Insurance: Risks

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Jonah thought for a bit and then asked the Branch Manager, “How do I know that this company will not go bankrupt or what if they refuse my claim?

The Branch Manager smiled, he had heard these concerns before many times.  He explained that the best way is to do research on the company as you would if you were buying a share, putting your money in a bank etc.

  • Check the Financial Ratings of the Insurance Company. You need to check to make sure that the insurance company has enough money to pay claims.  The best way to check the insurance company’s ratings on Standard and Poor’s and Moody’s.  They use the same type of grades you get in school from AAA to F.  Obviously, you want to invest in a company with a rating as close to AAA. 

 

  • Read the news! Follow up with news about the insurance company and keep your eyes and ears open when you hear something about it.  Looks for phases such as “financial problems”, “claims” or “problems” when associated with information about the company. 

 

  • Follow the stock performance. Dramatic drops in the price of the stock of the company are an indicator that something is wrong.  So is dramatic drops in bond rates issued by that company.

     

    • Customer Satisfaction. Ask friends and family to see if they have any interactions with this company. Do research online to see if there are any bad comments.  Look for things like “slow to process claims” or “Claims rejected unfairly” and if there are a fair number of them then it is a warning sign of things to come.

     

    • Understand the Regulatory Safeguards that the government has placed and who is providing guarantees. In Canada several government agencies regulate insurance companies and protect your investment.  

    What happens if a Claim is Rejected?

    Jonah seemed more at ease now.  “But what if my claim is rejected?” he asked.

    The Branch Manager explained that all companies need to act in “Good Faith”.  This is a term which means that neither the insurance company, not the insured can make a claim or refuse a claim with any bad motives. For example, you cannot set fire to your house and then claim insurance th

    When you make a claim, the insurance company has the right to accept or reject the claim.  If it rejects the claim it should give a reason for it.  The most common reasons are:

    • Disputed Liability, where the insurance company questions whether you actually had the accident.
    • Policy Exclusions, things which were not covered in the policy.
    • Lapsed Policy, where the policy is no longer valid either because no coverage existed at the time of the accident, or the policy was not paid.
    • Failure to Notify, when policy holders do not tell the insurance company about the accident in reasonable time.

    The Branch Manager explained that if Jonah disagrees with the reason the claim was rejected, he can always dispute it and even go to court!

    Common Types of Insurance

    Jonah and Edna felt much better now.  “I still don’t understand, what do we own that we can insure?” she inquired.

    The Branch Manager told there are 5 basic insurances that most people get, however, you can literally insure anything if you can find a reliable company to insure it.

    • Health Insurance: Insurance for when you get sick or hurt.
    • Car Insurance: Insurance that would fix your car or any other car that you hit on the way.
    • Homeowners or Renters Insurance: Insurance for the home you own or rent in. It could also be Landlord’s insurance.
    • Life Insurance: Insurance in the event you die in a certain time.
    • Disability Insurance: Insurance if you get seriously hurt and cannot work any more.

    Edna and Jonah were both happy to hear this.  As they headed home they began to think of all the things they need insurance for. 

     

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