Personal Finance Tips

There are so many different versions of the idiom. Try, “Expect the worst. Hope for the best.” or “Expect the worst and you’ll never be disappointed.” or “Prepare for the worst. Plan for the best.” You get the idea, particularly when it comes to dealing with your insurance company. It’s a strange reality but, no matter where you go, insurance companies always seem to have a reputation that, as a policy holder making a claim, you will end up like something the cat dragged in. The problem we all face is the profit motive. Although it would be great if every large corporation was full of the milk of human kindness, the directors and executives are driven by the desire for more wealth.

They seize every opportunity to take the extra dollar for giving us less. In the case of insurance, the companies are rather like the big bad wolf that blows your house down rather than paying to repair the leaking roof. So you always have to plan on the basis you will be in for a fight if you make a claim. That means opening and keeping an up-to-date file on everything you say to the insurer about the policy and any claims you might make. The more comprehensive your records the better. If you must speak to a representative of the company, whether in the flesh or on the phone, get a name and always write a letter confirming what was said and what, if anything, was agreed. Yes, it will take up a few minutes of your time. But you should always be able to produce contemporaneous records – a day-by-day record of representations, promises and action.

You are rolling your eyes. All that hassle. Why bother? Let’s take Massachusetts as an example. Five of the largest companies insuring vehicles all managed to make the same data entry mistake. There is this wonderful “place” called the Comprehensive Loss Underwriting Exchange (CLUE). All companies pool information about the drivers they insure. One of the more important pieces of data is whether the driver is “at fault” in a traffic accident. If you are found the “guilty” party, this justifies loading your premium with an increase. What happened in this US state was the five insurers routinely recorded anyone making a claim as being “at fault”. There was no investigation, no court case with a judge deciding one party was at fault. The insurers simply wanted to justify increasing the premiums so assumed fault from the fact of the claim. Fortunately, the people of Massachusetts are well organized. They had a paper trail for every claim and, when they reported the behavior of the insurers to the State Attorney General, this resulted in fines paid by the companies and a recalculation of all the premiums with a full refund to everyone affected.

Sadly, auto insurance is a bear pit and, if you are going to come within range of the bear, you had better be prepared with full information. It does not matter whether you are on cheap car insurance, usually the mandatory liability minimum, or a comprehensive/collision policy with all the bells and whistles, document every aspect of your relationship with the insurer and every detail of any claim you make. If anything goes wrong, every state has a Department or Office of Insurance. Make a formal complaint if you think you are losing out. If you learn of others, complain to the State Attorney General. Failure to fight means the companies will trample on your rights.

This might sound strange to you if you have spent the money on putting an insurance policy in place, but there are times when you should consider not making a claim. It really can protect you from greater losses if your premium rates suddenly rocket up or, worse, the insurance company decides it would prefer you to take your business elsewhere. So let’s take it one step at a time. Almost every policy imposes a duty on homeowners to make claims either within a set time or a “reasonable” time.

If you miss out on a time limit, you have no right to claim. When is a claim made on a “timely” basis? You will be expected to notify the insurer of a theft or vandalism within days. Reports of serious damage will be expected within two weeks and certainly never longer than 30 days. This can put you under pressure if the policy requires you to get estimates from local contractors, but no-one ever said a policy was going to be worded in your favor. So, if you have reliable estimates of the amount lost and/or costs of repair, now comes the big decision.

As a general rule, you should only make claims if the amount is greater than the deductible. If you are going to pay out of your own pocket in any event, silence will benefit you in most cases. However, be careful if there is a third party liability element involved. Suppose the wind lifts two or three roof tiles and one blows down into the street, hitting someone on the sidewalk. The cost of repairing the roof may be small but the risk of a major claim for personal injuries cannot be ignored. Always make a claim when you cannot put numbers on a possible third party claim. Now comes the difficult part. Every time you make a claim, it’s recorded in a national database called the Comprehensive Loss Underwriting Exchange.

If you make multiple smaller claims, or one or two large claims, this will stay in CLUE for seven years and may deter other insurers from writing a policy for you or encourage them only to quote high premiums. You should therefore consider absorbing losses up to $3,000. You may be lucky – the insurer pays your claim in full and does not raise the premiums. But suppose you have a deductible of $1,000 and the insurer raises your premium for $500 for the next two years. You never know the real costs of the claim until after the event but setting a higher minimum amount for a claim gives you a margin of safety. You should at least break even on the smaller claims.

Dealing with claims shows the homeowners insurance companies at their best or worst. The best pay and do not try to recover their losses by increasing your premium. The worst immediately deny your claim and fight you on technicalities. Never forget every state has a Department of Insurance to deal with complaints against insurance companies. If you think your company is unreasonably denying your claim, make a complaint. There are also attorneys who specialize in insurance matters and, if the claim is for a big amount, it may be worth getting formal legal advice on your rights. Homeowners insurance is not “cheap” and you are entitled to fight to recover the costs of repairing or replacing your home so long as the damage falls within the defined perils.