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Insurance Policies: Are You Covered? Really Covered?

March 29, 2010 by  
Filed under Finance

For many people buying insurance is a no-brainer. What I mean is most people tend to think in limited terms about what insurance they really need. 98% of people who purchase insurance purchase whatever policy is recommended by the agent or by the policy seller.

And a good 90% of those people have no idea if it is truly the coverage they need. We as an insurance buying society have become complacent about how we buy insurance. Only when disaster strikes and that insurance is needed, do most of us find out we were faulty in getting the proper policy to cover our needs sufficiently.

Here’s the deal, insurance companies are in the business of making money, not giving it away. They gamble that when you buy insurance, they will collect premiums for a very long time and never ever have to pay you a dime in claims, that’s the dream scenario at least for the insurance company. In the real world, disaster does strike, and accidents do happen, and your insurance company knows that especially well. And just like the big Las Vegas casinos they manipulate the game rules so the odds are in their favor. If you think that’s not true, you need to read carefully the fine print exclusions on any number of insurance policies you might now carry.

Companies don’t make it easy for you to understand what the terms of a given policy are, by design. They make note of key points early on in the policy, then the language of the policy becomes very legalistic in its grammar. Outlining many situations and circumstances where by being met, your policy will not cover your peril.

For example, some auto insurance policies will cover your auto for hit and run damage provided that damage was committed in public access areas such as city streets or parking areas. But they will not cover such damage if it occurred in a private parking lot or garage.

Here’s a big one we ran into not long ago. A homeowner ran a small internet business from her home, selling nick-knacks out of an office she set up in her basement. A computer she purchased to keep track of the business with, caught fire and caused moderate damage to the home. When the insurance company found out she was running a small business, (by their terms a commercial enterprise) from her home, they refused to pay any and all claims related to the damage the computer had caused which was in the tens of thousands of dollars.

Here is the real kicker to this story. Six months prior to the damage, the woman and her husband had gone into see the local insurance agent, to increase their coverage, so the office furniture and computer equipment they had purchased would be covered. They even had to put a special rider on the policy to cover the computer and laser printer she would be using in her business. All the information was out in the open, not hidden, the agent was totally aware of the intended use of the equipment he was insuring and where it would be used. Yet the insurance company was vindicated in refusing to pay the claim because there was a commercial use exclusion clause in the original policy, which took precedent over any rider that did not explicitly insure the property for commercial use.

So you see it is very important for you to know what is and is not covered in the policies you purchase. Unfortunately most times we never get to see the actual policy until after we have purchased it, often not for many weeks after when we get the actual policy in the mail from the company. Sadly few of us ever actually take the time to read completely the policy we do get. Generally because the language used is too complicated to understand, so we rely on the trust that we have in the agent or company who sold us the policy.

Something that might help and is perfectly legal is to have the agent agree to and sign as part of the policy a statement of policy understanding. That is, you as the purchaser of the policy outline what you believe is covered by the policy as stated to you by the agent. Adding the statement of understanding does not in any way limit or add exclusion to an agreed upon policy. What it does is target specific areas of coverage that are supposedly defined in the policy. And by this statement the agent and or the insurance company is agreeing with you that these specific items are covered within the policy to be issued.

Ok, let’s say you tell the agent that you will be running a small internet based business from your home. Put that on the paper. You tell him your kids have a trampoline in the back yard (trampolines are a big issue, make no mistake) and you believe by what you have been told that these perils are covered under the insurance policy you are purchasing. Include any and all items you can think of that might be obscure in your insurance needs, and add them to the list.

Include a statement that your agent acknowledges these items and areas of coverage, and then have him sign and date it, and you do the same. Have it attached to the policy; make a copy for your records. If the agent tells you there is no need for the statement, that everything is covered, be cautious. If everything you listed is covered, there should be no reason that the agent would refuse to sign it. If the home company feels the items you listed were not covered by policy design or exclusion they will make note of it and add riders (adding cost as well) to your policy or they will simply deny the policy when it is reviewed. But you are still bound legally for coverage until official notice is received one way or the other about your coverage. In any event you will know where you stand.

Insurance companies don’t like these types of tactics, but if more of us did things like that, it would become increasingly difficult for companies to hide exclusions that exonerate them from having to pay claims.

It’s difficult to cover every peril we will face in life, but with a little common sense we can learn to spot those things in our own lives that might require some special insurance attention.

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