You’re In Greed Hands
Don’t assume your insurer has your back.
The art of marketing has been refined over decades, creating a discerning consumer that demands to be seduced rather than sold. When combined with offensively precise digital profiling data, marketers can zero in on your value fulcrum and tip the scales in their favor.
It’s no coincidence most insurance advertisements are amusing, reassuring or both. Pay no attention to the declarations page, sign up for the hugs and lulz. I’m practically friends with a talking gecko. How harmful can a tiny lizard be anyway?
Quite a bit, actually. There are no rules that your insurer act as a fiduciary or do anything other than perform within the confines of the issued policy. Sometimes, they even try and wiggle out of that legally binding contract.
Recently, I filed a claim on an extended warranty for a TV purchased at Costco through a third-party insurer. The policy clearly stated it was for a like-kind replacement. What I received was an off-brand replacement worth 1/3rd the value.
One month and 5 finger wagging emails later, the correct model now hangs on the wall. This experience inspired the title of this newsletter, so it wasn’t completely valueless.
As a side note, I generally find the third-party extended warranty insurance experience to be subpar. While this is not always true, it seems that a good default position is to reject it when there is insufficient time for thoughtful consideration.
Many policy holders from last year’s natural disasters are finding out how important it is to police your insurance providers. It’s easier to just buy a policy, assume it’s correct and move on with your life but this can be an expensive lesson in neglect.
The point isn’t to buy insurance to check a box. It’s to secure a policy that will effectively transfer a risk in your life to an insurance pool. Whether it be loss of life, loss of income, legal risk, or catastrophic property damage, any one of these has the potential to set you back significantly.
The average household with two incomes, cars and a home should consider all the basic essential insurance policies:
Personal Liability Umbrella Policy - $1,000,000 is a good starting point
Homeowners policy – preferably HO-5 with full replacement cost with an inflation adjustment and endorsements
Auto policy per vehicle – comprehensive 100/300/100 (per person/per incident/property)
Life insurance per earner – enough to cover your spouse and dependents’ financial needs in your absence on a term policy.
Long-term disability per earner – 65% of income lost until age 65
Health – at least catastrophic coverage*
*ACA compliant plans insure beyond catastrophic coverage limits. This includes most employer sponsored healthcare plans, Medicare and policies purchased through healthcare.gov. Catastrophic coverage would not be comprehensive but should be enough to keep your household solvent.
TIP: Your employer likely offers group life and disability coverage without the need for underwriting. Keep in mind that the coverage is contingent on continued employment and open enrollment is typically once per year. Having your own policies is usually worth the underwriting and additional cost.
Do not assume your insurance policies fit your needs. Assume that they do not until you have verified otherwise. When it comes to policy review, use a trusted disinterested third party to assess your needs compared to your coverage. We do this regularly for our clients.
Having the insurer review your policies on your behalf is like trusting your contractor to finish the job on time and on budget. Shocker, your interests are not aligned.
The insurance company’s aim is to collect a premium and minimize risk of peril. The most straightforward way to do this is through coverage exclusions. The insured’s aim is to transfer as much risk as possible for as little premium as possible.
These two positions are diametrically opposed, hence the hostile view most people have toward insurance companies. Also, this is why our talented marketing people work so hard to create public relations campaigns disguised as amusing advertisements.
But alas, you are not in good hands until you’ve confirmed your policies are appropriate for your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities offered through LPL Financial LLC. Member FINRA/SIPC. Advisory Services offered by National Wealth Management Group LLC, an SEC Registered Investment Advisory and separate entity from LPL Financial LLC.