#654 Musings Beyond the Bunker (Monday May 8)
Good morning,
INSURANCE (LIKE CRIME) DOESN’T PAY
Many of you commented on the scam insurance sold on cable television discussed several weeks ago (thanks again, Ira Waldman, for bringing this issue front and center). As you may recall, these are policies that scare the elderly into buying a small insurance life insurance policy that is advertised as being more than it is.
It seems inexpensive on a per-month basis (“only $9.95 per month!”), but when one considers the monthly premiums and the compounding effect, these policies are a sucker bet. The problem is that premiums often are collected for decades, while the payout upon death is in absolute dollars rarely much more than the amount paid in (while not providing any sort of cost-of-living increase in proceeds or accounting for the time value of money). The insurance companies pay B-list, seemingly trustworthy actors to prey upon feelings of guilt the viewer may have in imagining the cost burden on their heirs when they die. Only this insurance not only isn’t worth it but it doesn’t result in a payout that reasonably can be expected to move the needle upon death. These companies should not be allowed to air these ads incessantly on cable TV (or some serious disclaimers should be required on-air and when purchasing a policy). Just imagine, people sitting at home, watching cable TV, being brainwashed!
THE VALUE (?) OF INSURANCE
There are other forms of insurance that don’t make a good deal of sense. Among these is dental insurance, which has limited benefits that typically only offset the cost of the policy when major work is required. Vision insurance similarly has limited benefits for a young person with decent eyesight.
There is an adage that suggests one should insure for eventualities that one cannot pay for. I’d argue that the risk of a major vision or dental event probably doesn’t justify the coverage (which still involves copays), as the annual cost of preventative care is relatively low. This argues for higher deductibles for automobile collisions, as one typically is not incentivized to report minor accidents. The reason for the coverage is for major collisions—not minor problems.
I think I’m an outlier on earthquake insurance. The argument here is that FEMA will cover lots of damages in the event of a major earthquake, while a major earthquake probably taxes the insurance and reinsurance business and casts in doubt the ability to cover the likely significant losses. Our house was built in 1930, is lathe and plaster, and has withstood several calamities over the decades. The odds of a damage are low, a total loss is unlikely, and much of the property’s value is in the land.
We’ve all had our issues with medical insurance, which continues to be the bane of many people’s existence. For no explicable reason, medications, tests, and treatments are denied, notwithstanding a physician’s decision to order them. And when they are approved, the calculation of how much the insurance company owes is written in Middle English and requires advanced math to figure out. There are algorithms charged with denying claims and whole batches of claims (as in the recent CIGNA disclosure) are denied without a review of each individual case. As I’ve said before, so long as the insurance companies are the arbiters of when claims should be paid, rather than an independent third party, the chance of mischief will always remain high.
TRAVEL INSURANCE—DESIGNED TO NOT PAY
But there’s another type of insurance that is insidious, though far less important to people’s lives, and that’s travel insurance. Mark Smith says that he never buys travel insurance because they never pay. I didn’t believe him until my recent experience.
The end of the story is success. I finally received payment from Allianz Travel Insurance this past month, after 16 months of fighting. My claim was first submitted in November 2021 for a trip I wouldn’t be able to make in December due to my spinal stenosis.
I dutifully submitted a letter of explanation, evidence of the payment and a letter from a doctor. Over the ensuing months, I was asked for proof of the operation to resolve my issue, canceled checks, an invoice that we had the house rental company create, and more. At one point, they asked that I prove that the rental company could identify the people that would be staying at the house (as if anyone does that). I submitted subsequent doctors’ letters confirming MRIs, advice not to travel, epidurals and, finally, the operation itself. After breathing a sigh of relief, I was then informed that I needed a precise form be filled out by a doctor. Never mind that they already had the three letters and that they agreed that there was no additional information that would be gained from the form—the form had to be filled out. And when it was finally provided, they wanted to see another invoice from the company renting the house. I needed to point them to an uploaded document that was submitted a year earlier. Eventually, they relented and paid. I have to wonder how many people simply give up. I suspect that is part of the strategy.
What is so awful in this example—but is particularly bad in the case of denied medical claims—is that the insurance companies have all the time in the world and can continue to thwart attempts to receive coverage. I’m a reasonably sophisticated guy, a lawyer, and someone with the time and resources to fight. But imagine how tough it is for others—who may not speak English as clearly or have access to computers, or don’t have legal training, or lack the wherewithal or the self-confidence, or simply lack the spare time, to fight an institution. It’s like fighting city hall. Only city hall might actually answer promptly, and isn’t the arbiter of disputes over its own rulings.
Have a great day,
Glenn
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