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I wasn't at fault
for the car accident so why do I have to pay my deductible?
Deductibles have nothing to do with fault. A deductible is one method available
to you to have control over your premium - the larger the deductible, the smaller
the premium.
When you have an accident, and you have
collision cover on your car, a deductible applies. If you are
not at fault, your insurance adjuster immediately tries to reach
the other insurance company adjuster to see if they accept the
claim. If the other company does, then your adjuster can waive
your deductible, knowing that the other company will pay everything
back. Unfortunately, there are situations when your deductible
can't be waived. For instance:
the other company can't always accept
the claim - either because their own insured has either yet
to report the accident or has told a version that places you
at fault. Then your claims adjuster continues to investigate
until there is enough independent proof to show that your version
is true.
the owner of the other car does not have insurance
the owner of the other car insurance information is not immediately available.
My property policy
is on a replacement cost basis. Why isn't my car?
The basic automobile policy is on an actual cash value (ACV) basis. That means
the insurance company looks at how much your car was worth at the time of the
accident, taking into account depreciation. So, if your five year old car has
some rust and dents, and the tires are about 50% worn and there is 100,000
kms on it, then its value will be less than a five year old car with 50,000
kms on it and in pristine condition.
If your car is brand new and you are the
first owner, you can buy an endorsement that waives the depreciation
from up to 36 months (the length of time varies from company
to company). Then, if you should have the misfortune of 'totalling'
your car, the insurance company will either pay the purchase
price or find you another new car, just like the one that you
lost. This endorsement is the SEF43 Waiver of Depreciation.
What does "wear and
tear" mean?
"Wear and tear" refers to the damage that gradually occurs to something
as it gets used. Look at the tires of a car, for instance. The tires don't last
forever, although we all wish they would. Instead, we have to periodically buy
new tires because the old ones get worn out. When you replace those tires, you
can't claim the old ones on your automobile policy, because the damage is not
an accident - rather the damage comes from "wear and tear". Basically, that means
your insurance policy is not a maintenance contract. Maintenance is up to you,
and you alone.
I was in a car accident
and the body shop asked if I had a "loss of use" endorsement.
What is that?
"Loss of Use" endorsement, also known as SEF 20 in the insurance industry, is
an endorsement that covers the cost of your rental car when your own car is in
the body shop being repaired after an accident. It usually has a maximum daily,
and overall maximum amount that will be paid - for instance $30 per day, maximum
$1,000 total.
I haven't had a single
claim on my policy but my premiums went up, why?
Premiums are linked to several things, not just your own claims history. The
insurance industry looks at all the claims in a class of business, like personal
automobile or personal property. Actuaries for the insurance companies work
on those numbers, trying to predict how many claims will come in the next year.
They also look at the amount of fraudulent claims, and factor in those costs
- not to mention the impact all these natural disasters have been having. Once
the claims costs have be forecasted, the premium is calculated. The cost of
inflation also comes into play, which means that the premiums end up increasing,
even when you had no claims at all.
I read the news. Insurance
companies are rich so why do they have to keep pushing up the
premiums?
It depends on what kind of insurance company was being mentioned in the news.
There are two general kinds of insurance companies - life and others. The life
insurance companies have one advantage over all the other companies, they know
that sooner or later, a person will die. They have reams and reams of statistical
data that help them work out quite accurately just how many people will die
at what age. Granted, they can't tell when one specific person will pass on,
but that doesn't matter because they know that, in the big picture, it all
evens out.
The property and casualty insurers, P&C
for short, (which is the kind of company that takes care of property,
automobile, liability, bonds etc) don't have that kind of 'guarantee'.
Their actuaries have a much more difficult time predicting events.
No one, for instance, expected the massive ice storm that hit
the east coast, or the fires in British Columbia or the flooding
in Manitoba. These are all events that meteorologists predict
as "1 in 100'. That '1 in 100' unfortunately seems to be a misnomer.
It means that the event would occur only once in every hundred
years. With the crazy weather that has been occurring lately,
insurance companies have to anticipate it happening more often.
What it all boils down to is that very very
few insurance companies get enough premium to cover claims. In
fact, it is not unusual to hear that for every $1 that P&C insurers
collect, they spend $1.10. That is not a profit. The only way
P&C insurers stay afloat is through the money in investments.
And with today's interest rates, you can imagine how little profit
has been occurring.
My friend claimed
for more than he lost in a recent fire. He says insurance companies
are rich and can afford a little exaggeration here and there.
My broker says that is fraud. What do you think?
Fraud comes in all shapes and sizes ... and what your friend did was definitely
fraud. What's even worse, he is taking money out of your pocket.
One of the factors that comes into consideration
when working out the basic premium for, say, a property policy,
is the cost of claims that will be paid. That number is based
on what was paid before, with a forecast built in for inflation,
natural disasters, fires, thefts, accidents and so on. Every
claim that is inflated, even by a little bit, means that the
amount used in calculating next year's premium is that much higher.
Don't think that the little claims don't
mean much. For every large claim, there are easily a thousand
smaller ones. If each of those smaller claims was exaggerated
by $100, that means $100,000 more paid in claims than should
have been paid. $100,000 more being included in the insurance
industry's calculations for next year's premiums. Actually, the
1998 fraud figure is $1,300,000,000 if you look at paid claims
alone; $2,300,000,000 if you include police, court and other
fees. And that premium will be charged to you, thanks to your
friend and thousands of other people like him.
How many ways does fraud happen? Here is a short list to get you
started but you will probably be able to think up other examples:
claiming for something that was never
owned
claiming for something of a much higher value (eg: claiming for a Blaupunkt
car stereo when a Pioneer had been stolen)
claiming to be hurt when there was no injury
claiming for lost wages when there was no time off work
How big is fraud?
"The only thing bigger than fraud is tax evasion. The Property and Casualty insurers
of Canada believe that at least 10% to 15% of household, automobile and commercial
business claims are fraudulent - either completely fabricated or inflated. That's
about $1.3 billion a year in fraudulent claims that must be paid from the premium
of policy holders. The cost of insurance fraud rises another $1 billion or so
dollars if police, court, arson-related fire-fighting and other social costs
are considered."
Excerpted from Insurance Council of Canada
1998 "FACTS"
Since fraud costs are one of the amounts
included in calculating your premiums, that is a lot of money
that is being taken out of your pocket, don't you think?
I have paid premiums
for years. Now, when I finally have a claim, the insurance
company says the claim is not covered. I think I deserve something
back after all these years, so what gives?
Insurance is not an investment policy. You are paying the insurance company
a premium in return for their promise to pay your claim should certain events
happen. However, that doesn't mean the insurance company pays for everything
- sometimes exclusions apply. Take the time to read your policy and, if you
don't understand something, ask your broker or insurance company to explain.
An example of things that are not covered are, for instance, wear and tear,
damage from nuclear radiation and damage from war or civil unrest, to name
just a few.
If you want to be covered for some of the
things listed in the exclusions in your policy, consult your
broker.
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