All About Insurance

If your auto damage claim is unjustly denied, go to your agent for help. Many
agents have the expertise and skills to be an effective advocate for your
rights, and they often succeed in getting claims paid. If that fails, you can
mediate, arbitrate, file a complaint with your state insurance department,
or even sue your insurance company.


But what if the adjuster agrees that you’re covered but disputes the amount
of your claim? Fortunately, your policy has a simple, inexpensive solution
built into the policy provisions — the appraisal clause.
Virtually every personal policy — auto, home, boat, and so on — contains an
appraisal clause. Few people know about it, and even fewer people use it. In
this section, I explain how to use the appraisal clause if you and your insurance
company don’t agree on how much your claim is worth.

Virtually every personal policy — auto, home, boat, and so on — contains an
appraisal clause. Few people know about it, and even fewer people use it. In
this section, I explain how to use the appraisal clause if you and your insurance
company don’t agree on how much your claim is worth.
Use the appraisal clause only after the best attempts of you and your agent to
settle the claim for a fair amount have failed.
Either you or your insurance company may request an appraisal if you fail
to agree on the dollar value of a covered claim. If you’re requesting one, you
simply send the insurance company a letter with your request.
Each party picks an appraiser to represent his position. The two appraisers
independently choose a disinterested umpire to resolve things if the two
appraisers can’t reach an agreement. Each party pays for his own appraiser
and splits other appraisal expenses (including the umpire’s cost, if needed).
The good news is that you aren’t forced to accept the insurance company’s
offer. Also, the process is considerably cheaper and faster than lawsuits or
arbitration.
For most property valuation disputes, you don’t need an elaborate group of
three solemn judges. You just need a fair, unbiased, and disinterested person
with excellent knowledge regarding the subject of the dispute — someone
both parties are comfortable with — to act as the umpire. Both parties agree
to abide by the umpire’s decision.

There are several major risks that you face regularly throughout your lifetime
that, if they occur, can cause your financial ruin: major medical bills, major
damage to or destruction of your residence, major lawsuits and the cost of
defending them, long-term disability, premature death, and — especially for
those over age 40 — the risk of extended long-term care.


Your insurance program is in balance if each of these major risk areas are
equally well covered and you’re not spending too much on one area and too
little on another.
Many people have major-loss coverage that’s out of balance. They may have
a good medical plan with high limits, but no coverage for long-term disabilities.
They may have $1 million of life insurance on the breadwinner, but none
on the homemaker. Their home may be fully insured, but they have only
$100,000 of coverage for lawsuits and no umbrella liability policy.
A highly-skilled agent can help you identify imbalances in your insurance program
and suggest the corrective action needed, which is why taking the time
to find the right agent is so important. Most people who buy insurance don’t
take the time to find the right agent for them. They let whoever answered the
phone and gave them the quote be their agent, without any knowledge of that
person’s skill level. And, in the end, they get a less-skilled agent than they
could have had for the same price.

1. Keep It Simple
Managing risk (the chance of a loss happening) and buying insurance is tough
enough without making it any more complicated than it has to be. For every
risk I show you, generally more than one strategy exists that effectively minimizes
that risk. Using the keep it simple principle, you take the simple path.
Simple means easier and more likely to be implemented — simple is not less
effective.

2. Don’t Risk More than You Can Afford to Lose
I’m all for taking risks if it makes economic sense. Carrying large deductibles
(the amount of a loss that you pay out of your own pocket before insurance
kicks in) to lower insurance costs is a smart gamble if you save enough on
your premiums (the price you pay for the insurance policy covering a defined
time period — for example, six months or a year). Not buying collision insurance
on older cars that you could afford to replace is another smart gamble.
But be sure to insure any risk that is a part of your life if the risk could cause
you major financial loss — if it’s more than you can afford to lose.

3. Don’t Risk a Lot for a Little
Spending a little now (for coverage) makes more sense than spending a lot of
your own money later when something happens that you’re not covered for.
Most people who buy insurance can’t afford to buy unlimited quantities; you
probably don’t have millions of dollars of liability coverage, for example. So
you tend to buy a limit that feels comfortable and doesn’t blow your budget.
But too many people are considerably under-insured, and, tragically, they’re
seldom aware that better insurance would cost them very little.

4. Consider the Odds
This rule says that when the odds of a claim happening are virtually zero, and
the insurance costs are inappropriately high, you shouldn’t buy the insurance.
Considering the odds also means buying insurance when the possibility
exists that a serious claim could occur.
Homeowner’s policies exclude earthquake losses. But they do offer an option
to buy the coverage for an additional charge. Here are two examples of how
the principle of considering the odds applies: It’s estimated that only about
20 percent of California homeowners had earthquake coverage to protect
themselves against the devastating California earthquake of 1989, despite the
high odds of an earthquake occurring. The 80 percent who were uninsured were in clear violation of both this rule (to consider the odds) and the rule
not to risk more than you can afford to lose. As a result, many homeowners
suffered ruinous, uninsured earthquake losses that easily could have been
avoided with the purchase of insurance.

5. Risk a Little for a Lot
This principle encourages you to avoid insurance when the risk is small in
relation to the amount of the premium. Say, for example, you own a 1996
Honda worth $1,000. You were just hit with a DUI, and you’re facing premiums
of two to three times what you had been paying — not just this year,
but for each of the next three to five years. Your collision insurance premium
with a $500 deductible has just increased from $100 to $300 a year. If you
keep this coverage, the maximum risk to the insurance company is the value
of the car ($1,000) minus your deductible ($500) minus the salvage value of
the car ($50), which totals $450. This rule advises you not to buy what turns
out to be $450 of insurance for a $300 annual premium. Under these circumstances,
the smart move is to drop the collision coverage.


6. Avoid Las Vegas Insurance
Avoid any insurance that transfers only part of the risk to the insurance company,
leaving you unprotected for the rest. Accidental-death insurance purchased
from an airport vending machine is a good example. It often only pays
if you die in a plane crash in the next few days! What you really may need is
more life insurance, protecting you all the time and from any cause.

7. Buy Insurance Only as a Last Resort
This principle advises you to buy insurance only when it’s the best and most
cost-effective solution. You have many options in treating any given risk;
insurance is only one. Treat your risks with non-insurance strategies first.
Insurance is not the best solution for managing this risk — not only because
cash is a poor substitute for treasures, but also because of the hassle and
cost of the appraisal, as well as the insurance premium that’s due every year.
When it comes to irreplaceable treasures, preventing the loss altogether is a
far better strategy than insurance, without the costs or the pitfalls of insurance
coverage.

What makes a great insurance program? Two things:

1. Balance: A solid insurance program covers all five major risk areas:
• Major damage to or destruction of your residence
• Major lawsuits
• Premature death
• Long-term disability
• Major medical bills

2. Customized coverage: every policy covering these five major risk areas
has been custom-designed with high limits and the proper endorsements
to cover the unique risks in your life that otherwise would not be
covered by off-the-shelf policies.