Why Do Claims Take So Long to Resolve?

If you’ve ever had an insurance claim, maybe a homeowners claim for wind damage to your roof or perhaps an auto claim you may have been unhappy with the length of time it takes to resolve.

This isn’t always the case as insurance companies have made great strides in technology and service goals to handle claims as quickly as possible.  And for the most part the vast majority are handled pretty darn quick, usually in just a few days.

But sometimes, especially if we are dealing with a complex claim the timeline can really seam to drag on.  If this happens there is often a simple explanation that can easily be overlooked… we’re very busy people.  Insurance adjusters are never “caught up” and never have “nothing to do.”  The average inside auto adjuster that you’ll deal with only on the phone likely has 50, 75, 100 or even more claims assigned to them at any given time.  And new claims roll in each day.  The goal is always to close more each day than new ones roll in.  Unfortunately this doesn’t always happen.

Every big company has their own internal guidelines about how quickly they want contact to me made following a new loss report.  Maybe it’s 8 hours, or 12 hours or 24 hours.  Whatever it is every company monitors how quickly their adjusters are to respond to new claims.  So if I have 50 existing claims and a new one rolls in, that new claim will almost always be worked on not long after hitting my queue.  It’s not like we’re ignoring the existing claims we had, but instead it’s crucial for us to review new claims to assess their severity quickly.  If I get a claim for a huge fire, obviously that needs to be worked on NOW and not in three days.  Not every claim warrants such a fast response but keep in mind… when your claim came in to my queue IT was the priority at that time and whatever existing claims I had then waited until you were called.

Besides adjusters being simply very busy people, other factors that can really bog down the handling of a claim is the delay in waiting for experts such as engineers or independent medical reviewers in an injury claim or perhaps we’re waiting on you, the policy holder to provide us with something such as the receipt for the $15,000 stolen Rolex that you claimed you bought with cash just two weeks ago.

And when it comes to injury claims involving attorneys, all bets are off.  Seriously getting an Act of Congress can be done quicker than some attorney involved injury claims.  And it doesn’t have to be this way.  I’ve seen countless examples where the attorney has pretty much everything they need but are just so busy themselves that it takes them weeks or months to put it all together into their demand packet sent to the carrier with their amazingly inflated settlement offer that probably will make me laugh at first.  Have an injury and want your claim handled quickly?  Don’t hire an attorney.

As always, should you have any questions or comments, please do not hesitate to contact me.

-Damon

If You Own It, You Can Insure It

One interesting thing about insurance is that it basically exists for… everything.  Most people think of the home and auto when they think of insurance and these days with the news also health insurance.

But the reality is that that the insurance industry is pretty much all encompassing.  Nearly any type of physical property can be insured for against loss.  Liability types of policies also  extend well beyond slip and fall protection for a physical property and auto liability coverage if you cause an accident.

So besides the basics (auto, home, life and health) there are hundreds if not thousands of different types of insurance policies that people or businesses obtain.  Here is just a sampling of some off the beaten path types of insurance coverages:

