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COMMON MISCONCEPTIONS ABOUT HEALTH, LIFE, HOMEOWNERS AND BUSINESS INSURANCE

The insurance industry is a useful and unavoidable element of modern life. Nearly every area of life requires some form of insurance. To drive a car, you must purchase auto insurance to protect yourself and others. To hire employees for your business, you are required to have worker’s compensation insurance to cover any job-related injuries. Insurance policies can be complex. Because insurance can be confusing, people sometimes have misconceptions about it. What are some of these?

 

“The insurance company is just too big to fight”

 

No insurance company is too big to fight. Where finding justice in a courtroom is concerned, quality trumps quantity. While you may think you have no hope of receiving a fair judgment or settlement, our Wettermark Keith insurance lawyers have handled cases like yours before, and can take on anyone.  

 

At Wettermark Keith, we understand the loopholes and roadblocks people face when dealing with the insurance industry. Every day, our insurance lawyers work with clients who have had their insurance claim devalued or denied due to bad faith and bureaucracy. We often help clients struggling with health, life, homeowners and business insurance claims. In this article, we will discuss some common misconceptions our clients have regarding these four insurance areas:

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Health Insurance

Health insurance provides the insured with financial protection in case of accident or illness. While no one plans for sudden sickness or injury, seeking treatment without a health insurance policy can lead to years of medical debt. In many states, a broken leg can cost as much as $7,500, if not more. Having health insurance is associated with lower death rates, lower stress levels, and better overall health outcomes. Unfortunately, the extent of health insurance policies is often misunderstood. 

Misconception #1: “A ‘full coverage’ healthcare policy means no limitations on my medical treatment costs.”

Today, many insurers are selling short term health insurance policies and limited benefit health insurance policies but advertising that they provide comprehensive or complete health care coverage.. In fact, these policies do not offer the eight essential protections guaranteed by the Affordable Care Act and  have limitations on pre-existing conditions like diabetes or asthma. These policies also place limitations on the percentages that they will pay for your medical care. Many provide fixed dollar amounts for different treatments that may or may not agree on what your healthcare provider is charging. 

The companies that issue short-term policies often advertise that they have networks. However, they often don't have agreements with healthcare providers to limit healthcare charges to the amount the insurance company is willing to pay. This can weigh the insured party down with enormous medical expenses. For example, if the health insurance company deems $3,000 a reasonable price for a procedure the hospital is charging $10,000 for, the recipient of the procedure will discover they owe $7,000 more than they thought. 

This differs from  a standard health insurance contract, typically offered through an employee benefits program or the healthcare.gov marketplace, in which your insurance company would have a defined network of providers that agree to accept the amount offered by the insurer as payment in full, taking into account deductibles and copays. 

Misconception #2: “Any medical service I pay for goes towards my deductible.”

A deductible is the monetary amount an insured individual must pay out of pocket for medical care before their insurance company will take their claim. Most insurance companies have a list of what services do and don’t count towards your deductible - cosmetic treatments and out-of-network care typically fall in the latter category. Furthermore, copayments and monthly premiums do not count towards a deductible. 

Life Insurance

 

Life insurance policies are meant to provide the designated beneficiary or an insured person with financial security. This can be a lifeline for a family struggling to deal with the sudden death of a loved one. If you die within the first two years of the issuance of your policy, the life insurance company will work overtime to find a “material misrepresentation” on your application. They call this a contestable claim review. Mistakes in your application (honest or otherwise) may allow them to contest your claim and possibly reduce or deny it. Below are some common misconceptions people have about what constitutes a misrepresentation. 

 

Misconception #1: “I released all my medical records to my life insurance company. How can they claim I hid anything as an excuse to deny my claim?”

 

Despite receiving medical records and releases in applications, life insurance companies rarely perform a thorough examination before issuing a policy. However, after a claim is made, insurers will go through the deceased’s medical records with a fine-toothed comb, looking for any misrepresentations or incriminating information for an excuse to void the claim. It can put families in a terrible position if the policyholder is found to have been mistaken about something in their medical history, or if there is something recorded there they weren’t unaware of. 

 

Sometimes, even unmentioned medical issues completely unrelated to the cause of death will be rehashed during the contention period. For instance, some individuals have had their claims voided because they went in for a precautionary EKG and had not mentioned high blood pressure or heart issues on their application. An individual in New York died of stomach cancer, and his insurance company attempted to deny his claim because he did not disclose his (cured) Hepatitis B diagnosis, even though he was not asked about this on his application. Make sure you give full, absolute disclosure when you apply for life insurance, even if it makes your rates go up. 

 

Misconception #2: “My hobbies have no effect on my life insurance policy and I don’t need to mention them on my application.”

 

Life insurers are now unlikely to outright deny the applications of people who engage in dangerous hobbies, like scuba diving or motorcycle riding. However, if you die as a result of a dangerous activity and have failed to disclose the activity on your application, this can be grounds for your life insurance company to deny your claim. Below are some hobbies life insurance companies universally consider to be dangerous:

 

  • Parachuting 
  • Skydiving
  • Rock Climbing
  • Bungee Jumping
  • Motorsports and Racing
  • Scuba Diving
  • MMA Fighting
  • Piloting Private Planes

 

Disclosing your bungee jumping habit will increase your premiums, but being honest about it will reduce the chances of your policy being voided after your death. 

