Thomas, a reader in Chicago, wrote: “Liberty Mutual Insurance television commercials, which state ‘Only Pay for What You Need,’ appear to suggest that other insurance companies will sell you coverages you don’t need. I’ll bet a lot of people wonder what they mean.”
This column has received similar comments, and to find out what ‘Only pay for what you need” means, I contacted the company’s media relations team at Boston-Based Liberty Mutual, asking them that very question. That was weeks ago, and I am still waiting for a response. So, I turned to a trial attorney whose law practice concentrates on insurance company bad faith and asked him what he thought. The discussion that followed surprised me.
Customers Typically Should Insist on More than Minimums
“When they say you will only pay for what you need, they are implying that other insurance companies will automatically sell you coverages that you do not need, which is complete nonsense,” says Los Angeles-based attorney Shant Karnikian.
Actually, the opposite may tend to be true about some insurance companies, he says. They may prefer if customers bought less insurance coverage, not more. And that can be a problem for consumers.
“The insurance industry wants to minimize exposure to future customer losses, and plaintiff lawyers are already seeing this reflected in the companies’ marketing practices, where they only want to sell minimum limits of auto or homeowners insurance, reducing payouts in the event of a claim. If you buy more coverage, they are exposed to paying more for the loss.
“Even if you need it, they don’t want to sell it! But if you ask for more coverage, they are obligated to sell it to you. This means consumers must become educated and learn the coverages they absolutely must have.”
Insurance Agents Not Required to Advise What Coverages You Need
“Auto and property insurance companies let you accept or decline various types of coverage,” Karnikian says, “and today especially, the public needs to be aware that, with some very limited exceptions, insurance agents are not required to counsel their customers as to what they should be purchasing.”
That’s right. Insurance agents are typically not required to tell you what coverages are available or what you likely need. “In most instances, insurance agents are mere order takers, and unless you tell them what you want, they are generally under no obligation of advising you to obtain certain types of coverage,” he observes.
Keep These Coverage Guidelines in Mind
For those shopping for insurance, Karnikian gives these recommendations:
- Auto Insurance: Never buy just the minimum amounts that are required by your state, which varies and may be as low as $10,000 per person or $20,000 per accident. Buy 50/100,000 liability limits or more, meaning $50,000 per person or $100,000 per accident. And always purchase medical payments coverage and uninsured/under-insured coverage in limits no less than $100,000.
- Homeowners/Commercial Property Insurance: Overestimate the cost of rebuilding your home or office, and include coverage to bring the property current with building codes. In a major loss — such as a wildfire — material and labor costs will be far greater than at normal times. Inadequate coverage means you will have to pay out of pocket the difference in price.
- Ask in Writing: “What is the most coverage that I can possibly get for my home, car, liability and business?” The difference in premium costs between the basic policy and a much larger one will not shock the conscience. It is definitely worth it.
- Consider a Broker Instead of an Agent: Brokers are not limited to selling policies from just one company. They work for you. Agents are limited to selling only the policies of the company they work for, which may not have the best policy for your needs.
Karnikian concluded our discussion with this advice: “Imagine the cost of your worst-case scenario and buy insurance in limits high enough to cover it.”
After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law (opens in new tab)." Through his column he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
Stock Market Today: Stocks Climb After Tesla Earnings, GDP
The electric vehicle maker reported record profit and revenue for the fourth quarter.
By Karee Venema • Published
Home Prices Declined the Most in These 10 U.S. Cities in 2022
Home prices fell by amounts not seen in years in several major metro areas.
By Ben Demers • Published
A Financial Review in Early 2023 Can Optimize Your Strategy
Look to build savings, reduce risk, minimize taxes and ensure a successful retirement by reviewing your budget, contributions, allocations and beneficiaries.
By Ken Nuss • Published
Want to Increase Income? Focusing on 5 Elements Can Help
There are multiple ways to generate income, but to make your money work for you, consider sustainability, maximizing, automation, reinvestment and tax efficiency.
By Jamie P. Hopkins, Esq., CFP, RICP • Published
Are Annuities Good Investments? Weighing the Pros and Cons
Love ’em or loathe ’em, annuities can be a smart investment tool for the right person under the right circumstances.
By Nate Miller, Investment Adviser Representative • Published
6 Questions Your Financial Adviser Should be Asking
To effectively help you with your retirement strategy, a retirement professional must get a clear picture of what you have and what you need.
By Tyler Hill, Investment Adviser Representative • Published
Financial Planning Should Be Intergenerational
Overcoming the unspoken rule that money is too taboo a topic to discuss among family members is important going forward. The reality is that families, at some point, will need to be on the same page about wealth planning.
By Aditi Javeri Gokhale • Published
In Retirement Planning, What’s Your Retirement Personality?
There are many ways to think about retirement planning, and your personality can influence yours. If your personality and plan match, you have a greater chance of retirement success.
By Samuel V. Gaeta, CFP® • Published
Inflation’s Toll: Cuts to Retirement Savings and Health Care
Many consumers struggling to make ends meet amid inflation are reducing retirement planning and health care, both of which can have disastrous results later in life. A professional could help.
By Kristi Martin Rodriguez • Published
Considering a Roth IRA Conversion? 6 Reasons It Makes Sense
Avoiding possibly higher taxes in retirement, having no RMDs and the markets being lower are just three reasons to switch to a Roth IRA.
By Kevin Webb, CFP® • Published