  1.  Wedding Insurance – Basically protects the loving couple in case of unexpected loss such as vendor issues, liability such as injury if someone gets hurt and even against extra expense in case it rains.  No coverage though for out of control “Bridezilla’s.”
  2. Personal Articles Policy – A policy for a specific item of value.  Could be for a Rolex watch, expensive Persian Rug, antique furniture or expensive baseball card collection.
  3. Sweepstakes Insurance – Let’s say a car dealership wants to sponsor a hole-in-one promotion at a golf tournament.  On the chance that someone may win despite the long odds, they can purchase insurance.
  4. Employee Dishonesty – Actually fairly common… it protects businesses against employees with their hands in the cookie jar.
  5. Oil & Gas – A whole line of insurance policies specifically written for the complex energy industry.
  6. Crop Insurance – Usually through the government, this is insurance against damage to growing crops in case of loss such as fire, maybe hail, drought, etc.
  7. Vineyard and Winery Insurance – Insurance policies with specific coverages for the wine industry.  I’ve actually handled many claims for wineries despite the fact I don’t like wine.
  8. Body Part Insurance – Lloyds of London is famous for insuring all kinds of stuff like the arms of famous quarterbacks, vocal cords of singers, etc.
  9. Entertainment Insurance – This is for television and movie productions.  I used to handle these claims when at a former carrier that was one of the major “Entertainment Insurance” policy writers.  A movie could have a policy that insures the actors and actresses for millions of dollars if for some reason they can’t fulfill their obligations.  These policies also cover equipment on-set or in transit and also props and wardrobe.  I once handled a claim for a lost suitcase of clothes for the show “Supernanny.”  One suitcase of her custom made on-screen clothing costs more than you might think.
  10. Financial Institutions and ATM Coverage – This is what I currently handle.  These are policies and coverages specifically designed to protect the various risks associated with running a financial institution.
  11. Key Person Insurance – This would be for a company that has employees that are so valuable to the company, they can get insurance against them leaving or dying.   Guessing that if your company has a policy on you sticking around, you’ve got some leverage to ask for a raise.
  12. Travel Insurance – Covers the policyholder against unexpected cancellations so they don’t loose their money but also for loss during a trip such as illness or lost luggage.
  13. Student-Athlete Disability Insurance – Let’s say you’re the next Kobe Bryant and expecting to get drafted in a year.  Just hope you don’t get hurt or your dreams of playing in the NBA and making millions could be lost.   But not to fear… you can get an insurance policy to protect against potential future earnings loss in case you get injured and can never return to the court.
  14. Cell Phone Insurance – Everyone is offered them, and they protect your phone against stuff like dropping it and breaking, theft or dropping it in the toilet on accident.
  15. Kidnapping & Ransom Insurance – Yes, this exists.  Although individuals can buy this it’s usually bought by companies for employees.  The most common example is coverage for ransom to get captain and crew rescued if their freighter was captured by pirates.  Travelers even has an interesting little video about the coverage:  CLICK HERE

And the list can be never ending.  So year, auto insurance could be pretty boring but think about if you’re the adjuster handling a claim for millions of dollars in ransom money being paid to Somali Pirates.  Yea, insurance isn’t so boring now is it?

-Damon

 

How does insurance even work?

So how do insurance companies make money?  Simple, insurance companies pool risk and then determine what premium to charge.  They know that if you insure 100,000 drivers in a specific location, let’s say the Sacramento area for example, some are bound to get into accidents and on those policies the company will lose money.  The key is to have more policyholders who don’t need to their insurance to pay for those that do.  This is the job of actuaries… to determine how much risk to take on and how much corresponding premium to charge.   The bottom line goal is to bring in more premium than is spent on claims and expenses.

Surprisingly, sometimes insurance companies may not want too much business in a specific region.  Florida is an example, especially in coastal regions.  If one company has too much market share in a specific area, they are heavily exposed in cases such as a hurricane for example.  In cases like this where there is over saturation they may stop writing new policies in a specific region or even an entire state.  Think of the insurance companies that had a high “PIF” (Policies in Force) during Hurricane Andrew in 1992.  They took huge hits and a storm of that magnitude if a company is over exposed could put a carrier out of business.

Each state has a Dept. of Insurance (or something similar sounding) that helps to regulate the industry and make sure that all carriers are following the laws for that state, adhering to regulations about how much cash or other liquid investments they must have available, etc.  This is kind of why you hear in the news about why can’t health insurance be sold across state lines.  It’s because each state has it’s own laws and regulations that need to be followed.  Because of this, some carriers choose to not even do business in some states because it’s not worth the hassle or the risk is too high (such as in Florida).  That’s why homeowners insurance in Florida is so expensive… high risk coupled with high regulations = high premiums.  Unfortunately for our friends in the Sunshine State, this likely won’t change anytime in the near future.

-Damon

Insurance Deductibles… Explained

 A word often associated with insurance but sometimes not fully understood is “deductible.”  But what exactly does it mean?  Simply, the deductible is your self insured portion of a loss.  If you have a $500 collision deductible on your auto policy and you get in an accident, the first $500 of damage is your responsibility and your insurance company will pay the amount beyond your deductible.

Homeowners deductibles are similar.  If you have a $1,000 deductible and someone steals your cell phone… you’re pretty much on your own as your loss is going to fall BELOW your deductible.

