Unintentional underinsurance is the main reason claims are denied for home and auto insurance. While it’s important for brokers to check that clients aren’t paying for coverage they don’t need, helping them keep costs down, it’s equally important that clients don’t cut costs to the point where they are underinsured.
Scott Marit, personal lines manager at First Foundation, which operates brokerages out of Edmonton, Calgary and Regina, said that there are five big mistakes that lead to bad insurance coverage for home and auto.
Not declaring vehicle modifications
Although something like a change in engine size seems more obvious in how it might affect insurance coverage, even a custom paint job can make an impact. So Marit suggests that brokers check for any modifications, no matter how small, from lift kits to changing the tire size. Otherwise clients face a claim denial on the basis of non-disclosure.
“It’s important to make your insurance company aware of any vehicle modifications you make, no matter how big or how small,” he said.
Insuring a commercial vehicle as a personal vehicle
This factor has come into the limelight a lot recently due to the explosion of the sharing economy and the popularity of services like Uber. In order to provide proper coverage, insurance companies need to know exactly what clients will be using the vehicle for. Even if it’s just to carry tools and construction materials to and from job sites, it could be classified as a commercial vehicle. This applies to anyone who uses their vehicle for work, from real estate agents to contractors, delivery drivers, and anyone else who carries materials or passengers in their vehicles for commercial purposes. Getting into an accident while using a personal vehicle for these purposes could result in a denied claim.
Not declaring a home-based business
Just like using a vehicle for commercial purposes affects auto insurance, running a home-based business changes the nature of home insurance. And again, it’s not always obvious. For example, a welder working on a commercial project in their garage, and accidentally starting a garage fire, could have a claim denied for non-disclosure. But this could just as easily apply to hair salons or legal practices run from home.
Failing to declare a rental suite
Many people rent out rooms in their property and this is also classed as a commercial venture. So if a client is running a rental suite that the insurance company doesn’t know about, they won’t be covered for any claims associated with the rental suite. Homeowner’s insurance only covers the homeowners themselves, so any tenants would need to purchase their own tenant insurance policy.
Not checking coverage limits
With a standard home insurance policy, not every item in the home is guaranteed to be fully covered. For example, items like jewellery, business equipment, artwork, antiques and collectibles, and specialty wine all will have certain claim limits placed on them. Brokers should check with the client if there is concern about any of these items, and change the policy to increase coverage limits as required.
“All of these bad insurance situations come down to one common mistake: not providing enough information to your insurance company,” said Marit. The problem is that many clients simply don’t know that they need to provide all of this information, so it’s incumbent on the broker to make sure all bases are covered and prevent bad insurance happening to good people.