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Homeowner's Insurance: A Real Racket

Skating, biking, and hiking are Liz's exercises. Calisthenics? Going to the gym? No way. It has to be exercise that is playtime.



Insurance Fixes Everything, Right?

So the various commercials on TV would have you believe. "The good hands people," "Making it like it never even happened," "The company that stands by you," and other such confidence-inspiring slogans all vie for your dollars.

Why, then, five and a half years later, are the displaced victims of Hurricane Katrina still not back in their homes? Why are so many of the homes in "Ward 9" still devastated and un-repaired?

Insurance is the one-word answer.

The Immediate Devastation From Hurricane Katrina

New Orleans 9th Ward Video from 2008

What's Wrong With This Picture?

When you watch the second video, you have to ask yourself: "Why is the narrator/host talking about homes being rebuilt by the Mennonites and the Make It Right Project?"

Shouldn't this have been done by the insurers? Read on for the blood-boiler!

Complicated, Time-Wasting Delay Tactics

I sincerely hope none of you will ever have to, or has had to go though a serious incident and the resulting paperwork. It is a nightmare. No, I take that back: a nightmare would be an improvement!

We had a fire in our shop back in 2007. We were required to provide a list of everything we had lost, complete with research of the cost of replacements. We have “full replacement value” coverage. Or so we thought.

Getting that full coverage reimbursement took nearly 2 full years, and as of this writing in early 2011, there are still some items outstanding!

We were required to create a list of items totally lost or too damaged to repair. We spent weeks doing so, researching the replacement costs. (Some items were irreplaceable.) Finally, we finished as much as we were able to find prices for, and sent in our list.

The smoke damage was the worst.  In spite of the fact that the actual structure was not damged, we still had to gut to the studs & rebuild!

The smoke damage was the worst. In spite of the fact that the actual structure was not damged, we still had to gut to the studs & rebuild!

This shop WAS painted bright white!

This shop WAS painted bright white!

This used to be 8 boxes of Christmas decorations sitting on a hand truck!

This used to be 8 boxes of Christmas decorations sitting on a hand truck!

Air filter/vacuum for drywall sanding; this tool was not even ours, but borrowed from a friend!  A total loss.

Air filter/vacuum for drywall sanding; this tool was not even ours, but borrowed from a friend! A total loss.

Bills Paid For Work Not Done

Why did we have to do all that work? We felt as if we were doing work we'd already paid for with our monthly insurance bills. The insurance company turned around and had its own in-house agency go over everything we submitted, did their own research, and sent us back a list showing depreciated values!


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Where was our ‘full replacement value?’ We were outraged. This is when we learned that the initial payout would be on the depreciated values, and upon submitting receipts for the re-purchased items, we would then be paid the difference.

This was a hard pill to swallow—we were already cash-strapped, and the payout covering the depreciated amount was obviously not going to replace the items at current market value.

Lucky for us we were smart enough to read every single line and fight for what was correct. Many people do not—they just take the payout and quietly go away. This is what the industry wants. They don’t like people like us who demand what we paid for and won’t settle for less.

Errors Galore

As if this were not bad enough, many of the items on the list from the insurer were for either entirely wrong items, not even in the same category as what we’d lost, or were for a cheaper item inferior to our original.

One example was specialized rechargeable batteries for radio-controlled model cars. These are the expensive models from hobby shops—“toys” for adults—not the ‘cheapies’ you find at Radio Shack. The batteries cost between $80 and $120 each set! The insurance company set these up as ‘rechargeable batteries for a battery-operated drill.’ Not even on the same continent, let alone in the ballpark!

Whomever did the research obviously knew nothing about tools. Their printout came back wanting to replace a combination square with a torpedo level. Incorrect! Not even close to the same tool! (Photos below.)

This is a 'torpedo' level. The insurance wanted to substitute this item for the combination square, below.

This is a 'torpedo' level. The insurance wanted to substitute this item for the combination square, below.

This is a combination square

This is a combination square

Another item for which we were unable to receive fair compensation was my husband’s collection of antique cuckoo clocks from Germany. He had bought them while there with his family back in the 1960’s, before thoughts of being married ever entered his head. He’d had them all that time.

Now, who keeps receipts for that many years, and for that matter, what teenager even gives receipts a second thought? Since a return trip to Germany was out of the question, (was the insurance company going to cover that??) there was no replacing them, and no way to prove they were actually worth over $1200. We were given a scant $128.

The Supposed Definition of Insurance

If you look in the dictionary, the primary definition of insurance is this:

“An insuring or being insured against loss; a system of protection against loss in which a number of individuals agree to pay certain sums (premiums) periodically for a guarantee that they will be compensated under stipulated conditions for any specified loss by fire, accident, death, etc.”