Not all deductibles are fixed amounts though.  For example earthquake and flood deductibles are often percentage based.  So if you have a 15% earthquake (not uncommon actually to have one so high) and your home is insured for $250,000, your deductible in case of earthquake is $37,500.  That’s a lot of damage you’d have to incur before your insurance kicks in but earthquake insurance (like flood) often cause catastrophic damage to homes which is why the deductibles are usually so high.

Another key point about auto and homeowners deductibles that I get asked about often is if they are per calendar year like heath insurance.  Unfortunately they are not and are per occurrence.  If you get in an auto accident and have a $1,000 deductible, you’re pretty much out $1,000.  The day after your car is repaired you get in another accident, (besides being a really lousy driver) you’re also out another $1,000.

Health insurance deductibles are per calendar year so if you have a $3,000 yearly deductible, your health insurance won’t start paying until you’ve incurred $3,000 of medical car.

Although you may not have a choice through your employer’s health insurance what the deductible is since it’s often a group plan, you do get to choose what your home and auto deductibles are.  Simply, the lower deductible, the more you should expect to pay in premium.  If you can afford to take a $1,000 hit and are a pretty good driver, a $1,000 deductible (or even more) may not be such a bad idea.  But if you’d wouldn’t be able to get your car fixed if you had to come out that much in case of loss, your best bet is to pay a few bucks more a month and have a smaller deductible such as $500 or even less.  One tidbit about home and auto deductibles, if you have a car loan or mortgage (you probably do), there may be deductible caps that your loan company requires… maybe you can’t have a deductible over $1,500 for example.

At the end of the day, if you’re looking to get home and auto insurance, definitely get quotes with various deductibles and pick the right combination of lower premiums vs. lower deductibles that work best for you and how risk averse you are.

Should you have any questions or comments, please do not hesitate to contact me.

-Damon

Depreciation – Part of Life

Liberty Mutual has been running a lot of commercials the last couple years trying to make the case that their insurance is better than their competitors.  And it very well could be.  But you can’t make this determination simply from their commercials.  One would need to take into account the various coverages they are including in their policy vs. the cost they are charging and how that compares to their competitors.  One commercial though really stands out to me though.  It talks about how they will pay you for a new car instead of “three quarters of a car” like their competitors will do.  What bugs me about this commercial is that it’s somewhat dishonest or at least a gross misrepresentation of how auto insurance works.

What they are failing to tell you is the common sense that cars depreciate in value over time.  If you buy a 2017 Honda Accord, the moment you drive off the lot it’s not worth the same as it was an hour earlier.  After one year it may have (and likely has) dropped in value by thousands of dollars.  Just about all reasonable people understand that cars depreciate.  They lose value over time.  And insurance companies traditionally pay only the depreciated value of what a car is worth at the time of a loss.  If you had a 2014 Honda Accord, your insurance company is only going to pay you what a 2014 is worth in today’s market.  And you can take that money and go buy a replacement 2014 Honda Accord.  Not only that.. you can by 100% of a 2014 Honda Accord… not just “three quarters.”  Most people though don’t buy the same make, model and year as the one that was damaged, they buy a newer car.  And that’s where people come out of pocket for something newer better and shinier.  And this is perfectly reasonable.  Liberty Mutual though in their commercials is basically saying that they will pay for a newer model year car and that sounds like a great bonus to having their policy (depending on price).

But what’s deceiving is that they equate this to other companies only offering to pay “three quarters of a car.”  It’s a simple play on words but unless you really understand how insurance works, you could easily get suckered into thinking that not only is Liberty Mutual giving you more bang for your buck, your current insurance company is actually out to screw you over.  And I’ve already addressed who is really screwing who:  Who’s Screwing Who?

Now, if they are truly going to pay you for a current model year car even if your car wasn’t new, I would agree that this seems like a great coverage… as long you aren’t paying more than you could have otherwise.  If they are charging for this coverage or are higher prices than their competitors, than you really aren’t getting anything extra in the end.  So if this coverage sounds like something that interests you, check to see how much they are charging and then get another quote from other carriers to see how they compare.  Maybe Liberty Mutual is the same or less and that’s great.  But maybe they are $75 more a year.  Then you need to decide is if this extra coverage is worth it to be insured through them vs. Herman Munster Mutual Insurance.

