Monday, 27 August 2012

The Evil Insurer - Tips and Tricks to Help You Come Out on Top

Insurance is an evil industry. It never ceases to amaze me when yet another insurance policy is invented to protect the unsuspecting public from ridiculous events that are extremely unlikely to occur. I know this sounds pretty negative but when you ask just about anybody who has had to deal with an insurance company, they will be just as cynical as I am. Now I’m not saying to abandon all of your insurance policies, as some are warranted and can protect you from horrible, unforseen events, what I’m saying is, you need to do a hell of a lot of research before signing up. Before I get started, let me just tell you what the number 1 thing that you ALWAYS need to ask before considering a new insurance policy, “What’s not included?”.

This is something that is almost always overlooked by people seeking an insurance cover. Insurers produce exhaustive lists of what is covered but rarely, if ever, list what is not included. This just means that unless your loss occurs due to one of the items on the list, you are not covered at all. Your cover is always more inclusive when the insurer produces a list of what’s not covered in your policy.

Below are some more common traps:

Under insurance – there is a clause in most modern policies which states “This type of clause requires you to bear a proportion of each loss or claim if the sum insured is inadequate to cover the full potential loss. In effect, you are taken to have self-insured a proportion of the risk, because you have not insured the full value of the risk.”

So, for example, you bought a house for $300,000 ten years ago and insured it for its replacement value at the time ($300,000). Fast forward to today, property prices have risen, you’ve done some upgrades on the property but have left the insured amount at the same level due to laziness or being comfortable in knowing that you’ll at least get $300,000 should something unforseen happens.

In a horrible turn of events, your house is burned down. You go to your insurer and make a claim for the $300,000, although your house is now worth $500,000. The above clause means that your maximum claim will be:

$300,000/$500,000 x $300,000 = $180,000

In summary, you should review your insurance cover every couple of years but make sure that you don’t over-insure as this won’t provide you with any extra cover. It’ll just mean you pay higher premiums for no good reason.

Insure ASAP – When you enter into a contract for the purchase of a property, you’re instantly liable for the property. To avoid entering into a hasty, long-term insurance contract, you can take out interim insurance with most insurers. If for some reason you can’t take out an insurance policy upon signing the contract, you can put a clause in the contract that will pass all liability to the seller until settlement. I would suggest contacting a solicitor to get the correct wording of such a clause.

Two Policies – A common question by a seller usually arises when a contract is signed. “Should I now cancel my policy as the buyer is now responsible for the property?” The answer is no. You never know what kind of policy a buyer has taken out and whether or not everything has been disclosed. If something goes wrong and the buyer’s insurer cancels the policy, your property is in effect not insured at all.


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