Act of Ontario, Canada. It is the responsibility of the reader to compare the specifics of these statements against the insurance policies and statutes that apply to the area in which you live.
One thing has become abundantly evident — insurance law is very complicated. Since this is so, the reader should not view this book as a complete summary of insurance statutes and case law. What is presented is merely suggestions and regulations that may assist the layman in understanding the basics, and dealing with insurance companies in a manner that communicates awareness of appropriate provisions, proceedings and protections available to you as the consumer.
This book is designed to provide accurate information concerning the subject matter covered. It is sold with the understanding that the writer and publisher are not engaged in rendering legal, accounting or other professional advice. If legal advice, or other professional assistance is required, the services of a competent professional person should be sought. Ray Cross, individually or corporately, does not accept any responsibility for any liabilities resulting from the actions of any parties involved. In no event shall the author or publisher be liable for any damages whatsoever arising out of the use of information in this book.
Ray Cross
ray@raycross.net
Introduction
The Safety Net
Insurance is a service we purchase but hope we’ll never use. Yet every day innocent people like you and I are scooped up, bounced around and beaten black and blue by circumstances beyond their control, and they lose lives, livelihoods and savings. At any moment it could happen to you or me.
We purchase insurance not to fatten insurance companies but to help ourselves in time of trouble. Insurance is based on the principle of people pooling resources to build a buffer against disaster. It works and is profitable because tragedy is usually highly selective. For this reason, many contributing little, create resources adequate to protect themselves against even extreme loss, especially if the pooled finances are invested while awaiting distribution. We are not irritated that insurance companies make profit on our money. We do not resent collecting nothing for our premiums; this is considered good fortune. We are not annoyed that insurance companies exercise care in distributions to guard against fraudulent claims. What offends, however, is insurance companies behaving like spoiled children, crying “Mine! Mine!” and selfishly resisting or refusing to share adequately even in the presence of definite, justifiable need that accords with insurance policy provisions. We don’t give them our money for them to growl over it like a dog with a bone.
If we need the insurance safety net, we expect it to perform the function for which we paid — protection from loss. Sad to say, many are disappointed. At times it seems insurance companies are more concerned about protecting themselves from loss than they are about protecting their clients. Policyholders may pay premiums for years to a system that won’t be there to catch them when they fall. The insurance companies may seek excuses for not paying the claim, or try reducing or delaying settlement. When this is the case we need not be defenseless. We can stand up for our rights, if we know how.
While it is difficult to know exactly what goes on behind the closed conference rooms of insurance companies or within the minds of insurance executives and adjusters, at times their actions betray self-interest rather than service. While blanket condemnations of the whole insurance industry would be unfair, warnings of its sinister side abound among the abused. If pressure on insurance company profits continue, this is likely to worsen.
It is estimated that ten to fifteen per cent of all insurance claims are fraudulent. A recent article in a local newspaper states that Crime Stoppers is being unleashed against this costly problem. But this is not the only serious hole in the system. The problem is that, for the sake of the fifteen per cent who fleece the system, insurance companies intimidate and punish innocent policyholders in anticipation of their guilt. Insurance companies blazon the figures of losses due to fraud, and tell us that each of us pay for these losses in our premiums. Yet again and again experts describe insurance as one of the most wasteful industries in existence. They claim that insurance companies will spend five thousand dollars to save one thousand dollars. Others claim the situation to be far worse than this. What of the losses when insurance companies squander funds in groundless harassment of honest people? Surely this unjust waste should not be tolerated. How hypocritical for insurance companies to pursue and prosecute lies and fraud, yet perpetrate deception and cheating when it is to their advantage.
The complications of a property insurance claim are of such magnitude in inconvenience and aggravation that for the average citizen to intentionally and fraudulently initiate the process is almost inconceivable to me. Yet, insurance companies will treat those ensnared by these complications as though they view such events as opportunities to rip off the company. This despite estimates that, with regard to fire and property loss claims, less than one per cent are fraudulent.
This is the game of insurance companies, not ours. They are writing the rules of engagement, not us. But if these are the rules by which we must play, then, we had better learn what they are. If the insurance companies are going to force us to play when we don’t want to, then we’re going to learn the rules and play to win. Perhaps if insurance companies began to lose at their own game they would begin to change the rules to ones that give the policyholder some benefit of the doubt, and the possibility of gaining equitable settlements, even on large claims.