When you really think about it, insurance--very loosely defined--is a form of legalized gambling. You are being “pessimistic” or negative, and betting against yourself, taking out coverage for the accident, illness or disaster you are sure is going to befall you at some point. The insurance company, hoping to minimize its losses, takes a more optimistic outlook of your luck in life, and bets that you will not need to make a claim.

It’s a nice theory. In practice, it does not work out so favorably.

The Premiums: That’s “Bills” To You and I

First, let’s define “premium”:

noun: 1. A reward or prize, especially one offered free or at a special low price as an added inducement to buy or do something; bonus."

It is important to note that the insurance industry’s usage is not  this first definition in the list, (the remainder appear below under references), nor is it even the second. Here’s how dictionaries work: where there is more than one definition for a word, the most common and preferred uses are the first listed, the less common and less preferred are further down the list.

Most insurance companies are willing to be somewhat flexible about payment arrangements, allowing you to pay your “premiums” either monthly, quarterly or annually. They are far less flexible about missed payments, underpayments and working with you if you are struggling. Whether or not they will work with you at all depends upon the particular company in question.

For the remainder of this article, I decline to call these payments “premiums.” I will call them what they actually are: bills.

Coverage Options—Beware!

The various insurance companies have more plans, packages and rate scales than a Shar-Pei has wrinkles!

The old adage of “you get what you pay for” applies in spades with insurance. They are not at all shy about giving you the least possible coverage for your dollar that they can get away with, while you, as the consumer, want the most possible coverage for your money.

Trying to decipher these options requires a law degree! That is hardly surprising, considering that the backbone of any policy is written by the insurer’s legal department. It is so full of incomprehensible legalese that truly understanding the coverages you are buying is all but impossible.

Every company has their own 'take' on what constitutes adequate coverage, types of coverage, and pricing plans. This makes trying to comparison-shop for the best policy a Gordian Knot, and leaves the consumer with no sword to cleave through the confusion.

The industry will never admit it, but they do this on purpose. The more confused you are, the easier it is for them to slip unpleasant surprises past you. Believe me, there are plenty of those!


The cruelest part of any insurance policy is the accursed ‘deductible.’ This is the amount you must pay out of your own pocket before the coverage (for which you have paid in advance) kicks in. Usually, as most of us have discovered--to the dismay of our bank accounts--we can choose our deductible amount: the more risk you are willing to assume at your own (added!) expense, the lower your bill. The less you want to risk paying out-of-pocket, the higher your bill. Either way, you lose!

Something is very wrong with this system. Most of us pay our bills, on time, every month, quarter or year, for years on end with nary a claim. We have more than paid many times over for the cost of any repairs or replacements we may need on that unlucky day when disaster strikes. Yet, we are expected to still assume risk, and pay for part of the supposedly insured problem ourselves before the insurance company will live up to their end of the deal? This is just not right.

What happens next is downright criminal. After paying out on a claim for which they've received (by means of their bills to you) well over what it cost them to pay out, they turn around and raise your rates! Your 'risk score' has now been slid down the scale toward 'poor risk' for a single claim!

Declining To Cover

 Another place they hit you with a double-whammy are the exclusions clauses. These are sneaky little items buried deep in the fine print, well past the point where your eyes are crossed and your brain is fried from trying to comprehend the legalistic double-speak. This is where they tell you that, despite faithful payment of your bills, the company refuses to cover certain specific categories of losses.

The usual exclusions include acts of war, riots, deliberate damage by you, the policyholder (although that comes under fraud, and is understandably excluded), earthquakes, floods, tornadoes and any other kind of natural disaster, usually lumped under ‘acts of God.’

Now, here’s an interesting question! What if a particular policyholder was an atheist? I’d love to see a test-case in court one day. How can a company or corporation hold or have any form of belief in any kind of deity, unless it is the belief held by its chief officers? How, then, can this belief system be forced upon the policyholders? They might argue that they meant “acts of nature,” but…in their carefully crafted legal language, that is not what they said! In the strict protocols of legal-speak, you must be precise. You cannot use one phrase and then claim you meant another.

And so, five and a half years later, many of Hurricane Katrina's victims still cannot go home because they did not have the 'right' coverage. For these 'acts of God,' additional special-coverage, (and very expensive) disaster policies must be purchased, for flood or earthquake, depending on the likely risk in your area. This is a horrible injustice, and as with most 'extras,' it hits hardest at those who can least afford it and have the most to lose.

We all saw what a farce the FEMA response was: almost worse than no help at all.

