What Insurance Companies Hope You Never Learn

Insurance is one of the few bills we pay without much thought. We renew the policy, the money leaves the account, and we move on. That’s exactly what insurers count on. None of what follows is a scam or a trick. It’s just the plain information they have little reason to volunteer, and once you know it, you can save money and get treated more fairly. Think of it as a quick look at how the business works and where your money slips away when you aren’t watching.

The price of staying loyal

You’d think 15 years with the same insurer would earn you a reward. More often it’s the opposite. The industry even has a name for it: the “loyalty penalty.” Long-time customers rarely shop around, so it’s easy to nudge their premiums up a little at a time, often without them noticing.

There’s a very simple way to avoid the loyalty penalty. At least once per year, gather quotes from two or three different insurers for the identical coverage, and if you discover a better price, you can either choose another carrier or contact your existing carrier and inquire as to whether they can match the quote. Many people have saved hundreds of dollars annually without reducing their level of protection.

If you’d rather not call a bunch of carriers yourself, an agent can do it for you. There are two kinds. A captive agent sells for one company only. An independent agent, or broker, works with many insurers and can compare price and coverage across all of them at once. Better yet, an independent agent costs you nothing, since the insurers pay them. Just ask how many companies they represent, so you know you’re getting a real comparison.

Where the discounts hide

Insurers offer plenty of discounts, but they won’t apply them unless you ask, so ask directly what you qualify for. One of the most well-known discounts is bundling your homeowner’s and automobile policies with one carrier. This combination of policies is capable of shaving 10-25% off the total annual premium. Also, there are other discounts that lie hidden within the fine print until you bring them to light. These include:

Adjusting the numbers in your favor

Beyond asking for discounts, there’s one lever most people never touch: your deductible. That’s the amount you pay out of pocket before insurance kicks in. Increasing your deductible from $500 to $1000 can reduce your annual premium by 15-25% on home or auto insurance policies.

The downside is that you take on more of the cost if something happens, so this works best if you keep a small emergency fund to cover the bigger deductible. If you possess an emergency fund containing $1000, raising your deductible to $1000 could potentially save you money in premiums each year.

On the flip side of the equation is understanding when not to use your coverage at all. Filing a claim appears to be the sole purpose behind owning insurance; however, in terms of smaller losses, it may ultimately prove detrimental. Filing a claim, even on a smaller loss, can push your future rates up, and that increase often stretches across several years. As an example, picture a $700 repair job for a fender. If submitting a claim causes your premium to increase by $300 annually for three years, you’ll have spent $900 to receive $700 plus your deductible. Before filing a claim, consult with your agent as to what impact a claim would have upon your premium. If the costs associated with repairing the damage are minimal enough that you can afford to self-insure against it, it may be less expensive to cover yourself financially instead of submitting a claim and risking negative consequences on your claims history.

When the answer is no

If an insurer declines a claim submitted by you, the letter you receive may appear final; however, it isn’t. You possess the authority to dispute an unfavorable decision made by an insurer. Also, a percentage of denied claims are overturned when an individual contests the denial.

Firstly, start by contacting your insurer and inquiring as to why they declined your claim in writing. Sometimes this results in a coding error, lost documents or merely an incorrect interpretation of your policy. Next, compile documentation substantiating your position and prepare a concise written response addressing the reason provided for denying your claim. Finally, mail it. If they still say no, most states let you file for a free external review through your state insurance department, and by law the insurer has to honor that reviewer’s decision.

An annual policy review

Everything here comes together once a year, because your life changes and your policy should change with it. Perhaps you have repaid your vehicle loan completely, completed renovations on your home (i.e. Kitchen), retired, or had an adult child relocate elsewhere. Any one of these events signifies that you may be paying for coverage that you no longer require or are underinsured.

Schedule an annual review date about coinciding with your renewal date and review your declarations page to verify that everything remains correct and accurate. Are you covering rebuilding expenses on your home based upon today’s building costs? Have you eliminated collision coverage on a vehicle valued at nearly zero? A thirty-minute review once a year keeps you from overpaying or being underinsured, and it ties all the other steps together.

Photo by Vitaly Gariev on Unsplash