Insurance insulates too much

In United States, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.

For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider were so irrational as to want to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

Complexity of insurance policy contracts

Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, it should be noted that in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.

Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. It should also be noted that agents generally can not offer as broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

5 Types of Insurance That You Need?

1. Health insurance. Health insurance is one of the most essential forms of insurance you can buy. Just one hospital trip can run thousands of dollars, and a major illness can run tens of thousands or higher, depending on the necessary treatments.

To save money on health insurance, consider your needs and find a plan that gives you the maximum coverage at the best price. Consider looking at Individual Health Insurance vs. Group Health Insurance, a Health Savings Account, or Self-Employed Health Insurance

2. Auto insurance. If you own a car, then you are probably required to have a basic amount of car insurance, whether it be full coverage or liability only. To save money on car insurance, you should only have full coverage if your car is valuable or you still have a loan on it. You can also raise your deductible to save on auto insurance rates

3. Homeowners or renters’ insurance. Homeowners insurance is required if you have a mortgage on your property, as it protects the bank’s investment in you. You can save money on homeowner’s insurance premiums by increasing your deductible, combining other policies through the same provider, enhancing home security, and shopping for low rates.

Renter’s insurance is an often overlooked, but is a necessary form of insurance. Most people don’t realize they can purchase renter’s insurance for just a few dollars per month (I paid $120 per year for my last policy). Your rates may vary, but that is too inexpensive for the coverage and peace of mind you receive.

4. Life insurance. If you are single and don’t have anyone relying on your income, then you may not need life insurance. But if you have a family or other financial dependents, then life insurance is essential! There are many methods to determine how much life insurance you need, so I won’t cover that in this article. There are also several types of life insurance, including term life, whole life insurance, and variable life insurance policies.

5. Disability insurance or long term care insurance. These two forms of insurance are often overlooked, especially by younger individuals. But disability insurance can help you protect your most important asset – yourself. Many people also wonder if they need long term car insurance. Again, it comes down to many factors, but you should strongly consider it as you get older, especially if you have family history of health problems or are at high risk for certain health issues.

15 Insurance Policies You Don't Need

1. Private Mortgage Insurance

The infamous private mortgage insurance (PMI) is well known to homeowners because it increases the amount of their monthly mortgage payments. PMI is an insurance policy that protects the lender against loss when lending to a higher-risk borrower. The borrower pays for this insurance but derives no benefit. Fortunately, there are several ways to avoid paying for this unnecessary policy. PMI is required if you purchase a home with a down payment of less than 20% of the home's value. The small down payment is viewed as putting you at risk of defaulting on the loan. Put down at least 20% and the PMI requirement goes away. Alternatively, you can put down 10% and take out two loans, one for 80% of the sale price of the property and one for 10%, although interests rates can prevent the economics of this maneuver from working out in the homeowner's favor.

2. Extended Warranties

Extended warranties are available on a host of appliances and electronics. From a consumer's perspective, they are rarely used, particularly on small items such as DVD players and radios. If you purchase a reputable, brand-name product, you can be fairly certain it will work as advertised and that the extended warranty is statistically likely to be unnecessary. If you spend $5,000 on a giant, flat-screen television, the policy is still unlikely to pay off, but might make you feel better. For everything else, forget it.

3. Automobile Collision

Collision insurance is designed to cover the cost of repairs to your vehicle if you are involved in an accident. If you have a loan out on the car, the loan issuer is likely to require that you have collision insurance. If your car is paid off, collision is optional; therefore, if you have enough money in the bank to cover the cost of a new car, collision insurance may be an unnecessary expense. This is particularly true if you are driving an old car, because cars depreciate so quickly that many vehicles are worth only a fraction of their purchase price by the time the loan is paid in full.

4. Rental Car Insurance

Most auto insurance policies offer additional coverage for the cost of car rentals, touting it as a useful feature if your car is ever involved in an accident and needs to spend some time in the repair shop. This may sound like a good idea, but in reality, most people rarely rent a car, and when they do, the cost is relatively low and hardly worth insuring against. Although rental car insurance is relatively inexpensive, amortized over the course of a lifetime you are still likely to spend far more than you will benefit.

5. Car Rental Damage Insurance

Many auto insurance policies already cover rentals, so there's no need to pay for this twice. Check your policy before you pay. Depending on where you rent the vehicle, you may also be able to pay a small fee for insurance on your rental when you pick it up at the rental center. If this fee is less than what you'd pay for a year in your old policy, choose the fee over the policy.