So in my opinion, they shouldn’t be trying to advertise that other companies are going to pay you for “three quarters of a car,” they should just advertise that they will pay for a newer model year car than you had.  But this leads to another larger issue… truth in advertising.  But that’s another topic for another day.

As always, any questions or comments, don’t hesitate to contact me.

-Damon

The Check is In the Mail

 So you were in an auto accident.  Luckily nobody was hurt but your car is smashed.  And… it wasn’t your fault so that’s good too.  Should you pursue your claim through your carrier or the at-fault party’s insurance?  Not always an easy answer so let’s discuss subrogation.

Subrogation (besides being a funny sounding word) is when an insurance company pays for covered damages, then tries to collect the cost of the loss from the at-fault party or his/her insurance.  Auto accidents are the most common type of subrogation claim.  In the above accident, you may have a deductible if you go through your carrier but you also may end up getting paid much quicker, have coverage for a rental car that can be direct billed, etc.  In cases like this you may just pursue the claim through your carrier and then after they pay the claim, they then pursue the at-fault party and their insurance (hopefully they have insurance).

In this sense you end up paying your deductible up front but when your carrier gets the money back from the at-fault party’s insurance, they should then reimburse the deductible proportionately.  In CA all money received through subrogation goes first to the policy holder and then whatever is left over your insurance company reimburses themselves.  Other state though are different and allow carriers to reimburse a percentage of the deductible to match the percentage of the recovery.  So if you have a accident that wasn’t your fault and cost $6,000 in damages, you’ll get paid $5,000 after your $1,000 deductible.  Your carrier will then pursue the at-fault party for the full $6,000.  Sometimes though due to depreciation, policy limits or other reasons, a full recovery isn’t made.  So if your insurance company only recovered 70% of the loss, in some states you’d only get $700 back from your $1,000 deductible… even though the accident wasn’t your fault.   Yea that pretty much sucks but it happens.

But the worst case is when there is a responsible party but recovery isn’t possible.  Maybe they don’t have insurance for example or maybe even the at fault party can’t be determined such as a hit and run.  You have a $1,000 deductible that you’re going to be out and not much you can do about it.  If the person that hit you has no insurance, you can still file a lawsuit or small claims action against them and you’ll likely win but if they have no assets… what good is a judgement you can’t collect on?  The bottom line is that when choosing a deductible on your policy, you need to be aware that if you have a claim, even when it’s not your fault, you could be out your deductible.

Insurance companies LOVE subrogation because it’s basically free money coming back to help the bottom line.  The downside is that often times responsible parties can’t be identified (hit and run for example), have no assets to collect upon etc.   Sometimes a party could be known and have insurance but there is disputed liability as it’s not fully known who is at fault in a accident.  In cases like this your insurance company, even against your wishes, may decide to not pursue suborgation if the cost and time isn’t deemed worth it.  It sucks if you’re pretty sure the other guy was at fault… but it happens.

For huge losses in the hundreds of thousands or millions of dollars, especially when liability is not clear, lawyers are often retained to help in the subrogation effort.  It’s not uncommon for insurance companies to basically pursue litigation against the other but the cost of litigation like any matter, needs to be considered against the possible reward if the case is won.

At the end of the day, subrogation isn’t something you need to really worry about but your insurance company takes very seriously.  Just know that if you suffer a loss and someone else is truly responsible, your insurance company likely isn’t going to leave that potential money on the table.  They will pursue it and and if they are successful, you should get some if not all of your deductible back.

Any questions or comments, please do not hesitate to contact me.

-Damon

 

The Denial Myth

All to often claims are submitted to insurance companies, and for one reason or another, they are denied.  Any experienced adjuster has heard countless times from policyholders that we “are paid to deny claims” or perhaps we “have an exclusion for everything.”  This is simply a myth and nothing more than the frustration from someone whose claim may be rightfully denied.  Very few people actually know what is in their policy until they have a claim.  As such, when a claim is denied, it’s not uncommon for the policyholder to just assume that all we do is deny claims.

