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Posted On January 2, 2014 Personal Injury

What Your Insurance Company Doesn’t Want You to Know: The Right Way to Set up Auto Coverage (Before It’s Too Late)

Judging by the commercials, you’d think auto insurance companies employ the friendliest people in the world. Of course you want to trust those good hands you’re in, that adorable talking gecko, or the ultra-extrovert saleslady who says you can choose how much you want to pay. What a coincidence that all of these caring, wonderful companies want to take care of you!

At least, that’s what they want you to think. As industry insiders with prior experience working in insurance companies, we know their tricks, and we’re sick of seeing these companies take advantage of people in the moments they most need help. There’s an array of secrets that your insurance company doesn’t want you to know. Chances are, you’ll never hear an insurance agent or adjuster say any of these…

Don’t wait until you have an accident to question your policy and your insurance company’s behavior – by then, it could be too late.

Setting Up Your Coverage

Secret #1: We Don’t Let You “Name Your Own Price” Out of the Goodness of Our Hearts.

Most of us complain that auto insurance is too expensive. That’s fair – after all, we’re paying pretty large chunks of our income each year for coverage that we probably (hopefully) won’t have to use. It’s easy to justify paying less for insurance if you can.

But when it comes to auto insurance, you get what you pay for. Insurance companies don’t offer cheaper options because they care about your financial needs or your problems. They offer them because they’re profitable. The company is still getting plenty of money out of premiums, but when you save money by opting for high deductibles and low coverage limits, they know they will pay less in the long run if you actually need to access your benefits.

Whether you purchase insurance online, over the phone, or while meeting face-to-face with an insurance agent, you need to know what you’re buying. Otherwise, you could be wasting your money on a policy that won’t help you much.

Thresholds are another place where insurance companies can trick you. In New Jersey, the choices are called verbal threshold and no threshold. In Pennsylvania, they’re full tort and limited tort. The two sets of descriptors mean virtually the same thing: whether or not your right to pursue a claim is limited. When you purchase insurance, an agent will probably tell you that the verbal threshold or limited tort option is typical. He or she may even explain that choosing this option means you can only pursue a claim if your injuries are severe. That doesn’t seem like a problem – after all, why would you bother pursuing a claim for minor injuries, right?

What the insurance agent probably won’t tell you is that severity is subjective. What seems severe to you – because it hurts, because it limits your ability to live your life, because it costs you a lot of money – is usually only considered serious enough to meet injury threshold requirements if it is permanent. The insurance company may fight you on your claims that an injury is permanent, or may even dispute whether your permanent injury really came from your accident. Sacrificing your rights, low deductibles, and policy limits is a big mistake. You’re saving a little money now, but if you do get hurt in an accident, you could end up losing a lot more than you’re saving.

Secret #2: Consider Optional Coverage to Really Be Optional at Your Own Risk.

Some coverage really is optional, depending on your financial situation. Is it worth keeping collision coverage on an old car that’s not worth much when you still have a deductible of a few hundred to a couple thousand dollars? Do you need to pay for a rental car? These options truly are optional. You could save your collision coverage money and put that toward a new car. You could seek property damage compensation and rental vehicle coverage from the at-fault driver’s insurance company.

Then there are the coverage options that in reality, every driver should have: uninsured and underinsured motorist coverage. If you get hit by someone driving without auto insurance – as about one in seven drivers are doing, according to the Insurance Research Council – you’re out of luck. There is no company responsible for covering the damage the individual has caused. Even if you sued the driver personally, which could cost you a good deal of money to do, you’re unlikely to actually see any substantial amount of money. Your own PIP insurance covers most of your medical bills (80 percent up to the coverage limit, after you pay your deductible), but you get nothing for your expenses, wages that you have lost when unable to work, or the effects on your life. If at all possible, every driver should purchase uninsured motorist (UM) coverage to protect their families by insuring themselves for what other drivers may not have.

UM insurance coverage stands in for bodily injury coverage only. If you get hit by an uninsured driver and don’t have collision coverage, the insurance company won’t pay for your car repairs, even if you have UM insurance.

Similarly, you could get hit by a driver carrying only the bare minimum amount of bodily injury insurance coverage. In New Jersey and Pennsylvania, that’s as low as $15,000 if the driver has a standard policy. If a New Jersey driver has a basic policy (and no financial assets to protect), there may be no coverage at all. If at all possible, every driver should purchase underinsured motorist (UIM) coverage. It is as important as uninsured motorist coverage.

An insurance agent selling you a policy may understate the importance of purchasing an adequate amount of UM/UIM insurance. Be aware that even if you purchase the coverage, actually getting the benefits could be a tough battle, should you ever need them. That’s because some insurance carriers are infamous for acting in what the law calls “bad faith,” or neglecting to uphold contracts by trying to deny or delay claims without legal grounds to do so, sometimes for years.

But your insurance agent won’t tell you that.

Secret #3: When It Comes to Medical Benefits, Your Money Doesn’t Stretch Nearly as Far as You Think It Does.

