I’ve had Allstate Insurance (ALL: chart, web, Y!) covering my rental property for the last 4 years.  However, last Fall, they sent me a notice that my premiums would go up 52% this year without any explanation whatsoever.

Being the capitalist I am, I understand costs go up over time.  But not 52% at once.

I called for an explanation, and after cutting through the bull, and being passed around to three different people as I worked my way up the ladder, I had a district manager tell me that rates went up on landlord policies due to an increase in fraudulent claims over the past year.

That’s bull!

For one, I’ve never filed a claim, and never had a reason to.  Furthermore, if the company has a problem with fraudulent claims, that’s their problem, not mine.

So I’m doing what every good capitalist would do and exercising my options through my wallet.

Allstate was insuring my single little rental for $950 per year.  Just the structure, mind you, not the contents (that’s what renters insurance is for).  The increase for 2009 brought the annual premium to $1,460 with no increase in coverage.

As a comparison, I insure my personal home with a market value over $150,000 more than my rental, all my personal belongings, AND three vehicles for under the new premium to insure just my rental house.

That just doesn’t smell right.

My new policy is with USAA, whom I carry that home and auto insurance with, and they will insure the rental for the replacement cost, not the value; there’s a big difference.  All the while, USAA’s premium is cheaper than Allstates best quote, even after I assured them I’d not do business with their company unless they offered me something more reasonable.

Allstate’s new premium is based on the market value of the home, while USAA’s premium is based upon rebuilding the same home on the same piece of property with today’s dollars.  So the coverage is for nearly $200,000 more than Allstate would provide.

I’m not buying Allstate’s excuses for a drastic 52% premium increase.  Allstate reported a $1.3 billion net loss, or $2.11 per share, for Q4 of 2008 while expectations were for the company to make $1.35 per share.

In all, I seriously doubt that Allstate needed to raise my premium by 52% due to fraudulent claims.  I suspect they had to raise the premium because they’re not making any money due to poor performance of their own investments.

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Last Friday I had to meet with a benefits adviser from my company; we are switching benefits providers, and there was “some important information that had to be documented, such as beneficiary elections, etc”.

It turned out it was just an opportunity for the provider to try and sell their benefits one on one.

To be honest, I was really turned off by the benefits, or more specifically the number of benefits I was offered. Not that we don’t have enough benefits, that’s not the case at all. There were just too many benefit options above and beyond the standard health, vision, dental, and life insurance.

Among the others:

Voluntary short term disability
This was a strange one. I could elect to buy an additional policy to cover any time not covered by the primary short term disability policy. For just $2.50 out of each paycheck, I could extend the policy by six months. Note that this is not a part of the primary policy, this is a follow on policy. For just $4 more out of every paycheck, I could add my wife to this as well.

Voluntary long term disability
Naturally, the period of time not covered by the short term policy, or the “voluntary” short term policy, OR the primary long term policy. For just $1.50 more, you can extend the primary long term disability policy. Oh, and if you want to add your wife to this policy, it’s just $3.75 more out of every paycheck.

Cancer and Heart Attack Insurance
OK, so sign up for this one, and if you ever become diagnosed with cancer (and one in three men will!) we’ll pay you $5,000 once the official diagnosis is made. You don’t even need to apply the money towards treatment. You could even apply the money towards funeral costs should you end up dying from the cancer. Additionally, if you ever have a heart attack, kidney failure, or other seemingly fatal diagnosis, we’ll pay you an additional $5,000! All this for only $4.95 per paycheck; add your wife and it’s only $10.25.

Oh, and by the way, if you die and the autopsy reveals that you died of a heart attack, we’ll send the check to your beneficiary.

You can increase those numbers to $10,000 (or any other amount for that matter) if you want, but it will cost you!

Deductible policy
This is like a rider for your health insurance. You pay an additional $2.95 per paycheck and this policy will cover your co-pay, prosthetics, x-rays, cat scans, etc. Add your wife for only $3.95 per paycheck.

GIVE ME A BREAK!

It’s very difficult to turn down insurance. After all, it’s your health we’re talking about here! I started thinking about it pretty hard, so hard in fact that I almost started feeling guilty if it turned down the policy.

The gears in my head were turning so fast my hair felt hot. I added up all the additional premiums that would be subtracted from my paycheck, and they totaled somewhere north of $30 per pay period (twice a month).

During the entire spiel, the representative threw in quips that would help fuel my guilt if I turned down the policy. “You know, for just $2 per paycheck you could alleviate whatever additional bills may be associated with little Johnny’s incurable cancer treatment in 10 years…” Who could say no to that? I CAN!

After all, isn’t this what health insurance is for in the first place?

I felt a bit insulted that the rep would come in and try to sell me stuff I don’t need, and in the process make me feel guilty about turning it down.

Part of my aggravation relates to my general observation of the insurance industry. They love to take your money, but they really don’t want to pay out when you file a legitimate claim. They’ll find any excuse and loop hole to deny your claim, and then you have to spend even more money, time and aggravation to fight the fact that they’re not upholding their end of the bargain.

I can just see it now:

“Dear Grant, we’ve received your claim for the nearly fatal heart attack you suffered. However, since your heart attack occurred while you were sitting in a lazy boy watching football and eating Cheezy Puffs with high levels of trans-fats, we can not fulfill your claim at this time. Better luck on your next heart attack!”

What say you? Is there such a thing as having too much insurance?

It’s that time of year again. Holiday cheer, Christmas shopping in conjunction with raiding the left over Halloween candy isle at the grocery store, and oh yeah, open enrollment for benefits at work. Blehhhh.