Auto is simple.  If you get in an accident, even if your fault, or if your car is stolen or vandalized, as long as you have a policy in force and the claim isn’t fraud, you’re going to get paid for your loss.  But homeowners and renters insurance is much different.  There’s all sorts of things that happen to homes that aren’t covered.  The most common denial we see is simply something maintenance related such as a leaking roof.  Very common for a homeowner to call their insurance company about their old roof and “threatening” that we don’t pay to replace their roof it will leak and cause a lot of damage that we’d have to pay for.  We see this a lot with trees that need to be trimmed.  The bottom line is that homeowners insurance is NOT a maintenance policy.  Think about how much you’re already paying for insurance and then think how much more it would cost insurance companies didn’t exclude ordinary wear, tear, deterioration or maintenance.  If we didn’t excluded these types of expected costs, someone could basically not maintain their home and then just expect their insurance company to pay.   Have an old sewer line that needs to be replaced or perhaps the electrical or plumbing in your home is 50 years old and needs and upgrade?  Great… go ahead and get this work done but don’t expect State Farm, Farmers or any carrier for that matter to assist.

Other common exclusions are for damage caused by flood or surface water.  Heavy rains happen and sometimes it’s more than the storm drains can handle.  But when this water then gets inside your house and you have an inch or two of water, that’s unfortunately not covered.  You need flood insurance for damage caused by flood or surface water so don’t get upset if you don’t have flood insurance and then come home to an inch of water throughout your home.

As noted in a prior post, flood and surface water isn’t covered, but plumbing leaks that cause damage may be covered.  But even if we pay for the water damage caused by a broken old pipe, we still won’t pay for the pipe itself.  This is called a “Partial Denial.”  If the pipe failed because it’s simply old (wear and tear), it’s not covered so you’re going to be out your deductible PLUS the cost of the plumbing repair.  Getting old pipes fixed, replacing your roof, repainting your home and replacing old flooring are all some of the joys of home ownership.  So next time your old A/C unit goes out, don’t get upset when your insurance company denies your claim because they are there to protect you against the unexpected.  A 20 year old A/C unit or 15 year old water heater will fail.  It’s not a matter of if, but when.

-Damon

Life on “Cat” Duty

If you’re a property adjuster, eventually there is a good chance you’ll have to go on “CAT” duty.  “CAT” is short for catastrophe.  The most common catastrophes people think of are hurricanes as they leave huge amounts of damage often over a wide area.  There can be so much damage from a single storm, some of the larger carriers like State Farm, Farmers or Allstate may bring in over 1,000 people to help with the sudden claim load.  Often, they will not even have enough people within the company and need to hire “Independent Adjusters” as well to inspect damages and write repair estimates.  And companies are getting better and better to respond BEFORE a storm his vs. after.  Companies like State Farm and Travelers will have mobile disaster RV’s in the region that can be set up in just hours following a storm.  These vehicles are fully self contained with generators, satellite communications, and everything else the company needs to process claims on the spot.  In addition, the big carriers use these vehicles for community outreach to some extent.  You’ll often see water being given out to policyholders (or often anyone in need), maybe even food for their policyholders and when I was at State Farm they used to even give you little “State Farm Good Neigh-Bears” kids (not sure if they do this any more though).  Here is a great photographic listing of State Farm’s mobile CAT vehicles:  CLICK HERE

The big carriers all have dedicated CAT Teams.  Not sure how many people the big carriers have that are dedicated CAT adjusters these days but be assured a company as big as Farmers for example likely has well over 1,000 full time people.  So what do these people do when there aren’t any hurricanes?  Plenty.  That’s because there is ALWAYS something going on that classifies as a catastrophe (for insurance purposes) that doesn’t make the news.  For example, did you know that in Odessa, TX in early June there was a huge hail storm that caused over $400 million in damages?  Probably not but it’s storms like this that keep most carrier’s CAT teams busy year round.  Hail, tornadoes, hurricanes, earthquakes, floods, wildfires, etc.  There is plenty of this stuff to go around even if these events aren’t as heavily reported as something like Super-Storm Sandy or Hurricane Katrina.