 

Misconception #3: “Any mistake on my application can be considered a “misrepresentation.”

 

Not exactly. Writing down an incorrect address or driver’s license number cannot legally be cited to void a claim. However, forgetting to mention your smoking habit is a mistake that can cost you your claim. As is the case with any type of insurance, the truth will eventually come to the surface. 

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Homeowners Insurance

 

Homeowners insurance is designed to protect you from the financial burden of unforeseen damages to your property. Whether your house is struck by lightning or you lose everything in a fire, the value of your belongings remain protected under a homeowners insurance policy. People have some misconceptions about homeowners insurance, typically concerning what their policy actually covers, and what exactly their insurers are responsible for. 

 

Misconception #1: “The insurance company is responsible for rebuilding my house.”

 

In reality, your insurance company will pay the amount necessary to rebuild and replace your house, but most of the time they are not directly responsible for rebuilding it. You will need to hire a contractor for this purpose. However, there are exceptions. Some companies (like State Farm) have a preferred vendor program you can opt into. That way, if your home needs rebuilding, you can choose from a list of vendors who work with your insurance company - and may offer cheaper services. In these situations, the insurance company may have some involvement in the actual repair or replacement of your home.

 

However, typically, the homeowner is  responsible for overseeing the construction of your house. Instead of relying on your insurance company to tell you how much it will cost to rebuild your home, you should acquire that information yourself to insure they are paying you the right amount of money. After a loss, insurance adjusters will estimate a home’s rebuilding cost using a computer program called Xactimate. As this is only an educated guess, it is important to line up two or three reputable contractors to find out the real cost of rebuilding your home. If your home has extensive damage to its structure, you may even want to hire your own structural engineer. When a major natural disaster has occurred, the process can end up being longer and more expensive due to a higher demand for materials and contractors.

 

Misconception #2: “Any damage that happens to a house is covered by insurance.”

 

If parts of your home wear out and cause damage, they will not typically be covered by insurance. If a pipe in your wall leaks over a long period of time and causes water damage, it will probably not be covered by homeowner’s insurance. If the pipe bursts suddenly, the damage caused by the sudden discharge of water will likely be covered. If rainwater from a storm comes in through and damages your home, that sort of damage would likely be covered by homeowner’s insurance. However, if your foundation develops damages due to natural settlement or erosion, the homeowner would not be covered. 

 

The severity of foundation erosion can depend on location. In Alabama, for example, limestone soil is common. As a carbonate, this type of soil is easily eroded by groundwater. As the soil condenses and disintegrates, anything resting on top of it will dip into the ground, causing cracks and structural damage. If you are hiring a contractor to build your house, make sure that they build on solid ground.

 

Misconception #2: “My homeowner’s policy covers flood damage to my house.” 

 

Typically a homeowner's policy will not cover damage from flooding. The federal government maintains a flood insurance program that operates separately from the homeowners program. Therefore, this is a risk major insurers prefer not to take on, especially if the risk is partially underwritten by the government. Because there is no market pressure to offer flood coverage, insurance companies rarely offer it. 

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Business Insurance

 

Business insurance is a broad term that can prove incredibly complex in practice. There are 30+ different insurance policies of a general nature available to businesses, and hundreds of more specific policies under these. 

 

Some policies are common to nearly every large business. For example, most businesses have a commercial general liability policy. This means that if someone is injured on the premises and sues the business, the insurance company would pay to hire a lawyer to defend the firm. If a settlement for the injury is required, the insurance provider might have to pay for that settlement. Commercial property policies are similarly prevalent; if a fire burns up your inventory, your property policy will cover the cost of the destroyed items. 

 

Misconception #1: General liability insurance covers everything”

General liability insurance covers quite a bit, but not all potential liabilities are addressed under these policies. Typically, general liability insurance protects a business in the following circumstances:

 

  • An injury on the premises for which your business is liable
  • Reputational harm (as in data breaches, negative news reports, and product recalls)
  • Property damage caused by your business

 

However, only purchasing general liability insurance can leave major gaps in your coverage. For instance, if you perform services, you might need a professional liability policy or errors and omissions coverage to cover claims against you that relate to the services you provide. Some businesses that may need these types of policies include lawyers, doctors, accountants, real estate agents, and pharmacists.. 

 

Misconception #2: “I don’t need to buy worker’s compensation insurance for my small business.”

 

This is likely untrue, depending on your state laws and how many employees you have. In California, you must have worker’s compensation insurance if you have even one employee. In the state of Alabama, having five or more employees requires you to purchase worker’s compensation insurance. 

 

Misconception #3: “‘Full coverage’ means everything is covered, right?”

 

That depends on your insurance broker and how well you investigated the minutiae of your specific “full coverage” policy. If a business hires an insurance broker who is not as competent, the business may not find themselves insured enough when a loss occurs.

 

For instance, many businesses have found themselves in financial trouble after a loss because they  did not purchase business interruption coverage. This type of coverage replaces revenue that your business loses as a result of a loss. This can be extremely important. Make sure your insurance broker acquires business interruption coverage as a part of your “full coverage” policy. 

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