14 Things Insurance Agents Don't Want You to Know
Ignorance is bliss.
The less that you know about how insurance works, the happier insurance agents are. As friendly as geckos, generals, cavemen, and ducks may look on TV, you shouldn't forget that insurance is a multi-billion dollar industry. These companies are out there to make money. It is the job of insurance agents to make as much as they can, too.
Here are 14 things that insurance agents don't want you to know.
Let's start with some tips that apply to several types of insurance.
1. Non-Smokers Pay Less
Non-smokers pay less than smokers for any type of insurance, including car insurance, home insurance, and life insurance. If you don't see a non-smoker discount listed on your policy, call your company and ask about it. Usual discounts for non-smokers range from 5% to 15%.
2. Quick Settlements Are Often Not the Best Deal
A quick settlement offer is never a good sign. This means that you are entitled to a payout, but the insurance agent is aware that if you look into it, you could get more. Remember that insurance companies are for-profit, so don't fall for those "get on with your life" and "put this tragedy behind you" comments. Take the time to carefully review a settlement offer before you accept it.
3. Payouts Can Be Extremely Slow
The airline insurance industry is an example of how slow insurance payouts can be. Lawyers are speculating that the litigation for Malaysia Airlines flight MH370 could take five years, with some families waiting up to 10 years for compensation. Airline insurance litigation in the U.S. can be complex as different states have different caps on damages for victims, so lawyers battle to file suits in states that benefits their clients. For example, in 1949 an Eastern Airlines plane was cut in half. One half fell in Virginia, where then the cap was set at $15,000, and the other on Washington, D.C., where there is no cap.
4. Low, Low Premiums Can Hide Real Costs
Some insurance agents present you a quote so low that you won't believe your eyes. The reason that the quote is so low is that you would be opting for high deductibles and low coverage limits. These cookie-cutter policies may not only be a bad fit for you, but also end up costing you a lot in case of a claim.
To avoid falling for a low-ball price and inappropriate insurance, compare apples to apples by requesting a quote for a policy with the exact same features. Take a second look at any quote that is way below the price of the others.
Don't fall for cute mascots and look deeper into the coverages for those policies.
5. Credit Score Is a Major Criteria
Not used by just money lending institutions, credit scores provide insurance companies a look at your credit history as a predictor of potential payouts. The FTC also agrees that credit scores are effective predictors of risk for auto insurance policies. This is why insurance agents request your social security number — so that they can pull up your credit report.
Despite the validation by the FTC, this practice has been labeled as discriminatory by many consumer advocacy groups. Those struggling with debt or starting to build their credit history are hit with another big bill. This is why the states of California, Hawaii, and Massachusetts have prohibited car insurance companies from using credit-based insurance scores. (See also: How to Improve Your Credit Score)
6. If You Move or Change Insurance, You Get a Refund
It is a good practice to pay your car premiums in a lump-sum payment because you prevent insurance agents from tacking on a "convenience fee" to smaller payments. However, this doesn't mean that they have all of your money for good. They have to earn it. Your lump sum payment covers several months, so if you have to move to another state, the insurance company owes you a refund for the unused months.
Make sure to check the fine print on your policy before cancelling. Some companies may have an early termination fee or require a 30-days notice. Also, plan to have new insurance already in place when the old one is done.
7. "Optional Coverages" May Be Necessary
Insurance agents have to meet sales quotas. Sometimes they may suggest to leave certain "optional coverages," such as underinsured motorist coverage, to lower your quote and get you to sign.
For example, residents of California, Colorado, Georgia, Illinois, Ohio, and Louisiana are not mandated to get coverage for underinsured drivers. Still, it is a good idea to get it. Across the U.S. about one in seven drivers is uninsured. But in some states, such as Florida, Oklahoma, Mississippi, New Mexico, and Tennessee, the estimated percentage of underinsured motorists is 24% and above.