Consumer “Protection?” Office of the Insurance Commissioner

From the “About Us: An Introduction to CDI Operations” statement on the website of the California Insurance Commissioner:

“The California Department of Insurance (CDI) ensures that consumers are protected; that the insurance marketplace** is fostered to be vibrant and stable; that the regulatory process is maintained as open and equitable; and that the law is enforced fairly and impartially.”

(**Emphasis mine.)

Back to the dictionary once again:

Foster: "verb transitive 1. To bring up with care; rear; 2. To help to grow or develop/ stimulate; promote"

So we see it is the insurance industry, and not the consumer that is offered this protection. So, by their own statement, they belie their claims and prove themselves to be little more than a protection racket.

Further down the page, under the heading, “Regulatory Authority and Enforcement,” they claim:

“Consumer Protection - The Department aids consumers by regulating how insurance companies market and administer their policies. Insurance business must be conducted in an honest, open, and fair manner.”

I beg to differ! It is not at all open or honest. The depth and breadth of the rules and regulations; terms; stipulations; exclusions and exceptions, written in obscure legal jargon within each policy, serves only to muddy the meaning instead of providing clarity!

A few lines yet further on:

“Rate Regulation - The Rate Regulation Branch, under the provisions of Proposition 103, reviews proposed personal auto and homeowners insurance rates to ensure that they are fair, reasonable, and adequate.”

“Fair and reasonable” by whose definition? The insurance industry’s, of course! Insurance is expensive, and barely affordable to many, totally unaffordable for many more. Renters are the more affected by this cost, and the majority do without. Homeonwers are forced by the bank to have full coverage insurance for the duration of the mortgage period.

The very next line on the page reads:

“Financial Surveillance - By examining and reviewing key financial statements and conducting audits of insurance companies in California, the Department oversees the financial condition of the insurance industry** and helps to ensure stability and to protect policyholders.”

(**emphasis mine.)

Once again, we see the Office of the Commissioner more concerned with the industry than the consumer. So much for claims of acting in the interests of the consumer/policyholder!

Likely Counter-Arguments From the Industry

Naturally, the insurance industry wants to continue protecting its extensive monetary interests, so I've included a couple of the types of counter-arguments they are likely to raise. For this, I thank them, as these statements only serve to strengthen my points!

1) "Without insurance, even though the process may be long, many "little people" would have no recourse at all for reimbursement of losses, The industry is providing a valuable service to such people who would be totally lost otherwise."

2) "The insurance companies are publicly held corporations in most cases, which mean that lots of "little people" hold stock in them--sometimes only a few share, but they are part of some people's "portfolio" as they try to protect some assets in retirement. If the insurance industry is too liberal with giving back money, this will in the end seriously affect stock values and thus actually hurt the "little people" , and so the industry is trying to protect its stockholders, too."

Now, I will counter the counter, (or as they say in the election materials, "Rebuttal to the to the rebuttal of the argument against.") HUH??!! See what I mean about using confusing language?

1) This is a ridiculous statement. The only 'valuable service' the industry is providing is to its own coffers! The fact is, many people are already hit hard and have no recourse because they cannot affort the billing rates for insurance in the first place. For those who do have insurance, losing property from any cause is very likely to cause strain to the breaking point of their already dire economic situation. The delaying tactics exacerbate the problem severely.

2) Aha! There's your problem! The insurance companies have admitted that they are indebted first to their stockholders, and the policyholders come in a poor second! Here's what needs to happen: the insurance industry (along with many others) needs to be removed from the wild speculations of the stock market.

Some few insurance companies are 'mutual' companies, which means they are not traded on the stock market, and the policyholders amount to being the 'shareholders' of the income or any profits made by the company. Theoretically, this lowers their rates, but sadly, not always. In any case, the rest of the problems remain with delays, errors and faulty coverage. (Ours is a mutual company..and it did not help with those issues.)

So, What Can We Do?

This is a tough one. But know this: if all we do is sit back on our hands grumbling to ourselves, nothing will happen.

Since the insurance commissioners would seem to be in the pockets of the insurance industry, complaints there may fall on deaf ears, but it is a starting point. Look up the insurance commissioner for your state, and write letters, send e-mails and make phone calls to point out the inequity and unfairness of the entire system.

Especially on the phone, and possibly in written replies, they may try to shove generic complaints aside, saying that they cannot register a complaint unless it is about a specific incident with a specific insurer.

Ignore these statements and forge ahead, insisting it is the system that is broken and must be fixed.

The next angle of attack is letters, e-mails and phone calls to your state representatives.

Call and write to the news departments at your local TV and radio networks.

In short, broadcast this message everywhere you can. Tell others. Have them do the same actions. A protest starts with one dissatisfied person willing to do something, and collecting like-minded people along the way.

