The Truth About Home and Auto Insurance
We buy insurance to protect ourselves against financial risks — but sometimes the greatest risk is that we don’t fully understand our coverage. Insurance contracts are complex, with potentially important details buried in small-print legal jargon. Consumers often assume that common sense dictates when their insurance will protect them, but frequently you don’t get as much coverage as you think you are getting, and sometimes you don’t know enough to take advantage of the coverage that you do have. The insurance myths that can cost you…
Myth: The “replacement cost” provision in my homeowner’s policy means that I immediately would be paid enough to go out and replace or repair my ruined possessions.
Reality: Generally, replacement-cost coverage initially pays only the depreciated value — reflecting the reduced value because of age or wear and tear — of your damaged possessions when you file your claim. In this case, you would have to come up with your own extra cash to buy new replacement items and do repairs. You then would have to file a supplemental claim, accompanied by a copy of the purchase receipt, to be reimbursed for your cash outlay. Also, many policies set deadlines for acquiring these replacements, often as little as six or 12 months after the date of the loss — which may not allow enough time to replace a houseful of items.
What to do: Check the time limit. For structural damage, ask contractors if they are willing to work with the insurer to eventually recover the full cost. For damaged contents, replace some quickly and file a claim, then use the insurance settlement money to help replace more.
Myth: The mold exclusion in my homeowner’s policy means that I’m financially responsible for resolving any mold problem that develops.
Reality: Your insurer is responsible for mold-remediation costs despite this mold-exclusion clause if the mold stems from a covered event.
Example: A storm blows out several windows, and the rainwater that gets in leads to mold. Because the storm damage was covered by your policy, the mold is covered, too. Insurance companies sometimes attempt to reject mold-remediation claims that ought to be covered by claiming that the mold is unrelated to the covered event.
What to do: If your insurance company tries this, pay a mold-remediation service a few hundred dollars to determine the age and source of your mold. If you can establish that the mold dates to the covered event, the insurance company should back down.
Myth: Replacement of only the damaged sections of my home is covered by my insurer.
Reality:If replacing a damaged section of carpeting, siding, flooring or some other element of the home creates a visible difference between the replaced section and the old section, the insurer must replace undamaged areas as well. This rule applies when there is a spot from which the undamaged section and the replaced section can be seen at the same time.
Example: A storm damages the siding on the north and east sides of your home. If there’s a visible difference between new siding and old, the siding on the south side must be replaced, too, because there are spots from which the east and south sides can be seen at the same time… and the siding on the west side must be replaced because there are spots where the north and west sides can be seen at the same time.
What to do: If your insurer tries to dodge its responsibility to replace undamaged sections, write the adjuster a letter stating, “It is my understanding that in accordance with the line-of-sight rule, I’m entitled to replacement of the siding on the south and west sides of my home as well. (Alter the description of what should be covered, as appropriate.) If you have any doubts about this, please refer to your Fire, Casualty and Surety (FC&S) Bulletins and get back to me.” Adjusters usually back down when policyholders cite this trade publication known by few outside the insurance industry.
Myth: I have to live with the work that the repair shop does if my auto insurance requires me to take my vehicle to a specific shop.
Reality: Work done by a repair shop mandated by your auto insurance company’s “Direct Repair Program” is automatically covered by your insurer. If you can show that the repairs were subpar or incomplete, you have the legal right to insist that they be redone.
What to do: Immediately after your insurer’s mandated repair facility finishes its work, take the vehicle to a dealership service department and request an evaluation of the damaged area. If the vehicle was in a serious collision, specifically request a four-wheel alignment. (These alignments use laser-diagnostics that often uncover lingering problems with vehicles that have been in collisions.) Share the dealership’s findings with your insurer, then say, “You’ve warranted these repairs, so make arrangements to take my car back to redo the repairs properly.”
Myth: When I lend my car to a friend, my coverage still applies.
Reality: It depends on the policy. Some insurers now provide coverage only to drivers specifically named on the policy, a practice called “named insured only.”
What to do: Read the terms of your insurance contract carefully before handing over your keys. Consider the driving skills of the person you’re lending the car to, even if your coverage does extend to this driver — your insurance rates could be increased, even though you were not directly involved in the accident.
HOME AND AUTO INSURANCE
Myth: There’s no harm in calling my insurer about a minor incident to find out if it’s worth filing a claim.
Reality: Your insurance company will open a claim file as soon as you call the claims department, even if you don’t pursue payment. More claim files typically mean higher premiums when it comes time to renew auto insurance, and homeowner’s insurance providers sometimes cancel coverage when policyholders have multiple claim files. This can occur even if no payment is ever made on any claim.
What to do: Do not contact your insurer unless it is likely that the cost of repairs will significantly exceed your deductible. Obtain a repair estimate first if you are not certain.
Myth: An “independent” insurance adjuster sent by my insurance company will give me a fair shake.
Reality: An adjuster’s job is to look out for the insurance company’s bottom line. He/she will pretend to be your ally but will steer you toward options that save the insurer money, such as repairing damaged furniture rather than replacing it… or taking your damaged vehicle to a body shop that works cheap. This is true even if the adjuster is employed by an independent company — these independent agents know that they will lose the insurance company’s business if they fail to keep claim costs down. (Adjusters for a small number of insurance companies, including Chubb, Amica and St. Paul Travelers, typically do look out for their customers’ interests. These companies strive to be viewed as customer-friendly insurance providers.)
What to do: If you believe an insurance adjuster is not being reasonable, consider hiring a public adjuster, an insurance claims specialist who represents policyholders in their negotiations with insurance companies. First, say to the insurance adjuster, “My neighbor suggested I hire a public adjuster to represent me. What do you think?” Insurance company adjusters often become more flexible when they have reason to believe that the alternative is facing off with a professional public adjuster working on the policyholder’s behalf. If you still are not satisfied, go ahead and hire a public adjuster. They can be found in the Yellow Pages, typically under “Insurance Adjusters” or “Adjusters-Public”… or through the National Association of Public Insurance Adjusters (703-433-9217, www.napia.com)… or on my Web site (www.ican2000.com). Public adjusters typically charge approximately 15% of the total claim settlement.
Myth: I can cancel my insurance simply by not paying my renewal bill.
Reality: Insurance companies typically provide a grace period of about 30 days before terminating coverage when a bill is not paid. Policyholders are legally responsible for premiums charged during this grace period, even if they have no intention of continuing their coverage and already have obtained coverage through a different insurer.
Not paying the resulting bill is likely to put a black mark on your credit report and trigger calls from bill collectors. It’s better to call and cancel an insurance policy that you no longer need, even if the policy has reached the end of a coverage period.