Many insurance agents provide transparency and share details of the process when you request a quote or bind a new policy. Other insurance agents are keeping information from you. Full disclosure regarding the process of writing an insurance policy might not move the sale forward smoothly. It’s easier and often better for sales to keep quiet about some details, and many do.
1. Your insurance agent is pulling your credit report.
While it may seem unfair, credit has become a part of underwriting for most insurance policies. There are many factors that go into calculating an insurance rate, including your credit history. In some cases, your credit score might even make you ineligible for the policy.
Insurance companies have found a correlation between credit performance and frequency of claims. Looking at Nationwide averages, people with lower credit scores have more claims or more costly claims. The inverse is true of those with higher credit scores, who have fewer claims or less costly claims. This policy for insurance companies is based on averages and is not intended to single out individuals.
The Federal Trade Commission weighed in on the matter of using credit scores as an insurance rating factor. The FTC supported the insurance industry, finding a correlation.
You might wonder what your credit score has to do with your driving, or your ability to care for your home. Someone with fewer financial resources may not be able to maintain the safety of their vehicle and may not be able to afford some maintenance items for their home. However, the effect of credit on insurance rates isn’t meant as an indictment of anyone. The insurance industry simply found a meaningful correlation between credit and claims frequency and/or severity. In the insurance business, no correlation goes unnoticed.
2. Your Insurance Agent Wants to Sell You Life Insurance.
Some of the largest insurance companies, the companies we use to insure our autos and homes, are really life insurance companies. The way these companies structure compensation for their agents creates a requirement for that agent to sell a lot of life insurance.
People don’t walk in the door asking for life insurance often. It’s a rarity. While giving you a quote for auto or home insurance or reviewing your policies, your agent is looking for a way to sell a life policy. Insurance agents do make money from auto and home policies, but their income is effectively capped if they can’t reach a bonusable level of sales for life insurance policies or other financial products.
Whole life insurance policies generate a higher premium for insurance companies than term life insurance policies for the same dollar amount of coverage. While whole life insurance policies have their place, they aren’t always the best fit for your needs. If your agent is pushing you towards a whole life insurance policy, ask for some time to consider your decision. Do your research. Weigh your needs at home when you aren’t sitting across the desk from an agent. Ask for a second opinion elsewhere. Your agent’s recommendation might be the best option for you, regardless of their motives, but it’s best to be certain.
Insurance companies often offer a discount for purchasing multiple policies, including life insurance policies. However, the life insurance policy itself is not likely to be discounted. The life insurance policy will create a discount for other policies, such as your auto policy. That extra discount on your auto policy is nice to have, but if you don’t need life insurance don’t feel pressured to buy a life policy for the savings benefit on other policies. If you were already considering purchasing a life insurance policy, the extra discount that your life policy creates on your other policies can make your life insurance policy more affordable.
3. A homeowners insurance claim is still a claim regardless of whether any money is paid to you.
Homeowners insurance protects your home investment, but you also need insurance coverage to satisfy mortgage requirements. Nearly all homeowners pay for homeowners insurance and expect that insurance coverage to be there for them when the house is damaged. It’s a common misconception that homeowners insurance will cover everything that might happen at the home.
Most homeowners policies are named peril policies. This means there’s only coverage for the specific perils named in the policy. If you file a claim for something that is not covered, or if the loss is less than your deductible amount, the claim will not be paid. However, now there is a claim against your policy. Claims against your policy illustrate to the insurance companies your willingness to place a claim. Insurance companies can use your claims history as a reason to non-renew your policy.
4. If you are not at fault in an accident, you can file a claim with the other party’s insurance company.
If your vehicle is damaged in an accident and you are not at fault, you can file a claim with your own insurance company. However, most policies have a deductible. The deductible is the portion of the claim that you pay. There is a possibility you will get your deductible returned, but there is no guarantee.
If you filed the claim with your insurance company, your insurance company will pay to get your car repaired or total the vehicle and then attempt to collect payment from the other party’s insurance company. Any amount collected from the other party’s insurance company will first pay back your insurance company and lastly return all or part of your deductible. When using your own insurance company for a claim in a not-at-fault accident your deductible is at risk. In the best-case, the money you put out as a deductible will be tied up while you wait. If you place your claim directly with the other party’s insurance company, you do not pay a deductible. You don’t have a policy with that company. Most major insurance companies have effective mechanisms in place to handle third-party claims. If you aren’t having success with the other party’s insurance company, you still have the option of placing the claim with your insurance company.
Some insurance companies direct agents to have the customer file the claim with them as opposed to the other party’s insurance company. While this is done to manage the customer experience, you have options and do not even have to inform your insurance company of a not-at-fault accident.
5. Your insurance rates will increase within a year.
Many insurance companies provide discounts to new customers which reduce in percentage over time and then disappear altogether. While not technically a rate increase, a reduced discount or a discount that disappears will feel like a rate increase when you make your payment each month.
It’s not unusual for insurance companies to raise rates once every year or two. In most states, if not all states, insurers must get approval from the state to raise rates. The insurer presents its case to the state, and the state approves or disapproves the rate increase. Most rate increases are approved because the insurance company is able to demonstrate to the state that the increase is needed based on income, claim payouts, and other expenses.
For example, if the price of fuel dropped, or if warm weather arrived early after winter, people will drive more. More driving creates more risk, leading to a higher frequency of accidents and more claim payouts. A sudden increase in claims can lead to a premium increase.
You’re the customer.
The details of your coverage aren’t a secret. Most of the information you’d want is in your insurance policy, but insurance policies are dull reading. Many people don’t read their policies and don’t fully understand their coverage.
It isn’t the agent’s responsibility to explain every single detail in a policy, but we expect agents to represent us and advise us well. Some insurance agents embrace a policy of full disclosure. Other agents want to make the sale quickly and move on to the next sale. Similar to other industries, there are good agents, bad agents, and those in-between.
Give your agent a fair chance, but if you feel you are getting something less than the full truth regarding you coverage, or if you feel like you’re being brushed aside, talk to another agent. You’re the customer, not a prisoner. You decide who gets your business.
