5 Loopholes Where Your Insurance Company Can Screw You Over

The financial crisis has taught us two things. Do not trust certain banks and do not rely on some insurance companies. Banks blew our savings on subprime loans while insurance group AIG (American Insurance Group) exceeded their credits on bogus investments and bonuses. In both respective cases the American people was left to pick up the bill.

All cards on the table, here are five ways your insurance company can avoid covering your claims to increase its profits. These loopholes are known and used escape routes by insurance companies during financially recessive times. Since we’re in one right now, I suggest you get to reading.

1. Where the Totaled Cars Go: Book Value Compared to Actual Value.

A new car loses 20% of its book value the minute you drive it off the lot. By the time you have owned your car for a few years, your vehicle is not likely to be worth anything close to its replacement value, and it may still be worth less than the amount you owe on the car loan.

But if the repair cost is more than the book value of your car, insurers can choose to “total” it. What this means is that they only need to pay you the book value, and not the total cost of repairs. If you need to get back on the road, you will either have to pay the difference to repair or replace it.

2. A Tale of Two Prices

Your health insurance company has a formula to determine the amount they think medical services should cost. This private information is not usually shared with covered people or medical service providers until the bill gets processed. This practice has come under intense scrutiny lately, and some insurers have even faced legal cases.

For instance, one insurer determined that the cost of a doctor’s office visit should be $60 in New York City. Consumers who actually needed to seek a doctor found that the bill was much closer to $200, and those consumers were responsible for paying the difference, despite the fact that their policy stated it covered visits to a doctor’s office.

3. Patient Dumping: Temporary Health Insurance

Temporary health insurance are marketed as good options for people who are between jobs with group health insurance, and the premiums may be less than a permanent individual health insurance policy.

However, these policies are usually renewed for periods of 6 months to 1 year, and every time they are renewed it is like a brand new insurance policy. So what happens if you get sick during one period, but treatment extends into the next renewal period? They can actually deny the claim as a preexisting condition.

4. Homeowners Insurance and Hurricanes

This issue with settling homeowners insurance claims can be similar to the car totaling problem with cars insurance claims. Many people’s home suffered damages during the recent hurricanes and ice storms. Yet, when they made a claim, they were told that the claim could only be paid on a depreciated value of their homes, and not on the full replacement or repair value!

5. To Claim or Not to Claim… That (Should Not)Be the Question

Some people know they have a deductible to pay before insurance companies will contribute. Many of us have deductibles of $1,000, $2,500, or even more to keep premiums reasonable. So after we get damaged assessed, many just decide to pay the bill. After the deductible, the insurer would not pay much of the bill anyway, and many are concerned that they may raise the policy rates, or even cancel the policy, if we make too many claims. But if we are not sure of our deductible amount, we may want to inquire about a claim before we decide.

However, some insurers will even treat an inquiry about a claim the same way that they would treat a claim. They will keep a record, and then use it as a reason to increase your premium or cancel your policy! If you have $700 worth of damage to your roof, and even a $500 deductible, many insurance experts say you should consider just making up the difference out of your pocket. Otherwise you risk paying much more in homeowners insurance premiums next time.

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