The_Jazz

As many of you know, I am an insurance professional. I've had enough requests for help to justify starting this thread. I only do difficult corporate liability insurance, but I have a decent knowledge of other types, like home, auto, health, etc. I will not sell you anything, and I doubt that there are more than 1 or 2 members in the entire history of TFP that would need my services. I can not and will not recommend specific companies or products, but I can help decipher terms, general coverage issues, etc. The point of this thread is twofold - to help folks understand what they need and how to get it. Unfortunately, this is pretty much strictly limited to the US, and many times the laws in your state may be different than the rest of the country.

Risk is everywhere. When you cross the street, turn on the stove, press on the gas or buy a new TV, there is risk involved. Whether or not you choose to buy insurance to cover it, you still have the risk.

First let's start with the fact that as an individual, there are no laws that force you to buy any insurance anywhere at any time in the US, regardless of what state you're in. Interesting, eh? That's right, you don't actually have to buy auto insurance. Every state has a mechanism to allow you to cover the risk yourself, generally by posting a bond at least equal to the insurance limit statutorily required. That means that you'd have to give the state at least $20,000 (that may or may not earn interest) to prove your financial responsibility. Obviously, that's not something that most people can do, so it's an (almost) unused option.

Lenders may require you to buy homeowners insurance because they have an interest in your property, and companies are required to buy workers compensation if they exceed a certain number of employees.

First and foremost, you need to decide what's important to you. If cost is the motivating factor, then it becomes a pure numbers game. You can go online and find the cheapest possible coverage pretty easily. Most people, however, want at least a little something more which is where it gets more complicated. You want to contemplate what you want out of an insurance carrier besides the low price. Good service? Extra coverages? Higher than statutory limits?

Service is more important than you think. If you do have to use insurance, you want someone who can be accountable. Online providers aren't necessarily good at customer service. Do your research and make sure that the low cost guys actually pay the claims. Personally, I think that you need an insurance agent involved, whether an independent (the local guys down the street) or a captive (Allstate, State Farm, Farmers, etc.) who can only sell for one company. If a friend or family member already has a relationship with an agent, that can be a good thing. They can advise you on your specific needs. Don't be afraid to say no if that's the right answer for you. Don't be afraid to find a new agent if your cousin's guy isn't treating you well. After I got married, I fired my wife's agent (and her dad's) because he wouldn't return phone calls to add my car or to get higher limits.

Why is service important? Obviously having questions answered promptly and needs being met quickly are nice, but the real reason is why you're buying insurance in the first place: claims. You want someone that will respond when you actually need something. If you have a fire or someone steals your car, you want someone to be out there to help with what you need. That's why having an agent who answers to you can be helpful. If they don't answer, you don't need them. Buying directly from a company doesn't give the same level of accountability in my opinion, but you're certainly welcome to disagree.

You need to at least make an attempt to understand the coverage you're either buying or declining to buy. If you don't understand, ask for an explanation. Anyone that won't explain something should immediately be removed from your list. Anyone that belittles you or makes you feel dumb for asking should be removed from you list. You don't have time for those kinds of people. Uninsured/Underinsured Motorist, for instance, covers YOU in the event that you're hit by someone who either doesn't have any coverage or enough coverage.

Generally speaking, most people get their healthcare coverage through work, so I'm not going to go into the ins-and-outs of it unless someone has specific questions. That said, there are two main coverages that most people will buy at some point in their lives, auto and homeowners/renters.

Both of these have some things in common. They are both written on what are called "dual coverage forms", which basically means that they provide both first party (you) and third party (someone you injure) coverage (the second party is the insurance company). With both, you will not generally be making the decision on the amount of insurance you will buy for the first party coverage. That will almost always be determined by the value of the thing you are insuring, whether it is your home or your car. With both homeowners and auto, there are things that you can do to lower the premium, like raising the deductible (for auto) or your co-payment (for homeowners). There are also things that you can do to the covered item to make it more attractive to the insurance company like alarms, etchings, etc.

When it comes to first party coverage, there is something important to remember: the insurance company is promising to reimburse you for the cost to repair or replace the item. If they say it is a total loss, they are, in effect, buying the item from you at a grossly inflated price based on the current condition. If you can show them how the item will be easily recovered (if stolen) or difficult to damage (if there's a fire), then your price should go down.

Third party coverage is a lot more important than most people realize. You also get to choose how much insurance you want to buy. I always tell people to buy as much as they can afford when it comes to limits. When I say that, I'm referring strictly to liability coverages or what responds when you injure or are accused of injuring someone else. If you hit someone with a golf ball, your dog attacks them or they allege that they slipped on your front stairs (even though you know that they hurt themselves a week before and just have it in for you), you could be liable for the damage. Obviously, high net-worth people need to protect more than those with few assets, but there are lots of uncollectible judgments out there for millions of dollars against folks that just don't have the money to pay them. Plaintiffs can seize assets that arise after the judgment, and the new bankruptcy laws generally won't protect you.

One final thing - whether or not you buy insurance, you still run the risk of bad things happening. If you buy substandard coverage that's cheaper, you may pay for it in the long run. Ultimately, insurance is a roll of the dice and you get to decide how much skin you have in the game.

I am sure that there are more specific questions than what I've posted. If you don't feel comfortable asking them here, then send me a PM or email. I will answer as quickly as I can.

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"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin
"There ought to be limits to freedom." - George W. Bush
"We have met the enemy and he is us." - Pogo