6. Flight Insurance

Flight insurance coverage is completely unnecessary. Despite media portrayal, airline accidents are relatively rare, and your life insurance policy should already provide coverage in the event of a catastrophe.

7. Water Line Coverage

Water companies have made an aggressive push to sell policies that cover the repair of the water line that runs from the street to your house. The odds are in your favor that you will never use this coverage, particularly if you live in a newer home. If you live an average suburban neighborhood and you do need to repair the water line, the distance to the street is short, the likelihood of a problem is low and repair costs are a few thousand dollars or less. The same goes for policies offered by other utility companies.

8. Life Insurance for Children

Life insurance is designed to provide a safety net for your heirs/dependents. Because children don't have heirs to worry about and, statistically speaking, most kids will grow up safe and healthy, most parents should not purchase life insurance for their kids. Instead, use the money that you would have spent on life insurance to fund an education plan or an individual retirement account (IRA).

9. Flood Insurance

Unless you live in a flood plain or an area with a history of water problems, don't even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.

10. Credit Card Insurance

Purchasing coverage to pay your credit card bill in the event you cannot pay it is a waste of money. A far better idea is to avoid running up your credit cards in the first place, so you won't need to worry about the bills. Not only do you not save on the insurance premiums, you'll also save the interest on your debt.

11. Credit Card Loss Insurance

Federal law limits your liability if your credit card is stolen. Your out-of-pocket costs are limited to $50 per card and not a penny more. In fact, many credit card companies don't even try to collect the $50.

12. Mortgage Life Insurance

Mortgage life insurance pays off your house in the event of your death. Rather than add another policy - and another bill - to your list of insurance plans, it makes more sense to get a term-life policy instead. A good life insurance policy will provide enough money to pay off the mortgage and to cover other expenses as well. After all, the mortgage isn't the only bill your survivors will need to pay.

13. Unemployment Insurance

This coverage makes minimum payments on your bills if you are out of work, which sounds like an attractive proposition. A better plan is to save your money and build up an emergency fund instead. You won't have to cover the cost of the insurance policy and, if you are never out of work, you won't spend any money at all.

14. Disease Insurance

Policies are available to cover cancer, heart disease and other maladies. Instead of trying to identify every possible disease that you may encounter, get a good medical coverage policy instead. This way, your medical bills will be covered regardless of the problem you face.

15. Accidental-Death Insurance

Unless you are extraordinarily accident prone, an accident is unlikely. Major catastrophes such as car wrecks and fires are covered under other policies, as is any harm that comes to you while at work. Accidental-death policies are often fraught with stipulations that make them difficult to collect on, so skip the hassles and get life insurance instead.

5 Types of Insurance You Should Have

1. Travel Insurance Some people save for years to afford that once-in-a-lifetime vacation to some exotic spot, only to see it ruined due to some reason outside of their control. Travel insurance typically provides reimbursement to a traveler if the trip is canceled, interrupted or delayed due to certain reasons. Policies also cover missed connections or any delay, loss or damage to baggage and other personal effects during a trip. Travel insurance policies are priced based on the cost and length of the trip, and also include medical and accident coverage for travelers. 

2. Mobile Phone Insurance Mobile phone insurance covers a phone from theft, fire, vandalism, power surges or accidental damage, including water spills and other clumsy acts by the owner. These policies also include protection if a phone is lost or misplaced.  One typical policy offers $1,000 of protection for a smartphone for a one time annual premium of $59, with a deductible that ranges from $35 to $75. This coverage can be obtained directly from the service carrier or from an outside insurance agency that specializes in offering this policy.

3. Pet Insurance Interest in pet health insurance has been growing rapidly since it was first introduced in the United States in the early 1980s. These policies provide medical coverage mostly for dogs and cats, subject to the specified limits, deductibles and exclusions. Some insurers even offer coverage on more exotic pets, including birds, rats, turtles and reptiles. 

Pet insurance is structured similar to human health insurance, with pricing based on the age and breed of the pet. The typical cost to insure a two-year old Labrador Retriever, which is the most popular breed in the United States, is approximately $29 per month ($500 deductible). 

While those who don't own pets may scoff at this insurance as a waste of money, the cost of medical treatment for pets can be staggering, with the average surgery and treatment cost from some conditions reaching as much as $11,500. 

