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ALT="insurance basics at The Insurance Problem Solver"

Luke Brown Is The Insurance Problem Solver

My name is Luke Brown, and I like to share insurance basics. In fact, I spent 30 years in insurance law before I retired, and that’s why I want to share some insurance basics with you. It’s part of my passion–to navigate the complex world of insurance and simplify it for you. I recently launched The Insurance Problem Solver (TIPS) to help me help you.

Some Insurance Basics

  • Insurance is a contract. It is similar to other contracts, but with a few big differences. One is that the content of insurance policies is highly regulated by state government.The main reason is to ensure that the insurance policies are fair to consumers.
  • When an insurance company wants to sell insurance policies in a state, it has to agree to be regulated by the insurance department of that state.
  • You should never, ever do business with an insurance company that isn’t authorized to business in your state.
  • You can call the Department of Insurance in your State Capitol to find out, or The Insurance Problem Solver can do it for you.

When an insurance company wants to sell policies in a state, it must submit to the authority of that state to regulate its operation. Insurance laws differ, so not all insurance companies choose to operate in all states. Likewise, the language of the policies that an insurance company sells in one state may differ from those of a similar insurance policy sold in another. That may be because the insurance regulator in one state requires a provision (such as coverage for a certain medical procedure) that another state doesn’t.

Government regulation of insurance is different from other kinds of contracts for another reason, too. With most non-insurance contracts, people can agree to nearly anything as long as it is not illegal or fraudulent. Insurance regulation is more strict because insurance policies are very complex and insurance companies have gigantic economic strength. Also, consumers who buy insurance do not have much input on the terms of the policy. A big part of insurance regulation, therefore, involves making sure that insurance companies do not use the unequal bargaining power to create an insurance policy from which a consumer can’t benefit.

Another significant element of insurance regulation is to make sure that insurance companies have enough money to pay expected claims. This is called “solvency.” That gets us into the area of premiums, which will be discussed in later articles. For now, just understand that state insurance regulators are very concerned with solvency. After all, an insurance company that is unable to pay claims doesn’t do anyone much good.

Basic to any kind of insurance is the concept of “transfer of risk.” Transfer of risk means that the burden of financial damage (say, for medical expenses in a hospital or for the cost of car repairs from a collision) shifts from the insured to the insurance company. Stated otherwise, the insurance company will ordinarily pay the financial damage if:

  • The policy is in force at the time of the occurrence (meaning that premiums have been paid and other conditions met)
  • The kind of financial damage is covered by the policy (for example, a life insurance policy does not cover the cost of repairing a car because they are different insurance policies and cover different kinds of risks)
  • The insured (you) has complied with all other requirements of the insurance policy (such as timely reporting the claim as required).

The devil is in the details. Problems can arise in determining whether the policy was in force when the event happened, whether the kind of event is covered by the policy, the applicability of any exclusions or exceptions to coverage, the measurement of benefits payable, and others.

While everything here may seem complex, honestly, it’s basic. That’s why I’m here. Call me, Luke Brown The Insurance Problem Solver, to help you navigate insurance landmines.

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