Why Not Reporting the “Little” Changes Can be a HUGE Mistake

People are required by all insurance policies, including their auto and homeowners policies, to report changes to their insurance companies or agents–usually within 30 days. Often, the failure to report a required change within a specific time period results in the denial of a claim.

Example:  Your son got his driver’s license 3 months before your policy renewed and you forgot to tell your agent and/or insurer. When the policy was ready to renew, you glanced at the renewal form you received in the mail and, because you still insured the same vehicles, tossed it away because you thought, Nothing has changed.

Unfortunately, something HAD changed: you had a new licensed, family member–something you are required to report. If your son drove your car and was involved in an accident after the policy renewed, your insurer could deny the claim for misrepresentation (i.e., lying).

Although you didn’t lie intentionally, the fact that you forgot to report the change, twice, might be interpreted as if you had lied because you didn’t comply with requirements of the policy (a requirement that would increase your premium) . Of course, your insurer may believe you and may simply charge you premium retroactively to the first day you son was licensed. But it doesn’t have to.

One of the changes on homeowners insurance policies that often go unreported involve different family members moving into and out of the home. Technically, a homeowners insurance policy is only intended to provide coverage for the resident owner(s) of the home–the people whose names appear on the deed AND who live there.

Example: Dad moved out of the home and into a nursing home permanently, and you moved from your apartment into his house. The homeowners policy wasn’t designed to provide coverage for this situation because you are NOT the owner. The change should be reported to the insurer and the company will cancel the policy and either issue a dwelling fire policy in Dad’s name or require coverage to be issued on some other type of policy that insures tenant-occupied buildings. Even if you are not paying rent, you need to buy a renter’s policy.

I know, I know, that’s more expensive for everyone and you and Dad don’t want to pay more money–things are already tight. But the reason it’s more expensive is because a loss is more likely to occur when a home is not occupied by the person who owns it.

If an insurance company learns someone other than the owner his living in a home (especially shortly after the policy is written), it will issue a cancellation notice for the homeowners policy. In the same way an auto insurer will deny a claim if a change isn’t reported on a renewal form, a homeowners carrier will refuse to provide insurance.

Please report all changes to your agent promptly. He or she will help you find the most cost-effective way of making sure your coverage does apply in the event of a loss. Think about it: if you save $100 a year by not reporting a change and the insurer doesn’t pay a claim afterwards, you not only didn’t save $100, you incurred a much higher cost.

Pardon the pun, but honesty IS the best policy!

What Activities Void My Rental Car Agreement?

Allowing an unauthorized person to drive your rental car is the biggest mistake you can make when renting a car. Not only does it void your rental agreement, it will probably result in your insurance policy declining to pay any claim for damage that results while the unauthorized person is driving.

Auto insurance policies only provide coverage when authorized drivers use or have possession of a vehicle. Language exists in personal auto policies that SPECIFICALLY EXCLUDES COVERAGE for two types of unauthorized drivers–you need to read your policy (or ask your agent to do so) to determine which exclusion applies to you:

  1. A person who does not have the permission of the vehicle’s owner to drive the vehicle
  2. A person who does not have a “reasonable belief of entitlement” to drive the vehicle

So, what’s the difference? Here’s a brief story that explains:

Doris detests her daughter’s boyfriend. When Irene borrows her mother’s car, Doris informs her daughter that her boyfriend is not allowed to drive the car. Irene agrees. However, when they leave the restaurant after dinner later that evening, Irene gives her boyfriend the car keys and asks him to drive. The boyfriend is tailgating and rear-ends the car in front of him when it stops at a red light.

  1. If Doris’ auto insurance policy excludes coverage for a driver operating a car without the owner’s permission, the policy WILL NOT PAY for this accident. (Doris did not give the boyfriend permission and, in fact, withheld permission in her instructions to Irene.)
  2. If Dori’s auto insurance policy excludes coverage for a driver operating a car without a reasonable belief of entitlement to drive the car, the policy WILL PAY for this accident. (When Irene handed the boyfriend the car keys and asked him to drive, it was reasonable for him to believe he had permission to drive.)

What does this story have to do with renting cars? Well, if you allow an unauthorized person to drive your rental car, your insurance company will recognize that the driver did not have (1) permission of the rental car company to drive AND DID NOT HAVE (2) a reasonable belief he or she was able to do so … everyone knows (or should know) you can’t drive a rental car unless your name is on the agreement. Therefore, you not only voided the rental agreement, you also triggered one of your auto policy’s exclusions.

People rent cars when they go on vacation or travel for business. But they also rent cars because they want to conduct activities they’d rather not engage in while driving their own cars … such as all the things that prompt rental car companies to devise their list of prohibited uses. Not all rental car agreements contain these prohibitions, but they all contain MOST of the following activities that result in a loss that occurs:

  • During the commission of a crime
  • While the driver is under the influence of alcohol or drugs
  • While carrying people or cargo for a fee
  • While pushing or towing anything
  • During any type of race or speed contest
  • While teaching someone to drive
  • While using the rented vehicle outside the area stated on agreement
  • While driving on unpaved roads
  • While having more passengers than there are seatbelts
  • While transporting children without approved seatbelts
  • While the vehicle’s fluid levels are low
  • Because inadequately secured cargo, or an animal, inside the vehicle caused damage
  • While the vehicle is unlocked or the keys are lost, stolen, or left in the vehicle while not in operation
  • Because the driver did not allow enough height or width clearance
  • By theft and the renter does not return all the keys that were provided at the time of rental
  • Because the renter allowed an unauthorized driver to use/drive the car

How Much do YOU Know about Car Accidents and Renting Replacement Vehicles?

I’m proud to announce that my magazine article, Rental Reimbursement Coverage:  Minor Coverage with Major Impact is the featured article in the Fall 2012 issue of the  national trade magazine, Today’s Insurance Professional.  It’s actually been so well-received, I’m receiving reprint requests!

I was asked to write the article by the International Association of Insurance Professionals after being contracted by a client to develop and write several insurance education courses on the topic of Rental Reimbursement insurance–which I then presented around the country and at two of the associations’ annual conventions.

Although the article was written with insurance professionals as its intended audience, consumers will certainly benefit from ” tips” about what the coverage provides and how both personal and business auto policies seldom offer “good enough” rental coverage without the addition of an endorsement.

Care to share any of your stories about car accidents and renting replacement vehicles?