When it has to come out of your pocket, a few thousand dollars can seem like a lot of money. When it comes to medical bills, though, you might be surprised how quickly you go through personal injury protection (PIP), the portion of your auto insurance policy that pays for your medical bills in the event of an accident.

A single emergency room visit costs more than $2,100 on average – 40 percent more than a month’s worth of rent for most Americans – but even that doesn’t reveal the whole picture. An infection or allergic reaction that can be remedied in one visit is totally different from the severe, wide-ranging types of injuries sustained in auto accidents. The first year of trauma care costs an average of $75,210 per victim, according to the National Center for Biotechnology Information, and the expenses for many victims could be substantially higher. The average cost of one day in an intensive care unit (ICU) is more than $1,500, but the expenses vary by the amount of care required, with first days in these units racking up bills as high as ,000 or more. A single invasive operation, like a spinal fusion surgery, could cost $100,000. Keep in mind that prescription medications, too, can be expensive – even if you’re only paying 20 percent of them under PIP coverage.

You have the option to lower your PIP coverage substantially to decrease your premiums. In New Jersey, you could have as little coverage as $15,000. In Pennsylvania, the minimum is just $5,000. If you skimp on your PIP limits, you could easily max out your policy in just one or two days if your injuries are critical. Don’t risk putting yourself into hundreds of thousands of dollars of debt just to save a few bucks a year. Purchase the highest amount of PIP coverage you can afford and make sure that if you do get in an accident, it’s the insurance company, not you, that’s on the hook for paying the medical bills.

Secret #4: You’re Not the Only One Saving Money by Choosing Health Insurance to Provide Your Primary Medical Coverage.

In fact, if you get into an accident, you’re saving everyone money… except, you know, yourself.

Here’s the situation – in states like New Jersey, no-fault laws require insurance policies to include Personal Injury Protection (PIP), a portion of coverage that pays for your medical bills. You can purchase various amounts of PIP coverage, as low as $15,000 or as high as $250,000. In Pennsylvania, you can purchase PIP coverage in amounts as low as 5,000. If you also have health insurance, you have the option to make health insurance the primary payer of your accident-related medical bills. Insurance agents might push you in that direction, saying that this option can save you money on your premiums. If you didn’t specify when you bought your auto insurance policy that you want PIP to provide primary coverage for your medical bills, you might already have a policy set up this way – and you might not even know it.

And there’s a big catch.

The State of New Jersey Department of Banking Insurance warns policyholders about some dangers of making this choice. Certain health insurance policies, including coverage from government-funded programs like Medicare and Medicaid, don’t cover automobile accidents. If you let your health insurance policy lapse for any reason, you’ll be forced to pay an extra fee. It may not sound like a lot, but a $750 penalty on top of your deductibles and copayments can put some serious pain on your wallet, especially if you’re out of work.

But even that’s not the whole truth.

Say you get injured in an accident that was the fault of another driver. You’re hurt badly enough to hire a lawyer to pursue a personal injury claim on your behalf. You recover a substantial settlement – but don’t cash that check just yet. If you had health insurance as your primary medical coverage rather than PIP insurance, you may have to pay the health insurance company back for your medical treatments, at least if you live in New Jersey or Pennsylvania. In these states, you won’t have to pay back PIP payments – but if your health insurance paid exactly the same medical bills as your auto insurance would have paid, plan on deducting that money from your settlement. In other states, the laws may be different – but your insurance agent probably won’t volunteer that information.

The Claimant’s Battle

If you’ve already been in an accident, it may be too late to change policy mistakes you have made, but it’s not too late for insurance companies to find new ways to exploit you. From manipulating your post-accident decisions to twisting your words and pretending to have authority over you (when they don’t), auto insurance companies too often take advantage of claimants. When setting up the policy, it’s good for an insurance carrier to get as much money out of you as possible for promising the smallest amount of coverage. When it comes time to actually provide that coverage, though, the friendly company you think you know through advertisements can become suddenly unwilling to hand over that money.

Secret #1: A Quick Settlement Helps Us More Than It Helps You…

A quick settlement is never a good sign. If the insurance company offers you money right off the bat, it means one thing: you deserve money.

You deserve more money than they are offering you and they know it, which is why the insurance adjuster is trying to convince you to accept this quick settlement before you think too hard about it, or before you finish getting all of the treatment you need.

Insurance companies may urge you to take the quick settlement, if they offer one, so you can “put the accident behind you” or “get on with your life.” The truth is that they’re not concerned about your life. They’re concerned about their own profits. If they can pay you a fraction of the money you deserve and get off the hook for paying what they believe is likely to turn out to be a much higher-value claim in the future, they’re getting much more out of that fast settlement than you are.

Secret #2: …But We’d Still Like to Delay Paying Your Claim as Long as Possible.

Just because it’s in an insurance company’s best interests to settle a claim early on for less value than it’s worth doesn’t mean the carrier will always do so. It often depends on whether the insurance company believes it can get away with not paying at all, or at least, not for a long time.

