We all buy insurance because we know we “should”. Who wants to be uninsured? The phrase, “when disaster strikes…will you be prepared…” on advertising is about the only marketing that an insurance company really does. I think they are missing a huge opportunity for merchandising.
Your insurance agent has a huge responsibility, and that is, to make sure that you are adequately covered. If I were an insurance agent, I’d be hugely successful because I wouldn’t rely on the average phrases they use to market. I wouldn’t buy an ad on a bus bench. I would sit down with each client and do an INTENSIVE interview so that they know what they are buying. Insurance is not boring. It is fascinating in so many respects. It is investors consulting with experts who predict the likelihood that you will die at a certain age, or have a fire in your neighborhood, or have your car broken into. They play that spread, and they price coverages accordingly.
This is why you need to know of a very important concept of insurance that NOBODY knows about, and it is called “Co-Insurance”. This is typically a phrase or clause that you would never read in the fine print of your policy, but could make a huge difference should you have a claim. Let me explain it in brief.
If you buy too little insurance, (maybe saving money by paying lower premiums because you think you could get away with less than full cost) you become co-insured. That means the insurance company now has a partner, and that is you.
Say for example you insure your house for $100,000. But the replacement cost is $150,000. Therefore you insured it inadequately. You now are a partner of the insurance company. Whatever your claim is, it will be divided by the ratio that you are uninsured. Let’s say you have a loss of $50,000. The insurance company comes in and finds out that your house would cost $150,000 to insure, but you only insured it for $100,000. You now are 1/3 insurer. That means – WHATEVER your claim is, it gets reduced by 1/3. So rather than $50,000, you will get paid $37.500. I know of no insurance agent that tells you about that. If I were an agent, I would spend time with you and really make sure you have adequate coverage. I’d look for loss claims in your area, for your size of house, roof material, etc. and probably come over to see how nice your fixtures or appliances are. Then I would tell you the amount you should insure it for.
I would sit down with you and explain every part of the policy. SOUNDS BORING DOESN’T IT. It’s not to me anymore! Because we are in the middle of working out what the loss actually is. We have a consultant, an independent adjuster and an attorney all working on what our loss was, so we can present that number to the insurer. By all indications so far, we did not buy inadequate insurance, so co-insurance may not apply to us. We lucked out.
Now when I get a policy, I read every part of it. It is a contract between you and the insurer. I bet you didn’t know about coinsurance. Probably the agent just asked you straight up, “how much liability coverage do you want”? and went through the numbers.
Here is a line from my policy I bet you didn’t know about that exists in probably everybody’s policy. I urge you to get a copy of your policy and ask for an appointment with your agent to review. Don’t just throw numbers out of your ass. You could really regret it.