Getting the Best Deal on Insurance

Getting the Best Deal on Insurance
by Richard P. Halverson

What is too much to pay?

(In If You’re a Mormon Do You Still Need Insurance? I tried to make several key points about insurance. First, insurance is simply a matter of exchanging losses. You exchange an uncertain loss, like having your car stolen, to an insurance company for a certain loss called a premium. If the car gets stolen it is the company’s loss. Next, I emphasized that you should exchange only those losses you can not afford to risk have to pay. If you can not afford to lay out $20,000 on short notice to replace a stolen car, then exchange that loss by buying insurance. If you can afford $500 to repair a dented fender do not insure for that. The mechanism for retaining small losses, while exchanging for large losses, is through deductibles. Over your life you can save a lot of money by making sure your deductibles are high enough. Finally, hope that all your premiums are wasted. It is no fun to have a loss whether you are financially insured or not.)

They are questions that everybody has to ask: “What insurance do I need?” and “Where will I get the best deal?”

The types of insurance, the various options, the number of companies and their various services are so vast no single article can even hint at all the answers. In theory it would be nice to give a complete listing of all the products offered by all the companies and an evaluation of their relative values. However, if it were possible to compile such a work you would never read it. It would be worse than reading the Mexico City phone book when your only foreign language skill is Idaho Slang. My object will be to offer a few suggestions to simplify the issue.

Insurance breaks down into the following categories:

Property and liability. Take an inventory of all the real property you own that is valuable: cars, homes, boats, jewelry, etc. If you can not afford to lose it, you can not afford to go without insurance. And you cannot afford to let anyone be injured by your property. Most people do carry property and liability insurance. Sometimes this is motivated by the law. The law requires you to carry liability insurance in case you injure somebody with your property. Usually, people will get talked into insuring the property itself at the same time. Lenders often require insurance of the property. They want to be sure property they have loaned money against is protected.

Consider the case of a family that borrowed nearly $20,000 to buy a car. They had borrowed for a lot of things and were stretched pretty thin. So thin that when the insurance renewal came due ,they did not pay it despite common sense and the requirements of both their lender and the state. One night, while on his way home from a second job, he dozed off and hit a parked car. Fortunately, his injuries were not serious, but both cars were totaled. They had no car but were still obligated to pay for it. They had no way to get credit to buy a new car because they still owed money on the damaged car. On top of that, they were being sued by the other party’s insurance company for damage to that car. Incidentally, the second owner was back on the road because she had uninsured drivers insurance and had been paid off by her company.

Health. Few of us can afford to get really sick these days. Unfortunately, few of us can afford to pay health insurance premiums either. Many fortunate Americans receive health insurance as a benefit at work. However, millions of others do not. Affordable health insurance is a major political issue. While the politicians are working out who is going to pay for it, and who will decide what coverage you get, you need to make sure you are covered.

I knew a dentist who made a good living. Still the cost of health insurance for his small office was staggering. Instead, he entered into a type of barter system with some doctor friends. He did their dental work, and they took care of his family’s health needs. Fortunately, they were all pretty healthy until the dentist himself contracted a rather rare disease. The case moved very quickly from his medical friends to specialists at the best hospitals. Regrettably, he lost his battle at an all too early age. When the numbers came in, his widow owed more than $400,000 in medical bills. This was a staggering amount, particularly when you consider he was no longer around to practice dentistry and help pay the debt. Further, his once flourishing practice was now valueless. You can not afford to risk living without health insurance.

Disability. One of the most frequent insurance mistakes made is with respect to disability insurance. People frequently overlook this coverage. Disability insurance pays you a percent of your previous salary if you become disabled and can not work. Many people have adequate life insurance but little or no disability insurance. However, the risk of becoming disabled is generally greater than the risk of dying. Things like broken legs for bus drivers to strokes for business executives. If it is not work related workers compensation probably does not cover it. And financially it is worse than dying. If you die everyone feels bad but expenses associated with you stop. If you are disabled people are relieved you are alive but expenses associated with you probably increase.