If you’re a dedicated CAT adjuster, you basically live on the road.  You’re probably working 21 days in a row or more with only a few days off in between.  Many adjusters on CAT teams actually are younger adjusters as the lifestyle can be a grind.  I knew some CAT adjusters that didn’t even have real homes.  They had their few possessions stored at their parents house because they are out and about working 90% or more of their days.  They live in hotels, drive rented cars (or have a company car issued to them) and have more airline miles and hotel miles than they know what to do with.  I knew a guy on a CAT team that used his Hilton Honors Visa for EVERYTHING and then had the company reimburse him vs. using a company credit card that was paid direct.  He had literally millions of Hilton Honors Points saved up.  This paid for free air and hotel for awesome vacations in between his days working.  And the money is pretty good too.  CAT adjusters get their regular salary, plus a set amount per day for their CAT bonus, plus per-diem for food.  Get a hotel with a small fridge in your room to keep milk cold and you can save a lot of your food money by eating cereal and milk vs. going out.  So yes, the money is great, you can litterally pocket nearly everything if you don’t have a real home you need to pay for and you’ll get to built up a ton of travel miles.  But again, it’s a lot of work.  You could easily be working 10 to 12 hours a day for multiple weeks at a time.  Conditions could be terrible such as working CAT duty in Florida and having to inspect hot roofs during the middle of the day with oppressive humidity.  Or you can end up spending months at a time in less than exotic places like Odessa, TX (no offense to anyone in Odessa as I’m sure it’s a lovely place).

On the flip side, if you’re not on the CAT team, you may look forward to going on CAT duty once in a while.  It can be fun to see new parts of the country, meet new people with the company and obviously, make some good money.  I’ve done it a number of times and although it is a grind it can be very rewarding and not just financially.  Following the San Diego fires in 2003, I was driving around for a few days simply confirming if our policyholder’s homes had burned down and if they had, writing $100,000 checks on the spot to help our policyholders get started on rebuilding.  Many times I was at someone’s home that had literally burned down the day before and they were still somewhat in shock.  It felt good to roll up on the scene and be there to help from Day 1.  Most big carriers make more money selling auto insurance but it’s usually property claims that are higher profile.  It’s one thing to get your car stolen, it’s another to lose everything in a fire without virtually no warning.  Insurance companies and specifically property adjusters are the first people that most policyholders come in contact with.  We’re well aware that we will be the “face of the company” when a catastrophic loss arises so it’s our job to make sure that we’re doing our part to keep the promise that we’ll be there when our policyholders need us most.

If you have any questions or comments about any topic I’ve written about in my insurance blog, please don’t hesitate to contact me.

-Damon

Funny Math

Insurance companies use a lot of math to solve problems.  Such as how much premium to charge you or how much of a coverage limit should a policy include.  But I don’t deal with any of that type of stuff.  Instead, I deal with paying claims.  You suffer loss, I write a check.  But often we have to use some hard to follow math to get to the point where we are ready to issue a check.  And more often than not, it will confuse the policy holder.

In the end when dealing with an insurance claim, such as homeowners following a water or fire loss, the math is all the same:  TOTAL LOSS – LESS DEDUCTIBLE = PAYMENT AMOUNT.  But it’s not always that simple.  What if we’ve already issued an advance payment?  Or what happens if there is a policy limit that is reached or exceeded?  That’s when we have to use funny math which often only confuses our policy holders.

The most common question when dealing with payment calculations from my experience is the claim that we’re taking the deductible twice when a prior payment has been issued and a supplemental payment is then needed.   Lets look an example.  House fire results in an initial damage estimate of $25,000.  You have a $1,000 deductible.  We write check for $24,000 and everyone is happy (hopefully).  However during repairs, some hidden damage is found that is going to cost $2,500 more.  So we start over… TOTAL LOSS – DEDUCTIBLE – PRIOR PAYMENT = SUPPLEMENTAL PAYMENT.  But hold on there Joe Adjuster… you already TOOK my deductible from the first payment remember?  Yes, yes I did.  So you can’t then include it a second time as then I’m getting screwed!!  **Side note, this would be a good time to read Who’s Screwing Who?  Common misconception is that when a supplemental payment is calculated, we still consider the deductible amount as part of the math.  It’s not to screw the policy holder, it’s just math.  No matter how many prior payments are issued or what they were based on is now irrelevant.  All that matters is the NEW total loss amount.  So if the new fire loss is $27,500, we deduct the $1,000 deductible and then the $24,000 prior payment and magically we get to the same $2,500 amount as the new hidden damage.  So why don’t we just cut to the chase instead of showing the long math?  Because you can often have MANY payments on a claim and as long as you follow the simple math, TOTAL LOSS – DEDUCTIBLE – PRIOR PAYMENT(S) = SUPPLEMENTAL PAYMENT you’ll never be wrong.

