Considerations for Insurance Premiums

Insurance is based on the law of large numbers.  By combining a large number of common units, the insurers are able to make predictions of possible loss and are able to calculate their probable losses — and establish the rates for those losses and their operating expenses (which, depending upon the type of company, can include significant profits for the insurer’s stockholders).
Too often, the effects of losses on profits are managed at the claims level where insurers will routinely delay, deny or defend against the payment of claims.  (This is when the insurer will hire people like me.)
In my opinion, the amount of the premium for any insurance should be among the last considerations used by a consumer when considering an insurance company to hire.
When the premiums are significantly lower than the average premium among remaining insurers, one can be reasonably assured that the insurance company will be using other (and possibly less desirable) means to make the same or more profit than the company with the average premium rates.  Typically, one will find that such insurers are much more enthusiastic and prompt in their collection of premiums than their payment of claims at the time of loss.
Recently, I had some interesting results for a client whose home had been damaged by fire and needed extensive repair.  The insurance company had underpaid him by claiming a depreciation of more than 63% on the interior plaster walls that were in excellent condition prior to the fire, but were old.
After I reopened the claim, the insurer agreed to pay him an additional $11,438.00 that he had been originally entitled to and almost walked away from.
If there is a moral to this story, I think that it is to seek a reputable insurer with a fair rate in comparison to other insurers and not the lowest rate which is likely to find you struggling to be paid for your loss at a time you can least afford the hassle.

Copyright 2013 James H. Bushart

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