4. Dorm Room Insurance Teenagers are irresponsible enough as individuals, but when you put thousands of teenagers together in one place and call it a college, the irresponsibility and risk escalates sharply. National Student Services (NSS) and a number of other insurers offer policies to cover personal property against theft, fire, vandalism and other risks. These policies cover laptops, mobile phones, text books, clothes and other personal items while a student lives either in a dorm or off-campus location.

NSS offers $3,000 of coverage for one year with a $50 deductible for only a $77 premium. 

5. Moving Insurance The latest report from the U.S. Census Bureau indicates that 37.1 million Americans moved residences in 2009. Many of these individuals moved long distances and required the assistance of professional moving services.   

Although the conventional wisdom is that household items are fully covered by insurance offered by the moving company or carrier, the truth is that moving companies typically include only a basic level of coverage that usually ranges upward from 60-cents per pound. This means that a 200-pound sofa that you paid $1000 for might only have $20 to $120 of coverage. Moving companies offer extra coverage for an additional charge, or coverage can be obtained from outside companies that specialize in this type of insurance.

5 tips for filing a successful insurance claim

1. Know your insurance policy

For auto insurance, make sure you understand the coverage limits, deductibles and whether or not you have collision coverage, Ward says.

For home insurance, make sure you also know your deductibles, and that you understand policy limits on not only structural damage but also on electronics, fur or jewelry that are in the home, he says.

Many home insurance policies cover only these items in limited amounts. So if you have expensive jewelry, collectibles or other similar items, talk to your agent about options for covering these items - and do so before a loss occurs.

2. Take pictures and gather manuals

Homeowners should have a visual inventory of all their property, says Carlos Gil, sales and marketing manager for Fiesta Insurance Franchise Corp., an insurance agency franchisor in Huntington Beach, Calif.

Creating a visual inventory means taking several pictures or making a video of the inside of your home to document what you own, he says.

In addition to collecting pictures, gather documents, such as owner manuals, that go along with electronic equipment and other valuables. This documentation can serve as proof of ownership to the insurance company, Ward says.

If your belongings are destroyed, but you have proof that you owned them, your insurance company may approve a claim much faster than if you don't have proof.

Again, remember to gather your proof of ownership long before a thief even thinks about stealing that treasured china set.

3. Collect information at the scene

Policyholders often make the crucial mistake of not gathering enough information at the time of an auto accident or catastrophic loss at home, Gil says.

For auto accidents, immediately note the time and location of the wreck, and the other party's vehicle information and car insurance information, Gil says.

If you can safely take a photograph of the autos involved in the wreck - particularly the license plate of the other vehicle - try to snap pictures, Ward says. That way, you'll have identifying information if the other party decides to drive off before police arrive.

If you are a homeowner who experiences a loss, promptly call your insurance company and describe what happened, Ward says. Take pictures of the damage if you can, he adds.

Collecting this information, even if it seems trivial, can help the insurance company understand what happened so it can quickly process claims for losses, Ward says.

4. File your insurance claim quickly

Some policyholders wait before notifying their insurance company of a problem, Ward says. When that happens, memories fade and the policyholder may leave out important details. This could result in claim delays.

"Most carriers have 24/7/365 continuous claim reporting capabilities, so make sure to contact them as soon as possible," Ward says.

Even if a loss happens over the weekend, the insurer may send someone over to review the claim quickly, he says.

5. Respond to follow-up questions

Sometimes an insurance company asks you to send in additional paperwork before a claim can be fully processed, Ward says. Examples of such documentation include:

• An inventory list of your damaged personal property
• A certificate showing your vehicle has been repaired after an accident
• A power of attorney, if you have to take over the affairs of someone who is physically unable to communicate with the insurance company.

Return the paperwork quickly to avoid delays.

By Margarette Burnette

How to Successfully File Your Auto Insurance Claim

More than 220 million motor vehicles clog America's roads today, making it likely that someday you will have an accident and file an auto insurance claim.

The good news is that in most auto accident claims, personal injury isn't the problem.

"Sixty-three cents of every claim dollar goes to [pay for] physical damage on your car," says John Eager, senior director of claims services for the National Association of Independent Insurers, based in Des Plaines, Ill.

Although a personal injury claim may require a different level of proof and persistence than a vehicle damage claim and insurance regulations vary from state to state, the basic steps to take information needed to file a claim are fairly similar.

For the most part, the claims process for vehicle damage is simple: You make a claim, the adjuster comes out to estimate the cost to repair the damage, the insurance company sends you a check for that amount and you use it to pay for the repairs.