Take the case of a young family man who built and remodeled homes for a living. He had his own little company, and there wasn’t a lot of extra money for insurance. One day he fell off a house. In the blink of an eye this young father of four was paralyzed from the neck down. The family’s survival emotionally and financially is one of real courage. But it sure would have been nice if there had been some disability insurance to help fill in some of the gaps so they didn’t need to be quite so courageous.

Life. This is a huge topic. Everyone will die sometime. How much insurance you need for the event will be the subject of my next article. It is the same principle, however. Only insure against the loss you (your survivors) can not afford to take.

Getting the best value

As with most products the lowest cost is not necessarily the best value and the highest cost may not offer the best insurance. The best value is a function of:

Coverage. This refers to the types of losses that will be paid for and how much will be paid on them. It is important to understand what is covered and what is not. Visualizing things that should be covered but are not listed is difficult for most of us.

Service. For most people, the service that really counts is the way a company handles a claim. Unfortunately, you will only find out about that service after you have already purchased the policy and have a loss. Do ask the agent some questions before you buy. Ask him/her to explain in detail exactly what you must do if you have a claim. Being salespeople, they will all try to convince you their company provides the best service. However, beware if one tells says you must go to three repair shops, obtain competitive bids, send all the paper work to their central office for approval and then they’ll let you know. It is better if they say their adjuster will come to you immediately, access the damage, authorize repairs, after which you can have who ever you want do the work.

Please note all companies will try to minimize what they have to pay. They will not pay any more than they are legally required. Often the insured is hoping for a lot more and is frustrated with the company. You may hope they will give you enough money to replace your recently totaled rusty old rattletrap with a shiny new sports car. What you will find is they will give you only enough money to by another rusty old rattletrap. This may or may not be bad service. Most likely it is just what they, or any other company must do, to survive and stay in business.

Price. The insurance business is very competitive. If you find an insurance policy that is substantially less expensive than another, look closely before you buy. Often you will discover the coverage is not the same. This does not mean you cannot find bargains. Today bargains are increasingly available because of direct marketing techniques. This is especially true for companies selling over the Internet. Companies can lower their marketing costs by eliminating salespeople and selling directly to you. Some of the savings will be passed on in lower premiums. If you are sure the coverages between two companies are comparable, and you are satisfied with the service then go for the lowest price.

Getting educated

The insurance industry is huge with millions of variations of thousands of products offered by large numbers of companies. Highly intelligent, well-adjusted, and happy people live their entire mortal lives without ever really understanding the baffelgab of the insurance business. And I doubt there will be any questions related to insurance at the judgement day. The problem is that almost all of us need to buy insurance and occasionally need to collect on insurance. It is nice to be informed during those times you must interface with the insurance industry.

If you really want to get in to it I recommend you head to the library. There are many books written that will explain all the terms. As with most subjects , you can also learn a lot in a few hours searching on the Internet. I have another suggestion — bring some teachers to you. Assume you are in the market for a particular type of insurance. Call at least two agents from different companies. Meet with them. Ask lots of questions about the proposal they make to you. Ask specifically what is covered. Be especially certain to ask for examples of what is not covered. When reading a lengthy list of covered perils it is easy to think every potential mishap in the world is covered. Then when you have a claim you find out you figured out a way to have a loss that is not covered. Ask about their system for handling claims. Hopefully you will never have a claim, but if you do, you don’t want it to be a hassle. You will learn a lot about the specific insurance problem you are trying to solve. You can anticipate each agent will try to sell you on the merits of his/her approach. Then, being aware of those biases, you can determine which, if any, of the proposals best fits your needs. You would do something like this if you were buying a new roof for your house, why not insurance?

