For Consumers Everywhere
When purchasing insurance, consumers should be aware that they are actually purchasing a written legal contract of considerable complexity. The insurance attack attorneys on television sometimes make a valid point when they snarl about protecting consumers. However, consumers are better protected by purchasing quality coverage from the start so they do not have to hire the attack dogs later. The benefits of purchasing quality coverage are significant and include faster receipt of claims payments and considerably less stress.
The consumers would also receive the full claims payment as opposed to, often, paying attorneys 20%-40% of the money received (the secret’s out) -- money the insurance company (at least the good ones) would have paid to the consumer without an attorney's involvement.
A great example of this situation was illustrated in an advertisement I saw recently where a driver applauded his/her attorney for settling an uninsured motorist claim. Consumers should be aware that the clapping should be aimed at the insurance agent who sold the driver uninsured motorist coverage. Furthermore, that claim will likely be paid in full. By hiring a lawyer this poor consumer, who most likely did not know any better, gave 20%-40% of his/her settlement to the attorney -- money that could have gone to pay medical bills.
Consumers should be aware that due to the complexity of these contracts, insurance providers may be taking advantage of the consumer's desire to control their purchase by advertising significant savings and the ability to buy only what you need. Knowing what you need is difficult enough without context and a true understanding of the contracts purchased and matching your needs to a contract that actually provides you with what you require is extremely difficult. To provide an example of this complexity, homeowners insurance policies are considered relatively simple versus many other kinds of insurance contracts. I completed an analysis of the basic combinations of coverages (not coverage limits such as $500,000 and such) and there are over 20,000,000 combinations of the basic options!
If you have the time, if you have the legal knowledge, if you have the deep insurance knowledge, and if you have a bank account large enough to cover your mistakes, then you probably should purchase insurance on your own.
If you do not have the time, the legal knowledge, the insurance knowledge, and/or if you do not have a bank account large enough to cover your mistake of buying too little insurance, you should probably hire a high quality insurance agent. Most agents work for free relative to the consumer because insurance companies pay them, and those commissions are built into the rate. The rate is part of the insurance companies' filings and is available at your state insurance department for review. The amounts paid are small too, typically averaging around 13%. When an agent encourages someone to purchase more insurance that may cost an extra $100, the agent stands to make only $13. If they are a salesperson, they are likely to only make 20%-40% of that $13 or between $2.60 and $5.20, hardly enough money to be worth their while to persuade people to buy insurance they do not actually need.
If you decide to use an insurance agent, consumers do need to be aware of the vast variety in the kinds of agents and quality of agents -- hence part two of this public service announcement. I suggest consumers look for agents who directly represent consumers, at various levels depending on state laws and regulations, rather than agents who are employees of an insurance company. I also suggest using an insurance agent who actually knows which coverages make the most sense for you. A good way to legally protect yourself is to ask the agent to advise you on what coverages and coverage limits you need. Preferably, ask them for details. Do not tell them what you need. If you tell them what you need, agents get to escape considerable responsibility to consumers because they become known colloquially as "order takers." If you ask them for considerable advice, you force them to provide professional advice and their duty to you increases materially in most instances.
Another good protection is to literally interview them. Ask questions to test whether they actually know what they are doing. At the very least, look for professional designations after their names.
Insurance done well is an unbelievably inexpensive protection against life's disasters. It seems like it costs a lot, but often it actually only costs a few pennies per thousand dollars of coverage. It is just that in today's litigious society, more expensive homes, and regulatory requirements, consumers truly need hundreds of thousands and often a million dollars or even more of insurance coverage. To make your investment and protection more worthwhile, find a truly professional insurance agent to thoroughly advise you on the coverages you need.
Even though I know an awful lot about insurance and even teach insurance coverages, I still seek professional insurance agents from which to buy my own insurance. This demonstrates how complex insurance really is.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.