To that end, vote this article up; share the link to Facebook, Twitter, Digg, StumbleUpon, or whatever other means you may wish to use. This article is but one of a series. We're going to hit them hard, hit them often, and on multiple fronts.

Thank you!

The Rest of the Story: More Corporate Greed


All dictionary references taken from:

Webster’s New World Dictionary, Second College Edition, Simon and Schuster, New York, NY © 1979

Remaining definitions of 'premium':

2. An additional amount paid or charged; specifically, a) an amount paid for a loan in addition to interest; b) an amount paid, as for stock, above the nominal or par value; c) additional wages paid for overtime or dangerous work.

3. A payment; specifically, a) the amount payable or paid, in one sum or periodically, for an insurance policy; b) (now rare) a fee paid for instruction in a trade, etc.; c) a fee paid by a borrower of stock to the lender, as in short selling

4. Very high value [to put a premium on punctuality]

5. (Economics) the amount by which one form of money exceeds another [of the same nominal value] in exchange value, or buying power.


  1. Rated as superior in quality and sold at a higher price
  2. At a value or price higher than normal
  3. Very valuable, usually because of scarcity.”


 Remaining definitions of ‘foster’:

3. To cling to in one’s mind; cherish"


1. Giving, receiving, or sharing the care of one having the standing of a specified member of the family although not having that standing by birth or adoption {foster parent, foster child, foster brother}

2. Designating or relating to such care {foster home}" 3

© 2011 Liz Elias


Liz Elias (author) from Oakley, CA on May 26, 2012:

Hello, MarleneB,

Thanks very much for commiserating--thankfully, at this point, most of it is well behind us, but I sure hope we never have to go through any such thing again.

And yes, you do have to fight, and keep fighting. That's what the "occupy" movement is all about! Fight on! Thanks for stopping by and leaving a comment.

Marlene Bertrand from USA on May 26, 2012:

I'm so sad that you had to go through all that trouble with your insurance company. I'm not shocked, though. That's how insurance companies operate. You have to fight for your rights - every time!

Liz Elias (author) from Oakley, CA on March 28, 2011:

Hi, Lucky Cats!

Thank you very much. I'm just trying to get the word out, so people will understand that this is how we accomplish change. Get enough folks mad, and motivated, and laws can be changed; politicians can be ousted (albeit with more and more difficulty of late); and we can take back our country from the greedy corporations.

I truly appreciate your helping to spread the word by cross-posting links! Thank you very much!

Kathy from Independence, Kansas on March 28, 2011:

Another absolutely fabulously written, researched and stated hub, DML! And I agree 100 %! I can't wait to read your other hubs decrying the dishonest and greedy ways in which the typical "consumer" *(remember when we were "customers" know, humans w/some senblance of recognition?)is treated by massive, unbridled, self serving corporations which wear sheeps' clothing! Amazing and so well written! voted UP & Awesome and "like" on FB and shared. Looking forward to reading your other offerings. Really, are Right On!

Liz Elias (author) from Oakley, CA on March 01, 2011:

@ImChemist--Thanks much. Glad you enjoyed the information.

@Jazzi480--Wow--that is an excellent point. I had forgotten all about this relatively new development/scam! Thanks for pointing it out!

Jazzi480 on March 01, 2011:

I really enjoyed your article, right on point. One thing I did not see is, that Insurance companies set your premiums according to your credit rating! So if your credit rating is low you pay 2,3,4 times what someone with a high credit rating, for exactly the same coverage. So like many others who have suffered job loss, lay offs, pay cuts ect, we have seen our homeowners increase 400$ over the last 2yrs, even though we have never missed a premium or made a claim.

Can't wait to read the next topic in the series!

ImChemist on February 26, 2011:

Thanks for sharing this videos its informative.

Liz Elias (author) from Oakley, CA on February 26, 2011:

@Just Ask Susan: Thank you so much! Stay tuned! More to come. This article ended up being long enough on its own; I decided that auto and health insurance each needed their own articles!

@katiem2: Yes, greed is truly the issue at the root of everything bad. Thanks so much for stopping by and confirming this. This is how we start a grass-roots movement toward change.

Katie McMurray from Ohio on February 26, 2011:

You've said a mouth full, greed is the root of all problems in our economy or so it seems so evident! I agree with your corporate greed the insurance racket. I'm off to find the first part of this report. Well done and thank you for your careful report on corporate greed and the insurance racket, it is def broken and needs drastically to be fixed and more... :) Katie

Susan Zutautas from Ontario, Canada on February 26, 2011:

When I saw you had written a part 2 I just had to come and read this one. Great article once again!!! I feel that everyone is getting (please excuse my language here)screwed harder and harder every day that goes by. Between the Insurance Companies both car and home, The utilities and government taxes so many people are going to be in the poor house if they are not already.

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