To my mind, winning or losing should not be the issue in settling insurance claims. Adequate, humane and equitable provision should be the goal from all sides. Responsible companies and honest people do this. Unfortunately, when an adversarial environment develops, when an insurance company determines to win at its policyholder’s expense, or vice versa, hurt and harm are inevitable. The rules are set by one party; the other is forced to play accordingly, or lose.
Once cast into this quagmire of insurance intrigue you are doomed to plod through it. It is my hope, though, that with guidance from this book you will be enabled to proceed through and out the other side efficiently, effectively and successfully.
Chapter 1
Eleven Suggestions For Purchasing Fire Insurance
Preparation for an insurance claim should begin the day you start looking for insurance to purchase. Astute choices here may save grief later. Wise choices in purchasing insurance are influenced by at least eleven factors:
The reputation of the insurance company
The size of the insurance company
The stability of the insurance company
The service of the insurance company
The agency that sells the insurance
The agency that sells the insurance
Group insurance
The amount you insure for
The type of insurance
Policy provisions
Deductibles
1. The Reputation of the Insurance Company
One day a physicist studying gravity devised an experiment designed to experience first hand the sensations of falling from a skyscraper. He stationed observers at every fifth floor, and then jumped off the roof. As he streaked past each observer he reported, “OK so far....No problems so far....Smooth sailing so far....” Of course, only the impact was of consequence.
Likewise with insurance, many who purchase it float onward with little thought of what might lie ahead. They have no problem with their insurance company because they make no claim. Because they assume the bottom will never arrive, they do not assess the effectiveness of their insurance cushion. While failing to do so may not be as lethal as leaping off a skyscraper it is tantamount to playing Russian roulette — you are the one who may get the loaded chamber.
You buy insurance for one time and one time only — tragedy. It’s the only occasion insurance pays you. At all other times insurance premiums benefit the insurance company only. It collects from you but delivers nothing. The crux of concern is whether your insurance company will willingly honour its policy in your time of need. The true character of a company is displayed, therefore, only when it has to give rather than take. Companies that are good to deal with only until you have a claim, are good for nothing. If your company does not conscientiously apply its resources to your needs in time of loss, you lose. No matter how good policy wordings appear, at claim time they are only as good as the company that backs them. When it comes to major claims, I have discovered that there are three types of insurance companies:
Fair companies;
Lean companies; and
Mean companies.
God forbid that you should be strapped with the latter in your time of need. It’s better to check out a company’s reputation before you are forced to discover their real character when loss arrives.
Insure with a company with a good reputation among consumers, rather than merely on the basis of the insurance company’s own advertising. In advertising, it is inevitable that insurance companies project themselves in the best possible light. For this purpose, insurance companies have almost limitless resources. With utmost creativity, even the most unreliable companies can create the illusion of dependability and trustworthiness. They may use delightful cartoon characters to create an illusion of childlike innocence. They may brag about their incredible assets and stability, which is, of course, no guarantee of generosity in your case. They may sponsor sports events or social service ventures. They may puff about awards their products have earned in the industry--awards that have nothing to do with how they treat the consumer. They may brag about the promptness of their adjusters, who, in fact, arrive quickly not so much for your benefit as for the company’s protection. Watch how they focus first on the damage, photographing it and jotting notes, making sure you will not be able to claim for more damage than actually occurred. Only after this is done are you and your concerns their focus. Then, in those first conversations they gather from you the information necessary to set limits on insurance policy provisions for your needs. They may allay your fears by claiming they are there to settle claims, not deny them, but you have to ask, to whose benefit are they determined to settle. They may create an artificial impression that they will be there to settle your claim at no bother to you, whereas the research and forms necessary may be onerous. The point is, if you believe the picture insurance companies paint of themselves, you could be led to think insurance utopia had arrived. Yet, among those who wrangle claims, some companies that brag of their greatness and fairness, are infamous. Their flashy ads and trumpeted philanthropy is built on the backs of abused policyholders and broken promises. Don’t build your impression of insurance companies on the basis of what they say about themselves. If they don’t lie, they certainly exaggerate.