That’s probably my least favorite administrative task at work. Pick a health plan. There’s only three, they’re all free, but if you foresee yourself needing this little benefit in fine print, you need the “premier blue” plan, but that comes with an additional $500 deductible, a smaller approved doctors lists…

…and this is where I lose interest.

To its credit, my company spends a lot of time and money making sure I know how to best take advantage of the benefits plan. Seminars for health, dental, vision, employee stock purchase plan, 401(k), pension, flexible spending accounts. You name it, there’s an informative meeting on it.

I don’t mean to belittle the process, it just seems that I spend an awful lot of time trying to determine whether I need to change things up a bit, only to leave them the same.

Ironically, I was browsing through the online Journal this morning and came across an article by Terri Cullen concerning this very subject.

She says that the biggest mistake many employees make is that when faced with a decision on which health plan to pick, they don’t pick any of them. That mistake could leave them with no coverage for an entire year, regardless of the differences in copay.

Incidentally, Cullen mentions that the biggest reason that companies are pushing their employees to be more up to speed on their benefits options is because they’re pushing more of the health care costs on to the employees themselves. Plan deductibles are rising, and many companies are providing a health savings account plan.

I understand that health care costs are rising, and I don’t necessarily expect the employer to absorb all of the cost increases. However, it does force one to look farther out into the future and try to account for events that may ding your wallet, aside from the typical doctors visit or late night trip to the ER for a broken wrist.

An interesting change change of the times indeed, and perhaps more a reason to pay attention in those open-enrollment seminars.

Tonight CNN ran a big piece on how insurance companies are trying to settle claims for next to nothing compared to what they’re worth, in many cases not even coming close to covering medical bills, let alone covering the repair to your vehicle.

While the television report was more in-depth, this article covers the high points.

The whole concept of this report brings up the question: If insurance companies are in business to insure your assets, but they’re also in business to make money for themselves, isn’t that a conflict of interest?

After all, every penny they shell out in claims is one less penny they show on their bottom line.  In effect, its in their best financial interest to not settle any claims at all, or at the very least, the lowest payout possible.

In the article, as well as in the television piece, it is revealed that insurance companies prefer to have you take them to court over claims, knowing that if they can drag out the claim, they stand a good chance of paying you much less than your claim is worth.

“The strategy, according to former Allstate and State Farm employee Jim Mathis, relies on the three D’s — denying a claim, delaying settlement of the claim and defending against the claim in court. -Source“

From a business aspect, this makes perfect sense.  The business is in business to make money, not to give it away.  It’s too bad though that when you pay your premium, you expect to have the company pay you for your claim, should you need it.  After all, isn’t that what insurance is for?

Insurance companies will state that they fight claims in court to battle insurance fraud, which they claim is running rampant and is the direct cause of rising premiums.  The problem is, insurance fraud accounts for only 4% of the claims they will pay out, and that number hasn’t risen for years.  So it’s tough to say that insurance fraud is “running rampant”.

To compound this problem, as an owner of an automobile, you don’t have a choice.  You must have insurance for your car.

It sure compounds the “conflict of interest” issue, doesn’t it?

There are times I love my insurance company, and other times I’m not quite as fond.

However, whenever your insurance company sends you money for no apparent reason, it’s always a good thing. Today I received my yearly USAA dividend check to the total amount of $58.91. Last year is was just shy of $100 and in previous years it has been upwards of $150.

Overall, USAA will return more than $6.4 billion to its members in 2006 in the form of dividends, claims payments, distributions and other monetary benefits. This adds up to almost half of the total revenue USAA brought in throughout the year.

While shopping for car insurance, USAA couldn’t be beat, and they narrowly beat out their competitors for home owners insurance. However, their landlord packages are terrible! Effectively, USAA will insure your rental property for the rebuilding cost in today’s dollars. So they initially insured my rental property (which is valued at $125,000) for $270,000! Consequently, my premium was $1500 for the year.

So while USAA does offer some great competitive rates, it still pays to shop around.

Click here to see if you’re eligible for USAA membership.

I just received our annual homeowners insurance renewal, and to my surprise, USAA is actually reducing our premium by just over $150!

Accompanying the new premium was a letter stating that USAA has recently changed the way they calculate the premium to ensure the premium reflects the risk our policy presents to USAA.

A few of the factors they used to calculate the new premium:

It’s nice to see the insurance company is sending our premiums in the right direction, and this reminds me that we need to inventory our personal belongings and make sure we’re fully covered.

Since our budget is based on the old premium, we can definitely take advantage of additional coverage, should we need it.

When I did my first real estate deal, I had the house insured through the same insurance provider I have for my primary residence.  Boy did that turn out to be a mistake.

USAA writes insurance policies for rental property based on replacement cost.  If the house burns to the ground, what does it cost to rebuild the exact same house, using the exact same materials and techniques as when it was originally built?  It’s a lot. 

What would a stone foundation cost today?  How about plaster walls and hardwood floors throughout?  It’s a number about 4 times what I bought it for, and I was paying a premium that reflects that number.

Then I got smart and called around.  All State beat USAA by a landslide, primarily because they write the policy based on what the house is worth, not the replacement cost.  So I’m saving about $500 per year by going through All State, thus adding $41 per month to my cash flow.

I made the switch back in January, but since the insurance payments were held in escrow, and since the first lender sold the mortgage at the same time I made the switch, I’m still sorting out the paperwork.

In this case the escrow stipulation required by the original lender is very inconvenient.  If I want to make an insurance policy change, I have to deal with my lender and the escrow account manager.  I’d rather just pay the premium out of my own pocket, and be done with it.

What are some of your battle stories?