Every insurance claim requires some kind of proof of damage or injury before a carrier will pay. On auto claims, Eager says, there are five elements of proof that will come into play: what you tell the insurance companies, what the other party tells them, a police report, witnesses and physical damage at the scene.

Step 1 (at the accident scene): Call 911 if someone has a life-threatening injury. If there's no emergency, don't tie up 911, but get any needed medical attention and call the police directly. Remember, you need that police report.

Step 2: Exchange license plate numbers, contact information and auto insurance information with the other parties involved. Most states require drivers to have an insurance identification card in the vehicle and it will provide most of the pertinent information, Eager says. Fill in any gaps, though. Make sure to get phone numbers.

Step 3: Look for witnesses who will be willing to tell what they saw and get their contact information as well. If you are unable to gather information at the scene, the police report can be a back-up source of information on the other parties involved and witnesses.


"There are a lot of jurisdictions where the police officers may try to avoid taking an accident report, assuming that the damage is under $500," a typical insurance deductible, warns retired insurance adjuster J.D. Howard, who co-founded the Insurance Consumer Advocate Network, based in Branson West, Mo. "Insist on a report. If [officers] won't file a traffic accident report, insist on an incident report. You want an independent, disinterested record of what happened. You'd be amazed at how often the other driver's story will change."

If the accident happens in a parking lot, an officer may plead no jurisdiction. Insist on an incident report, Howard says. Failing that, in a mall or other facility that has a security force, you may ask security to file a report. In a lot without any security, you may want to ask a shop owner.

"You want to get something in writing," Howard says, because "insurance companies are obliged to believe the story given to them by their own policyholder" unless there's proof to the contrary.

Finding of fault is very important. Besides the rental car and diminished value issues, the negligent party's carrier might owe you for any time off work, Howard says. In addition, your company cannot raise your rates if you are not at fault.

Also, the majority of states have adopted "comparative negligence," Eager says. This is a concept based on the idea that no one party is necessarily completely at fault, but that fault is just a matter of degree. Your settlement can be reduced based on the degree of fault.

Step 4: Contact your insurance company as soon as possible. With a cell phone, you may call your company right from the scene. Many have 24-hour claim-filing service by phone. Your insurance ID card should provide the number. Whoever takes your claim will walk you through the process.

Although the other party may be at fault, both Eager and Howard agree that generally you should file the claim with your own insurance carrier. Each carrier is obliged to protect the interests of its own insured, making your claim a secondary concern for the other party's carrier. Chances are you'll get the service you need more readily from your own carrier. 


"You have rights with your own carrier that you don't have with the other party's insurance," Howard says. This includes the right to a process for resolving disputes over what expenses should be covered by the insurance.

With no-fault insurance, you have no choice initially but to file with your own carrier. No-fault insurance has thresholds below which your own carrier pays all expenses, except the deductible. Above those thresholds, you may seek restitution from the other party. These thresholds vary by state.

Assuming the other party is at fault and you do not have collision coverage on your vehicle, you will have no choice but to file a claim against the other party's carrier. On the other hand, if the other party does not have insurance, you will have to negotiate with the other party directly or go to court.

Step 5 (if the other party is at fault): You should advise the other party's insurance company that you're pursuing a claim through your carrier and will seek reimbursement for costs your carrier will not pay, including your collision insurance deductible, time off work, auto rental differential and the amount of your diminished resale value, Howard says.

If you have the patience to take an unconventional route that will be challenged by your carrier, Howard believes that if the other party is at fault, you should file claims with both carriers.

"You cannot collect twice for the same thing," he says. However under "multiple source recovery," he adds, "you can collect from two sources and put the checks in a kitty and decide how much was paid for what."

This means meticulously itemizing every expense involved, and which carrier's check paid for which expense. At the end of the process, you would submit the itemized list to your carrier and, if there's anything left in the kitty, you would write a check for the overage to your own carrier.

Step 6 (this may happen earlier or later in the process, depending on the other insurance carrier): You'll get a phone call from the other company asking for your version of events that led to the accident. You need to prepare for this, Eager says.

"Especially with an injury claim, you'd want to check with your insurance carrier to see what statements you need to make to the other insurance carrier."

It's a good idea to write down exactly what you will tell the other carrier beforehand so that in the worst-case scenario -- a lawsuit -- your statement will remain consistent. Don't trust your memory. The other carrier will be taping your statement and will have your exact words at their disposal.