Check in the marketplace to be sure the company you are considering has a reputation for being a friend, not a foe, in time of need. Talk to friends and neighbours. Follow stories in the newspaper and magazines. When people experience claims, what did they experience at the hands of their insurance company? How were their claims managed? Were they treated fairly, and compensated adequately and promptly? If their claim was small, take what they say with a grain of salt. If their claim was large, read and listen carefully. It is large claims that call forth the true nature of insurance companies.
One problem that arises with the advice I have just given is that opinions about insurance companies vary as the autumn leaves. Everyone has only limited experience with insurance companies. One may wax eloquent against a company, while another, due to differing experience or information sources, will speak highly. A surer method would be to make available authoritative information that would objectively expose the true character of insurance companies. Until this can be dredged out and exposed, opinions are all we have to work with.
What I would like to see is public disclosure of the number of claims processed by each company, and the proportion of these that involve litigation. While each of these cases would be different, and in some cases it would be the insured that is at fault, the statistical average for each company would demonstrate which firms are most difficult to deal with. When I pursued this data, I was told the information was not available. If it were, I believe we’d clearly see statistical patterns of brutality on the part of some insurance companies. From statistical data, we would know which companies to stay clear of. Then perhaps, by hitting them in the pocket book they so vociferously defend, through decreased sales and cancellations by policyholders, they might be forced to repent of their ways. Despicable behaviour that is permitted to happen in private, without consequences or public shame, rarely stimulates improvement in responsibility and integrity.
2. The Size of the Insurance Company
In their advertising, some insurance companies flaunt their size as evidence of quality. While it is important that insurance companies have reserves sufficient to cover losses, this factor is insured by government regulation. When an insurance company files with the government for a licence to do the business of insuring policyholders, it must assure the government that it has certain required minimum reserves in the bank, reserves the government deems necessary to cover losses that may occur. The amount required depends on the amount of property protected by a company’s policies. So, the larger the company, the more money must be held in reserve. Whether that money is equitably made available to policyholder needs is another matter. Big or small, little or no difference — companies handle claims in the manner they handle claims, according to their internal policies and the character of the personnel they hire, train and support.
If an insurance company buckles under the pressure of a major disaster the insurance industry has created a web of support by which healthy companies bail out faltering companies. The settlement of your claim may be complicated and slowed down by insurance company failure, but it will be honoured by the industry as a whole. That is its intended purpose-- to protect citizens from loss.
3. The Stability of the Insurance Company
Instability in the structure of an insurance company will interfere with its ability to efficiently, effectively and equitably settle your claim. If there has been any major shake-up in the company or it is presently experiencing one, you might want to look elsewhere. At the policyholder level, instability may precipitate into the company being more difficult than normal in its management of insurance claims.
4. The Service of the Insurance Company
Even a careful choice of insurance company may not protect you from problems during a claim. The service you are given is a composite of insurance company policy and the personality of the insurance company personnel with whom you deal. Even if your insurance company is equitable, an unscrupulous adjuster, or one who takes a disliking to you, may embroil you in almost endless problems. Then again, a gracious adjuster can make even an appalling company look good. These are chance combinations no one can predict with certainty.
5. The Insurance Retailer
In principle, it is considered fraudulent to benefit by an insurance claim. No matter what you do, the process is designed to limit your settlement to losses directly attributable to a mishap. If you have to fight the claim, therefore, you might be able to pressure the insurance company to cover your real losses, but, costs for professional representation, hearings and legal fees will come out of your own pocket. For this reason, any way that exists to strengthen your hand in negotiating a claim should be part of your insurance strategy.
One such means could be built in at the outset, a means of gaining some advocacy along with your policy purchase. It involves buying your insurance through an independent insurance broker rather than through an agent of a specific insurance company. Independent brokers represent a number of insurance companies. Ideally, the independent broker chooses the company and product appropriate to your needs, and chooses a company that will provide for those needs reputably in time of loss. I say ‘ideally’ because when certain insurance companies offer performance bonuses for sales, brokers may be motivated by self-interest to sell you the product that earns them the highest commission rather than the one that is really best for you.