If you are the sole breadwinner in your family, does it make sense to risk the chance of a huge, unexpected bill?
8. You Don't Have to Speak to the Other Guy's Claims Adjuster
Just like in those cop dramas, "you have the right to remain silent and everything you say may be used against you in a court of law." In the case of a car accident, the claims adjuster from the other party might claim that she "must" have your recorded statement or "requires" your medical records.
Don't cave in to these requests, unless ordered by a court or other authority, because the claims adjuster is trying to gather evidence against you. Even your most innocent comment could be twisted as an attempt to delay or deny your claim.
9. "Captive Agents" Cannot Offer You the Best Deal
For the next 30 seconds, write down all the car insurance companies that you can think of. Once the time is up, count how many you got. Three? Five? Ten?
Here is some food for thought: There are about 100 car insurance companies in the U.S. By only looking up the quotes from two or three companies, you're decreasing your chances of getting the best possible price for your insurance. On top of that, an insurance agent from a company can offer you only options that that company sells. Don't fall for their online comparison tables because those quotes are not accurate — they are just estimates. The final price can only be achieved by considering your credit score, driving history, and other factors.
The easiest way to cover the most ground is to work with an independent insurance agent. She represents several insurance companies, so she is not limited to offer you products from a single company.
10. Rental Car Insurance May Be Unnecessary
Check what your policy has to say about car rentals. You may be surprised that your car policy may provide sufficient coverages. Also, some credit cards offer rental car insurance when using them as form of payment.
Before you rent a car the next time, make sure to have read the contracts from your existing car insurance and credit card(s). Remember that personal auto insurance often doesn't cover rentals for business use.
Home sweet "appropriately insured at the right price" home.
11. Force-Placed Insurance Is Expensive
While home insurance is necessary, it doesn't need to be prohibitively expensive. Some banks will try to issue you a Force-Placed insurance, which is very expensive and provides the bank a kickback from an insurance company. This practice is not only unfair to the homebuyer, but also illegal in the eyes of the Consumer Financial Protection Bureau.
Make sure to read all letters from your lender because they have to provide a written notice in case of a Force-Place insurance policy. If the bank is trying to force you into a insurance policy, find an alternative policy that meets the required coverages (e.g. hazard insurance, replacement cost) but at a lower price. If you are able to find an appropriate policy, contact your lender to cancel the forced policy immediately.
12. Little Known Home Insurance Coverages
Your home insurance policy may be stronger than you think. Here are some lesser-known coverages:
- If you're out of power for several days due to a natural disaster and your refrigerator is full of food that goes bad, you may be able to claim compensation.
- Your children's property is protected by your homeowner's insurance as long they are living in campus dorms.
- Home updates required by law, such as a storm cellar, may be covered by your home insurance.
Check your home insurance policy for more details. (See also: 8 Surprising Things Covered by Home Insurance)
13. Private Mortgage Insurance Can Be Removed
The Homeowner's Protection Actrequires homebuyers, who finance more than 80% of a new home's value, to purchase Private Mortgage insurance (PMI). This is an expense that you have to keep for several years. The good news is that once your loan-to-value ratio is close to 20%, you can request your lender to remove PMI from your mortgage.
Here is an overview of requirements:
- No second mortgages on your home
- Current on all payments by the anticipated cancellation date
- No late payments within the last two years
- Good credit score
- No dramatic market value change of home
Finally, here is a type of policy that is so easy for insurance agents to sell that it deserves a mention of its own.
14. Disease-Specific Insurance
The slight mention of AIDS and cancer are enough to send a shiver down anyone's spine. This is why policies for these diseases are an easy sell for insurance agents. By preying on your fear, they get you to hand over cash for something that you may never use.
If you have a health plan or life insurance, you may be already covered for these diseases. By duplicating the coverages, you're just wasting money. If a specific disease runs in your family, get a comprehensive health plan that includes treatment for that specific disease.
What are some other things insurance agents don't want you to know?
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