Getting the right company

There are three main sources for buying insurance: independent agencies, company agents and direct. In general the cost is lower buying direct, the service is best at the independents and the company agents are in the middle. Independents work with a number of companies. They can analyze your specific insurance needs and tailor make a package for you by matching you up with the best policy regardless of the company. If you have unusual insurance needs their service is very important. Company agents work with a specific large name company. If you are an ordinary buyer of insurance nearly all these big companies have policies that fit your needs. Companies who sell direct are cutting out the expense of paying agents to sell you insurance. They pass some of the savings on to you. Their advertisements invite you to contact the company directly for quotes. Additionally, direct selling is exploding on the Internet. For the most part these are legitimate companies, although it is always well to double check. If you want to save money and buy direct it is a good idea to be better educated to make sure you are buying what you think you are buying. It is the same for anything. If you are buying a part for your computer you can take it in and tell them to fix it. Or you can go to the store and ask the salesperson which part you need and install it yourself. Or you can buy it on the Internet and hope you picked the right part. One approach costs you more; one approach requires you to know more. You can tell the difference among these insurance marketing channels by looking in the yellow pages. The independent agents tend to work for companies named after people. Direct agents will feature the name of the insurance company with a long list of agents to call. Direct companies will not have any names but have an 800-number to call for quotes.

You want to deal with a financially sound company. Your claim is only as good as your insurance company. The government does not guarantee your insurance company. If they fail financially, and you have a claim, you may not get your money. Insurance companies are regulated but not insured by the states. You can call your state insurance department for information. Additionally, the A.M. Best Co. is the recognized leader in rating insurance companies. You can get their book at the library or on-line at www.ambest.com.

Getting it right

I have already spent time encouraging you to determine what losses you can not afford to take. Those are the losses you must pay to exchange to an insurance company. No two circumstances are alike. Ask yourself not only if you have the right deductibles, but also do you have the right upper limits? For instance, most standard auto insurance policies top out at about $100,000 to $300,000 for liability. But have you seen what some juries hand down in liability cases? You may want to carry an excess liability policy up to $1,000,000 or more. If you own a home, have a business or have other assets ,you could lose them in a liability case. Consider the case of a man who had probably been pushing too hard trying to keep up with his business, church, and family responsibilities. He dozed for a second at the wheel. The result was a head on crash that left a single mom with three kids to support in a wheel chair for life. The court pretty well cleaned him out financially.

You should also ask if you have the right things covered. Part of getting your insurance coverages right is to review them every so often. Your needs change with your financial circumstances, the things you own, your life style, your family make up, etc.

Insurance is not a favorite topic for the vast majority of normal people. I rarely hear people discussing it the way they do a football game or the new fall TV line-up. But for the vast majority of normal people it is more necessary than football or TV. So it is worth it to get it right. You never known under what bazaar circumstances you will be glad for it.

I’ve referred to several negative situations where insurance was needed. In fact, insurance is rarely important until we have a negative occurrence. That is why I keep saying you should hope you never have to collect. Here is a story about a complicated accident, with an unexpected twist to it, that has a happy ending. It is the case of a middle aged Mormon mom with a clean driving record. She was tooling along , just minding her business early one Sunday morning with her sleeping brood flaked out all over the van. Suddenly, she hit black ice and rolled three times. Fortunately, no one died, but a couple of kids spent a few weeks in the hospital.

When the sleet finally settled, the insurance man paid a visit. What she came to understand was that there were unexpected quirks in the laws. Oh, she was insured all right, because she had a good policy. In fact, she was insured for things she never imagined she needed to be insured for. The kids who had been hurt had a claim against their mother for pain and suffering. (Guess who actually did most of the suffering nursing them back to health.) Anyway, because they were minors, she was legally responsible to pursue any claims they might have. Under the law they had a legal claim against her. If they didn’t get a sufficient financial settlement, they could come back against her when they turned 18 for not adequately representing their interests. (You might be sure your kids love you but who knows what a half-nuts teenager who wants to buy a car will do.) In effect,Mom needed to hire a lawyer to represent the kids so she could sue herself. Guess what, the insurance company paid for the lawyer, paid to represent her against herself, paid for what the kids won, then complained that it was too much, and finally paid for the visit to the judge to ratify it all.

The conclusion is, the best luck you can have is that all your insurance premiums are totally wasted. However, make sure you waste the right amount, for the right coverage, with the right company.