Step 7: The adjuster comes out to take a look at the damage to your vehicle and comes up with an estimate of what it will take to restore it (or replace it, if it's totaled). Then, the insurance company will cut a check in the amount of the repair, minus any collision deductible amount.

If an insurance company has a direct repair program, the adjuster might not even have to come out, Eager says. Under such a program, your insurance carrier will refer you to a shop with which they have an agreement. So, depending on the insurance company, the damage claim estimate may be done by the shop itself, the shop won't have to wait to start repairs and the check can be transmitted right to the shop, Eager says. The shop may also make arrangements for a rental vehicle if you need one.

If the adjuster says the car is totaled (in other words, beyond repair), the adjuster will estimate your compensation on the actual cash value (or depreciated value) of the vehicle before the accident, essentially enabling you to buy a similar used car. However, if you've bought coverage for replacement cost value, the estimate will cover the cost of buying a similar new vehicle.

Step 8 (When disputes arise): If you think your carrier's damage settlement offer is too low, you may ask your carrier for a form of arbitration to resolve the dispute. This process may take two to six weeks, but generally speaking, you will not have to wait for payment. In most cases, the insurance company will pay you the amount it offered immediately, and you'll get the rest when and if the dispute is resolved in your favor.

On the other hand, if you disagree with an offer from the other party's carrier, you may or may not be offered such dispute resolution. If not and the amount in dispute is significant, it may be worthwhile to take legal action.


source: By Sal Caputo • Bankrate.com

How to file an insurance claim and win

By Insure.com

Insurance is like gambling. You and the insurance company are betting on the likelihood of you filing a claim and the amount of that claim.

So, who wins this bet?

If you play your cards right, you can.

Submitting a claim on your home or auto policy is pretty simple. It usually involves contacting your agent, filling out a claim form and waiting for an adjuster to look over the damage. Then, if appropriate, it's just a matter of waiting for your check to arrive. Most claims are handled quickly.

Each state has its own performance requirements when it comes to responding to claims. If you feel your insurer isn't moving quickly enough on your claim, call your state's insurance department.

The claims process can be hazardous, particularly if you make too many claims. Most insurance companies will cancel your policy if you make two or three claims in a short period of time, often a year. The insurers want to stay away from high risks, so you should be sure to make only those claims that are absolutely necessary.

Granted, if your policy is supposed to cover a particular loss, don't be afraid to make a claim. Just keep in mind that there can sometimes be unpleasant repercussions.

Here are some general tips for handling auto and home insurance claims:

• Know your policy. It's important to understand what your policy says. The policy is a contract between you and your insurance company. Make sure you know what's covered and what's not and what the deductibles are. If you have any questions about the policy, the time to ask is before you need to make a claim.

• Stake your claim quickly. Call your agent or your company's claims hotline as soon as possible. Your policy may require that you make the notification within a certain time frame. Getting your agent involved first may help speed things along and get you some personal attention.

• Avoid using the word "lawyer." Insurance companies get a little skittish when you threaten to get a lawyer involved. Once you hire an attorney, the adjuster, the insurance company and your agent will be able to communicate only with the lawyer. If you really need help settling your claim, call your state insurance department first.

• Keep a copy of the police report. If your claim involves a collision, file a police report and keep a copy of it. Get the name, address, phone number and name of the other party's insurance company before you leave the scene. (While you're there, don't admit fault or offer to pay for the damages. It could jeopardize your insurance coverage.)
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• Get an estimate or two. It's important to get a second opinion on the repairs needed for your vehicle or your home. The adjuster may be able to approve your claim on the spot if you have a reliable estimate from a reputable source.
• Make temporary repairs. If your home is damaged, you should make whatever temporary repairs are needed to protect your home and you from further damage or injury. These should always be covered by your policy. Just remember not to start any permanent repairs until you hear from an adjuster. If you make any temporary repairs, make copies of the bills for your records, just in case the adjuster loses them.
• Document, document, document. This is important both before you need to make a claim and when you need to make one. Save the receipts for items you buy. That will help prove what items you had and how much those items cost. Photographs and/or videotapes of your home (both in pre- and post-disaster form) can also be beneficial. These will help you establish an inventory of your belongings should the need arise. Take photos or videos of the damage before you begin cleaning up. Many cell phones now have cameras built in, so be sure you know how to use yours if you have one. If you don't have a camera phone, keep one disposable camera in your glove compartment and one at home.