The purpose of insurance is to prevent financial disaster in the event of a loss. If your home burned down to the ground today, would you have the $300,000 you would need to rebuild it? Probably not. That’s where insurance steps in – it’s a transfer of risk. When you pay your premiums, your insurance company pools all of the premiums together to pay out the claims and expenses, transferring the risk from yourself to the insurance company.

It is never a good idea to obtain insurance under false pretenses.

It is never a good idea to obtain insurance under false pretenses. I work for an insurance company and I’d like to explain what happens when you do. I have had situations where an insured called with one story and was declined coverage, only to call back (and talk to a different rep) with a different story in order to obtain the coverage. Why would you do that? At the time of the loss, there is going to be an investigation. If your insurance company discovers your lie, the claim will be denied, the insurance company will refuse to do business with you in the future, and you could even be prosecuted for insurance fraud. If you’re honestly using your car for pizza delivery, don’t call your insurance company and tell them you’re not. When you hit someone and the big pizza delivery sign is on your car, your claim will be denied (and if you’re lucky, that’s all that will happen to you). Why pay money for coverage you don’t really have?

Don’t Be Like These People

I’ve seen so many situations where people have lied during the claim process. You do NOT want to do that. It is a bad situation. Claims departments have special investigators they call in when a claim is suspicious. One thing (dumb) people like to do is light their vehicles on fire when they can’t afford their payments anymore. They figure they can collect on the insurance, and all their problems are solved. Well, a toasted car is a huge red flag for the insurance company. Why would a thief burn your car?   They don’t. So the special investigators are going to check your finances. Oh, you’re struggling a little?  Oh, you don’t have both sets of keys to your car?  There will be a trail of clues, and you will give them enough rope to hang you with. Pretty soon you’ll owe money on a toasted car and the insurance company won’t be helping with any of that.

You have to be willing to go pretty far to commit that kind of insurance fraud. But even small lies can choke you. One woman (who happened to be a Realtor) had a water loss to her vacant home. You lose certain coverages once your home is vacant for a certain amount of time; it’s a way insurance companies mitigate their risk. Well, she was denied coverage. Once she heard that, she changed her story. The insurance company investigated, and they ended up denying her claim, canceling all of her policies, and going after her Realtor’s license.

Rates Are Important, But Not Enough To Risk Everything With

A lot of people are concerned about their insurance rates….until they have a loss. Once they have a loss, then the concern is centered on the amount of coverage. You need to make sure you’re adequately covered in case disaster should strike. Cheaper premiums are not worth it in the long run. Insurance companies do something called pricing to risk. They figure out how much of a risk you are and charge you accordingly. It’s why people with DUIs pay higher premiums than those of us who don’t drive drunk.

…don’t misrepresent your situation. It could end up costing you a lot more than it’s worth.

Insurance companies that only write personal lines of business have to stay away from certain risks because they can’t price for them. Such as an employee driving your vehicle. If you have a large enough business that you let an employee drive your vehicle, go get commercial coverage now. Commercial coverage is dang expensive, but it’s what you need. If you lie to your insurance company, don’t come crying to me when you have a claim, because they turned you down for a reason. They declined to insure you because whatever you’re doing is just not covered. Why would an insurance company offer you insurance for something they won’t cover?  They wouldn’t.  So don’t misrepresent your situation. It could end up costing you a lot more than it’s worth.