An insurance adjuster will look at a claim and try to figure out how to best protect the company’s profits. If he or she knows that the company is likely to have to pay something, it makes sense to make a lowball offer early on and hope the claimant doesn’t know the value of the case. That’s when an adjuster begins offering quick settlements and trying to rush the process.

If the insurance adjuster thinks the company can weasel out of paying, though, then the company takes a different and seemingly incongruous approach: deny or delay claims as much as possible.

Like all businesses, auto insurance companies are in the game to make profits. But unlike stores, restaurants, and numerous types of services (the legal practice included), insurance carriers don’t trade you a product or service for your money. They make you a promise: to pay more money (as determined by the options you select) in the event of an accident than you pay them in a year’s worth of premiums. Of course, that business model is worthless if a company actually pays all of its policyholders. It would be losing money rather than gaining it.

Because it’s illegal to drive without auto insurance in New Jersey and Pennsylvania (and most states), we tend to think of insurance as an obligation without always considering what our policy actually means and how the industry operates. Photo Credit: Flickr (Creative Commons license).

Sure, it’s statistically unlikely that every policyholder will get into an accident in a given year, but that doesn’t explain the excessive wealth. Collectively, the auto insurance industry is a multibillion-dollar-a-year industry with trillions of dollars in assets. They don’t make that kind of money by simply holding your premiums for you. They increase revenue by investing policyholder premiums, and by keeping that invested money in their accounts for as long as possible. The business model puts these companies at odds with their supposed purpose of paying your claims. The longer they can deny or delay paying your claim, the more money in their pockets.

So when an insurance adjuster is giving you the runaround, don’t assume it’s just a mistake or a misunderstanding – it’s their business model, and they’re not likely to change it anytime soon.

Secret #3: When We Tell You That We Need Medical Records or a Recorded Statement, What We Really Mean Is That We Want You to Voluntarily Give Us Evidence Against You.

Because auto insurance is required by law, or because the hierarchies are so complex, or maybe just because of the way they present themselves, insurance adjusters may come across as someone with authority. When they broach the topic of getting your complete medical history or a recorded statement from you, they’ll use words like “we need” or “it would help us to have” such information. If you don’t know your rights, this request sounds an awful lot like a command. The insurance company has an obligation to pay covered claims, not the authority to demand recorded statements. You don’t have to agree to such a request – but the adjuster won’t be the one to tell you that.

Medical records are a tricky matter. Of course the insurance company will need to see the medical records related to your injuries stemming from the accident (eventually). However, you shouldn’t give the insurance adjuster unlimited permission to view and use your entire medical history.

You don’t lose your rights to patient privacy when you file a personal injury claim. If a part of your medical history is not relevant to the accident or the injuries you’re currently suffering, it’s none of the insurance company’s business

In a recorded statement, an adjuster may ask you to speak on matters that you really can’t be sure of yet, like the extent of your injuries or the impact on your life. Knowing that you’re being recorded can put pressure on you. Yet by having a recorded statement, insurance companies have a weapon against you. A skilled insurance adjuster can take even the most innocent comment out of context and twist it to support even a completely unfounded position that the insurance company takes in an attempt to delay or deny your claim.

Secret #4: We’re Wary of Insurance Fraud, but that’s Not the Real Reason We Make You Jump through Hoops to Get Your Money. (We Just Don’t Want to Pay!)

There’s no question that fraudulent insurance claims aren’t fair to anyone, especially people with real, valid claims, like you. Certainly fraud is one understandable reason for insurance companies to want to verify that a claimant really does deserve compensation. They want to be sure that the accident actually happened, that injuries really did result, and that the policyholder whose coverage is paying the claim really was at fault. And unfortunately, it does happen and people seek compensation they don’t really deserve or completely invent injuries.

But that’s not why the insurance company makes it so difficult for you to get compensation – at least, not the whole reason. Some insurance companies may make the claims process so difficult that a good proportion of claimants simply give up or feel that it’s not worth the hassle and agree to accept little or no money. Setting up enough frustrating obstacles that it deters policyholders from filing claims can mean a big boost in the company’s bottom-line profits. And if the insurance company can delay paying the remaining, persistent claimants long enough to scrape a little more value out of their investments, well, that’s a profit increase, too. So when an adjuster gives you a hard time, it might not even be that the individual doesn’t believe you – it’s that the company doesn’t want to believe you, because that means a financial loss for them.

No matter how appealing their marketing strategies or how friendly their personnel may seem, your auto insurance company is not your friend. From the moment you begin setting up a policy, they’re more worried about their profits than about you getting the coverage you need. They’ll lead you toward options that are best for them, not for you. As an insurance carrier, they’re supposed to provide you with financial protection in case of an accident, but as a business, their primary obligation is to their owners or shareholders, not their policyholders.

What your insurance company really doesn’t want you to know is that at the end of the day, it’s all about the bottom line.