The advantage I see is, whereas brokers and agents of a specific insurance company work for that company, independent brokers, at least in theory, work for you. Currently, this concept is being questioned in the industry, due to recent insurance company strategies concerning independent brokers. The opinion now among insurance professionals has moved more toward the view that independent brokers also actually work for insurance companies, albeit more than one, but with a mild leaning toward policyholders, a leaning that is increasingly being eroded and restricted by insurance company pressure.
Nonetheless, when you buy through an independent broker, you are trusting that in a dispute you will have someone in your corner. The independent broker does have rights and obligations granted him to represent and market the products of various insurance companies, but, as a member of the Independent Insurance Brokers’ Association, he has committed himself to represent those who buy his insurance. So, if you are not pleased with your insurance company’s performance, the broker may take up your cause to resolve the matter equitably and to your satisfaction. He may also quietly direct you to a public adjuster for your defence, something an agent who represents the interests of only one company would likely never do.
Furthermore, what will you do if you want to discuss an insurance situation with your agent without your insurance company being informed? Will you feel more confident to share it with an agent who is employed by that company and represents its interests, or with an independent broker who represents himself as being concerned about what benefits you?
Some brokers advocate more effectively than others, but not merely on the basis of conscientiousness for their clients. In the past this service was improved by the fact that independent brokers appointed the adjusters of their choice to manage claims for their clients. This is no longer the case. These decisions are now made by insurance companies.
The amount of clout a broker carries with a specific insurance company is proportional to the amount of premiums that broker generates for that company. Small firms that try to pressure insurance companies run greater risk of insurance companies cancelling their right to sell their products. Though insurance companies realize a proportion of policyholders will stay with their broker rather than following the insurance company, they have less to lose from a small broker if they cancel him. With small brokers it’s a gamble insurance companies are more willing to take. With relatively little loss, they can extend their control. By cancelling a small troublesome broker insurance companies generate ripples of threat to other brokers that might consider advocating on behalf of their clients in the future. Some small independent brokers have, in fact, been forced out of business by the cancellation of their right to sell policies for large insurance companies. I am told, also, that large insurance companies are requiring that brokers who market their products be responsible for high volumes of sales. What this means is that if a small broker is pushed out of the business, it is virtually impossible for him ever again to get back into the business. It appears to be a brutal strategy designed to limit the number of independent insurance brokers, and to exercise control over those that exist. With this in mind, if the larger firm has not lost its personal touch, it may offer definite advantages.
In view of risks to the broker, another factor should be considered: the amount of insurance business you provide to the broker. If you are an average citizen, you may provide minimal business. The independent broker may, therefore, be unwilling to provide any significant advocacy for you. In that situation he may provide no better service than an exclusive agent for a specific company. (Recent advertising concerning independent brokers appears to be admitting this. It does not claim improved representation in case of a dispute, but only more insurance company choice and consideration, thereby providing better policy coverage.) Probably the best form of research is to check with people who have had claims (especially large claims) to see how well their broker or agent represented them.
All insurance companies do have staff adjusters who work directly with policyholders to settle small claims. Most of these are telephone adjusters who simply direct clients to replace the lost, stolen or damaged item(s) and submit the bill(s) for payment. Because large claims are so time consuming, however, most companies do not find it economical to tie up a staff adjuster to settle such claims. Most large claims are assigned to independent adjusters.
A few insurance companies that sell through exclusive brokers and agents use staff adjusters to handle all claims. These in-house adjusters are control personnel, trained to reduce claim payments for the benefit of their company’s profit/loss ratio, not for the benefit of policyholders. If such a company insures you when you face a large claim, you will have no one on your side when you experience loss. My experience suggests that adjusters who work for one company have primary loyalty to that company. This should be no surprise. After all, who signs their pay cheque? For them, at least one factor in career advancement is proving their worth by doing what adjusters are trained and paid to do--saving their company money by settling claims as cheaply as possible, perhaps at your expense.
As a general rule, insurance companies that sell through independent brokers also use independent adjusters for large claims. Because independent adjusters serve several companies they are less loyal to any one. They may, therefore, be inclined to be considerate to the needs of the insured, while settling claims to the satisfaction of the insurance company involved. Once again you are not left to the mercy of the insurance company.
