Misconceptions about insurance
Confusion abounds around 'Acts of God,' policy ownership, workers comp for the self-employed
If there is one area that lends itself easily to misconception and misunderstanding, it is insurance.
It’s not difficult to figure out why. The contracts can be hard to understand. Policies are things you must have but are intangible, and it can feel like you are paying for something you really don’t want to use.
And then someone always has a story of a friend of a brother who had a claim denied or paid because of this situation or that event or something.
So, what are common misconceptions when it comes to insurance? Let’s explore a few.
Act of God
“Acts of God” are both hard to define and almost always lead to questions of coverage. An “act of God” is often tied into weather-related events – storms, power outages, or tornadoes. Whether or not there is coverage for losses associated with them depends on the policy in question.
Generally, home losses related to weather-related causes are covered and often do not create any rate increases if a claim is paid. If a storm causes a tree to fall on insured property or straight-line winds removes shingles from a home, then the damages are usually covered, subject to deductible.
There can be endorsements to a home policy that restrict how determine how claims are settled, such as one that handles roofing losses on an actual cash value basis rather than replacement cost. Another endorsement that sprang up among national insurance companies in the early 2000s is one that places a higher deductible for losses caused by wind or hail.
Losses due to “acts of God” do not negate or do away with a deductible.
Storms can also create losses for vehicles. A severe hailstorm can create pocks in car sheet metal or break glass. And losses caused by storms are covered as physical damage, if comprehensive or other than collision coverage is in place. If there is no such coverage, then damages caused by storms is not covered, leaving the vehicle owner on the hook for repairs.
The same principle applies to losses caused by hitting an animal or damages from theft or vandalism.
Family-owned Property
It is not uncommon for adult children to move into property owned by their parents and not take ownership of the property. However, it can create issues of ownership and responsibility in the event of a claim.
If an adult child lives with a parent in the same house, then the child should be listed as an additional insured on the parent’s home insurance policy. This extends coverage for his or her personal property and liability protection, often with no additional cost.
If the parent lives elsewhere, the home can be insured by the adult child under a homeowner’s policy, with the parent listed on the policy as an additional interest and loss payee.
The adult child might also consider taking out a renters insurance policy to provide specific coverage for their contents and liability and let the parent insure the home separately.
Workers Compensation and the self-employed
It is not uncommon for individuals who are self-employed to believe they can’t get or don’t need workers compensation coverage.
Quite the opposite is true.
Workers compensation insurance is designed to take care of individuals who are injured or develop an illness while on the job. The policy allows the insurance company to handle medical costs for the individual and can help offset lost work time until recovery.
Self-employed individuals with a workers comp policy will have added insurance protection that reduces the reliance on personal health insurance to cover a work-related loss.
Life Insurance Ownership
It is the owner of a life insurance policy who has control of the policy, not the insured person.
Often, the owner and the insured person are the same. However, a parent or grandparent may own a policy on a child where the child is the insured person. By contract, the owner retains all rights to the policy. This means information about the policy can only be shared with the owner, not the insured person.
This also means ownership does not transfer automatically to anyone else such as the insured person when that person hits a particular age or if the owner passes away. Changing ownership after a person has passed can be difficult, requiring not only a signed affidavit to make a change but often a death certificate as well.
The rules regarding life policy ownership make it important for those owners to communicate with life insurance companies or their agents. They should arrange for transferring ownership or naming contingent or secondary owners, especially as primary owners age.
As with any insurance issue, having a conversation with an agent can help reduce misunderstanding and reduce other difficulties that might arise.
Alan T. Girton is a veteran agent with Indiana Farm Bureau Insurance. To learn more, visit https://www.infarmbureau.com/agents/Alan-Girton-Howard-Kokomo-IN