Let’s make it even more confusing.  Now let’s throw in a policy limit.  Maybe for whatever reason there is a $25,000 limit for the fire damage.  Again, $25,000 in damages (initially) with a $2,500 supplemental damage estimate and $1,000 deductible.  Now it sounds like an algebra problem (and we haven’t even discussed recoverable depreciation and code upgrades paid when incurred).  Even some adjusters can be psyched out about limits and where to apply them but they are simply the last thing considered.   So the new equation is TOTAL LOSS – DEDUCTIBLE = AMOUNT OWED… BEFORE THE APPLICATION OF ANY LIMITS.  So if the amount owed is $24,000 and there is a $25,000 limit, you’re good, we pay the claim in full.  But when that supplement comes in, now your loss is $27,500.  We take that amount less the $1,000 deductible for a payable loss of $26,500.  But wait, we have a policy limit of $25,000 and we’ve already paid $24,000 so we can only pay an additional $1,000 until the limit is reached.  The homeowner is out the $1,500 difference because of the policy limit.  Once the limit is reached, it doesn’t matter if $100,000 of supplemental damage is later found, your claim is now paid and closed.  **This is also the time you start to think about who picked that limit and if there is any claim you can make against the agent who sold you the policy or the carrier who underwrote the policy with insufficient limits but that’s another blog for another day.

In the end, there is a ton of math that needs to be considered when paying an insurance claim.  More times than not your average adjuster is going to be doing it correct but if you have questions, don’t hesitate to speak up and and have your adjuster explain the math to you in detail.  A good adjuster is going to always make sure that the policyholder understands the payment and how it was calculated.  This will prevent a complaint and/or other headaches down the road.

As usual, any questions or comments, please let me know.

-Damon

Everyone’s Favorite Topic… Life Insurance

One topic I have very little knowledge about is Life Insurance.  However I know enough that most people over-think it.  There are many types of life insurance and no shortage of agents who want to sell it to you.  But more times than not, people will often end up with a policy that just isn’t right for their needs.

Again, I don’t know a lot of life insurance but I do know that I like to keep my insurance products with insurance companies, and my investment products with a securities broker.  Why so many people like to mix the two I have no idea.  Let’s say that you’re young (say…. under 40) and it good health, the only life insurance you should likely be considering is TERM insurance.  Term Insurance is pretty easy to understand.  You pay XYZ dollars, and if you get crushed by a bus tomorrow, your insurance company pays ABC dollars to your beneficiary.  Usually this is the way to go to get a locked in 20 or so year policy for a fixed premium and fixed pay-out.  The younger you are, the cheaper the policy will be (obviously).  It’s not unreasonable to get $500,000 or $1,000,000 of coverage for a few hundred dollars a year depending on age and health.  That is often going to be enough to pay off the house (depending on where you live) and put the kids through college with enough left over to comfortably pay the bills if the balance is well invested and now blown on stupid stuff.

Term insurance is also kind of like what you get through employers however you’d have to see if it’s cheaper to get the same coverage outside of your employer’s group plan.  Young and healthy?  You may be able to get a cheaper policy on your own.  But older or in bad physical shape, and that employee insurance plan may be a real bargain as it’s being partially subsidized by the healthy younger employees.

Outside of TERM, the other two most common forms of life insurance are WHOLE and UNIVERSAL.  Honestly, I can’t tell you how these really work but I know they usually aren’t very good options for many who have them.  Both of them basically have a death benefit built in but also a “cash value” investment portion.  Why would you want this type of a product?  If you have money to invest, go invest it into something like Apple or a Fortune 500 Exchange Traded Fund.   I have a couple life policies (one through my employer which is a good value for me) and also a term policy that I’ve had for about 12 years of a 20 year term.  I also have a well diversified portfolio of investments such as stocks which I plan to use to pay for kid’s college.  Simply, I have my life insurance with an insurance company, and my investments with a brokerage house which gives me endless investment options.  Why would I want to blend the two?  Oh wait… I don’t.