In summary, there could be definite advantages in having an independent broker and an independent adjuster in your corner, rather than being there alone at time of loss, with no one but agents, brokers and adjusters who are employees of your insurance company in the other corner.
6. The Insurance Premiums
When purchasing insurance, the cost of premiums is not the most important consideration. Not all insurance companies are equal. The premium may be low because the company won’t be there for you when you need it, and you may need it. Making decisions on the basis of the size of premium alone assumes you will never have a big claim. This is foolish. You may pay for your shortsighted frugality with much anguish. As discussed, big claims display a company’s character, for here costs are cut without offending many. The fact is that premiums, high or low, may have no relation to the quality of the company with which you are dealing. Before you sign, it is always wise to check the company’s track record with those who have had large claims.
7. Group Insurance
For support and protection, throughout time both animals and man have moved in groups. We have herds, schools, gaggles, clans, tribes, countries.... Yet, when we purchase insurance most of us do it alone. By moving in groups when we purchase insurance we may draw into our insurance world the supports and protections of a group. By purchasing insurance through a group plan you may achieve good protection at reduced cost. For the sake of acquiring a large number of policies with little sales or administrative effort, insurance companies will offer coverage at reduced rates. Then, those policies enjoy the protection not only of the insurance company but also the protection of being part of a group. To avoid offending the whole group, insurance companies are less likely to abuse policyholders. In view of this, if you feel inadequately provided for, you gain a level of appeal unavailable to private policyholders. You may appeal to the directors of the group plan.
The attraction of group insurance plans has not been missed by insurance companies. They are creating their own group insurance plans and herding in policyholders with aggressive advertising. Consumers are being duped by this slick deception, for they have not actually become part of a protective group at all. What they have purchased is merely normal policies that actually offer no better protection than the insurance company offers any other policy. They are policies managed exclusively and directly by the insurance company. The group concept is merely an advertising ploy to suck people in. If consumers are to gain increased advocacy through participation in a group plan, the plan must be administered by directors responsible to policyholders and to organizations external to the insurance company.
8. Insurance Coverage
Many err in determining the amount of insurance they need on their home. They think they need coverage equal to the total figure they paid for it, plus the appreciation percentages built into the policy. They fail to realize that the price of their home included the value of the lot it occupies. This land will remain undisturbed despite damage to or loss of one’s home. Only in rare cases of volcanism, severe erosion or earthquake would land disappear or be damaged so as to lose its value. So, insure only the full replacement value of your dwelling, without the lot value.
Insurance agents calculate the value of your home on the basis of cost per square foot tables and allowances for extra items included in your home, such as extra washrooms. As a rule of thumb, the value of your home is usually approximately half materials and half labour. Market conditions may skew this; however, such as when the cost of lumber escalates. This means that the cost of rebuilding your home can change rather quickly. To allow for this, it is wise to have your home insured for somewhat more than its present worth. That way there should not be a problem with replacement. A few extra thousands of insurance will cost you very little per year. If the agent sets the insured value, and the house is granted guaranteed replacement cost coverage, the insurance company has contractually committed itself to replace the house according to its original plan whatever the cost at time of loss.
Replacement cost is not necessarily equal to real estate market value. There are times when the cost of restoring a home to its original condition exceeds its worth on the resale market, such as in the case of grand old homes. Basically, old homes sell for less than their rebuilding cost, while newer homes sell for more than their rebuilding cost. If you err, therefore, it is better to be a little over than under insured so that replacement cost limits in your policy cover the full costs of restoring the total structure.
Being under-insured may prove costly, due to a pro-rating principle that may be applied in such circumstances. If, for example, you are under-insured by 20%, your policy covers only 80% of the value of your home. You might think that, since the risk of a total loss is minimal, you will be fine in most instances. Only if the loss were more than 80% of your home’s value would you have to pay for the extra damage. If you feel that, you are living in an illusion. If you are under-insured at time of loss, the insurance company may apply the under-insured percentage to your claim. This means that even though your loss was only partial, representing only say 50% of your home’s value, the insurance company will cover only 80% of the 50% loss, minus deductible. To be under-insured is always risky.
