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Study shows policy language differences harmful to consumers

Most Florida homeowners are probably more familiar than they want to be with shopping for insurance. Indeed, in this state, a homeowner may just be grateful that he has a choice. It's a safe bet that the choice comes down to price, too -- premium and deductible, especially in a tight market, tend to outweigh the fine print of the insurance policy. It's just the standard stuff you find in homeowner policies, right?

A researcher has found that there can be important differences in policies from company to company. And it seems the differences are less favorable to consumers.

At one time, insurance companies used standard policy forms that had been drafted by an insurance industry group, the Insurance Services Office. All that "standard stuff" was standard because of ISO. Insurers have moved away from that standard language, though, and the tweaks and "fine tuning" can mean an apparently straightforward claim will be denied.

With an insurance policy, the devil is absolutely in the details. Most policyholders don't get past the declarations, or "dec," page -- the page that summarizes coverage limits, deductibles and premiums. Digging in to the individual terms, though, can turn up language about the policyholder's negligence and aggregate versus per-item coverage.

For example, a homeowner policy will generally cover a "sudden electrical current." What the researcher discovered was that one policy provided up to $1,000 in coverage per item damaged by the spike, while another provided up to $1,000 for all items damaged by the spike. If you have damage to a computer, a television and an audio system, you could be looking at replacing just your computer instead of all three. And, of course, if your insurance doesn't cover it, you'll be paying out of pocket.

Other, more important coverages differ, as well. We'll discuss some of those in our next post.

Source: Wall Street Journal, "A home-insurance trap?" Leslie Scism, Dec. 3, 2011

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