Land damage provisions are not part of a normal policy, though such optional coverage may be purchased at additional charge. Its advisability and cost depend on risk factors. In normal circumstances, therefore, insurance coverage on outlying structures, shrubs and landscaping is all that is needed, and it is included at no extra charge in most homeowner’s packages. The coverage for landscaping is subject to limitations. Specified coverage for outbuildings and detached structures is limited to a percentage of the insured value of the home, usually ten percent. In addition to $150,000 in coverage on a home, for example, a maximum of $15,000 would be available for repair of those structures. This coverage is on an apportioned basis, according to the relative value of these structures, perhaps 50% for a garage, 33% for a pool building and 17% for a gazebo. If the garage were completely destroyed, therefore, only $7,500 of the $15,000 would be available to replace it. If you have more than one outlying structure and their total value exceeds the coverage included in your policy; then, it would be wise to insure specifically the full value to the most expensive structure.
Normal home policies have built-in inflation clauses. Each year the value of insurance on your property goes up by a pre-set percentage, say six percent. By computer program, it climbs and climbs. By this means insurance companies insure your property is adequately covered in case of loss both now and in the future, and, of course, your premiums continue to rise as insurance increases. In inflationary times this makes sense. When costs of labour and/or materials stabilize or decline, not so. But the computer will continue its climb if you do nothing. Periodically, it is wise to evaluate the values reached by this procedure. If inflated beyond reasonable limits, have your agent evaluate your coverage again and agree to more appropriate levels of coverage.
9. Insurance Type
The most important word in a property insurance policy is ‘guaranteed’, not merely “replacement cost” but, “guaranteed replacement cost”. ‘Guaranteed replacement cost’ usually means the company is bound by the policy to replace or repair damaged property no matter how much it costs. Lacking the ‘guaranteed’ wording, you may be entitled only to the value of your home as reduced by the generous depreciation margins of the insurance company. Since there is some variation of interpretation of “guaranteed replacement cost” among insurance companies, check its meaning among the insurance companies you consider.
10. Policy Provisions
There are hundreds of insurance companies. They each design their own policies. These vary considerably in what they provide and don’t provide, in what they include and don’t include and in what exceptions and conditions are placed on your coverage. You need to know what these are in order to be sure you are purchasing the policy that is right for you. Yet, this is the only area of contract law that I am aware of where the company you are contracting with writes the contract and has no legal obligation to provide you with a copy of the contract that binds you. The law in Ontario says that insurance companies have to give you a copy of your application or proposal for insurance, but not of your actual policy. No insurance company would bind itself to a contract without having its lawyers check the papers over thoroughly first, yet as far as insurance companies are concerned, this is the way consumers should expect to do business with them: “Just sign the application and we’ll fill in the blanks concerning the policy conditions. After all, you can trust your insurance company to always be honourable and fair.” Right? Ridiculous!! YOU NEED A COPY OF YOUR POLICY!
Your insurance policy is not the single sheets that state the amounts of coverage that you receive with your bill each year. These are called the declaration pages. Your insurance policy is a document perhaps twenty-five pages in length. It spells out all aspects of your coverage. It is the responsibility of the policyholder to read the policy, comprehend its provisions and conditions, and understand responsibilities placed upon you under the contract. Ignorance is not an arguable defence.
When pursuing a copy of your policy, be careful not to get your agent’s or insurance company’s back up. Strange to say, just asking for a copy of the contract can do so. They may ask, “Why do you want a copy of your policy? Is there a problem?” Respond, “No, I would just like to become more knowledgeable about the terms of my policy in order to be sure I am not in contravention of any conditions,” or, “in order to assess whether my coverage is adequate in all categories.” You may have to ask several times, and there may be some delay, but persist; it is important that you have a copy of your policy.
The policy states what property is protected, from which risks, under which conditions, with certain definite restrictions, if you pay your premiums and abide by all the terms of the policy. In the policy before me, it states that, on condition that I pay the premiums on time and abide by all conditions of the policy, the insurance company will provide for:
cost of cleaning and debris removal
replacement or re-keying of locks
loss from reported thefts
property removed for protection, for thirty days
cost of removal and return of possessions
loss due to bank or credit card fraud, or counterfeit
legal defence for liability