Insurance policies

Why are insurance policies impossible to read? – Forbes Advisor

Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

Insurance policies are not only difficult to read, they are sometimes downright impossible to understand. Just ask Lori Lugo, an elementary school teacher from Corpus Christi, Texas.

She tried to renew an umbrella insurance policy that covered her home and car, only to run into the fine print. You know, declaration pages with long lists of risks and perils. And, of course, sentences that last for paragraphs.

Lugo phoned his insurance agent and asked him what everything meant. It was a long call.

“I want to know what I’m paying,” she says.

“Insurance contracts are an almost impossible puzzle for the average person to solve,” says Miami personal injury attorney Jason Turchin. In his view, insurance companies market insurance as something that does more than it actually does.

“When you look at the actual conditions, only a few specific items may actually be eligible for coverage.”

So why are insurance policies impossible to read? What makes them so difficult to understand? Answering these questions leads to other questions: do policyholders benefit from these byzantine contracts? And do the insurance policies that scratch your head put the odds in your favor when you have to make a claim?

Here’s why insurance contracts are impossible to read

“The policies are written in a unique language that takes years to understand and speak fluently,” says Gina Clausen Lozier, a partner at Florida law firm Berger Singerman who specializes in insurance claims. “Lawyers skilled in analyzing insurance policies recognize the nuances of how policies are constructed and formed.”

But why?

“The insurance contract should specify what is covered and what is not,” says John Espenschied, director of Insurance Brokers Group, an insurance agency based in Missouri. “People assume something will be covered, but you need to read or ask about coverage, especially if you’re buying a very cheap policy compared to other carriers.”

An insurance policy is a legal document that must stand in court. That’s why you see a lot of legal and specialist terms in an insurance contract, experts say.

“Plain language opens things up to ambiguity,” says PJ Miller, partner at Wallace & Turner Insurance, an independent insurance agency. And ambiguous contracts are likely to be torn up by lawyers, he adds. In court, ambiguous political language can work in favor of the consumer.

Miller says years ago, insurance contracts were easier to understand. But over time, new laws, regulations, court cases, and differing opinions began to add complexity to contracts.

In other words, insurance contracts are complicated because they have to cover all their bases in the event of a lawsuit or a major claim. Increased regulation has pushed insurance companies to make contracts denser, making them difficult to read for the average policyholder.

Blame the lawyers

Yet, should policies be so dense? According to Zhaneta Gechev, founder of One Stop Life Insurance, it all adds up.

“Insurance companies have a team of lawyers who write the terms and conditions of each policy,” she explains. “They realize how important it is to have the right verbiage, to protect the company in the event of a lawsuit. In addition, the insurance industry is highly regulated. It is essential that carriers state all conditions and exclusions, that they comply with them and protect themselves again in the event of a dispute.

She adds, “At the end of the day, it’s a legal contract between you and the insurance company. This makes the material dry and difficult to read.

“Insurance policies are typically 150-200 page documents and can be difficult for regular consumers to navigate,” notes Petro Zinkovetsky, a New York insurance attorney. “They often contain exceptions and exclusions, and sometimes there are exceptions to exceptions. Most small businesses are unable to hire a lawyer to review insurance policies in advance, especially since many of these policies are non-negotiable. »

Readability mandates

It can therefore be a shock: the contracts are supposed be easy to read.

“Believe it or not, travel insurance policies generally have readability standards, which were established in the 1980s,” says John Cook, president of QuoteWright, a travel insurance site. He says insurance companies are expected to follow readability standards adopted three decades ago.

“Insurance policies have an 8th or 9th level target readability,” he adds. “But a score at Grade 8 or Grade 9 doesn’t mean the policy is readable or easy to understand.”

Medicare and Medicaid Service Centers provides abundant material on the readability of health insurance plans administered through government programs such as Medicare.

And some states mandate a certain level of readability in auto insurance policies, and insurers must submit their readability scores to the state insurance department when creating new policies. For example, in Colorado, auto insurers cannot issue or renew policies that exceed the 10th grade reading level or score less than 50 on the “Flesch Reading Ease” scale.

In Arizona, auto insurance forms must have a Flesch readability score of 40 or higher. But there is wiggle room. If a specific form does not meet the minimum score, it can be grouped with the rest of the policy to meet the score.

So how do insurance companies work? We reviewed documents submitted to the Colorado Department of Insurance that included readability scores. Here are some examples:

  • A “non-named owner” insurance policy from Geico was among the easiest policies to understand, with a score of 65.3. Geico’s RV insurance policies are harder to read, creaking at 50.1.
  • Of Liberty Mutual’s policies submitted in Colorado, its “Notice to Others of Cancellation” is the easiest to read with a score of 65.5. His “snowmobile endorsement” is among the toughest at 50.1.

Who benefits from complicated insurance contracts?

Tina Willis, a former insurance defense attorney, says the obvious beneficiaries are insurance companies.

“Courts assess the wording of the policy to determine whether something is a covered loss or excluded from coverage,” she says. “Since most consumers never understand exactly what is covered when they purchase the policy, insurance companies make money off of the consumer’s lack of knowledge of the technical legal arguments that are frequently used to deny the cover.”

For example, during the COVID-19 outbreak, she says many companies filed complaints about their business interruption policies. Insurance companies attempted to deny many of the claims, noting the fine print. Many of those claims ended up in court.

“Of course, many of these business owners had dutifully paid their premiums expecting this protection for years and years, not realizing that the protection they thought they had would be denied when they got it. really needed. Insurance companies have therefore taken advantage of these years of collecting premiums,” she says.

Some experts say that policy language is part of the insurance industry’s business model, to confuse the mind of the average insured and profit from that confusion.

“Insurance companies write dense, illegible insurance policies so they can deny coverage as often as possible,” says Dustin Birch, a Nevada attorney who specializes in bad faith cases. “The policies are filled with jargon, legalese and technical terms that make it easy to deny coverage for a claim. I have seen this over and over again in cases of bad faith.

But there may be a silver lining for consumers, says Michael Alavi, agency manager at Apartment and Building Owners Insurance Agency, an insurance agency in California.

“It’s a written legal contract to go to court,” he says. “An insurance company that is able to clearly define what it intends to cover, and which can avoid or resolve disputes more cheaply, would theoretically be more efficient and ultimately offer lower premiums.”

Tips for reading an insurance policy

Many customers fail to review their contracts before purchasing insurance. It’s a mistake, according to the pros. Here are some tips on how to revise a dense contract:

Acquire help. Agents and lawyers are trained to decipher the densest insurance contract. “A good agent can easily tell the customer the most important endorsements and terms of a policy when issuing it,” says Suzy Zinn, an independent life insurance agent in California. “They can even send a sample ahead of time, so the customer has time to review it and see if they have any questions.”

Beware of CAPITALIZED words! Sometimes insurance “gotchas” lurk in plain sight.

“Be very careful with capitalized words,” says Jeremy Murchland, president of Seven Corners, a travel insurance company. “They are defined in the policy with a specific meaning, and the coverage provided by the insurance may depend on the definition.”

For example, the definition of a doctor says — in capital letters — that it cannot be a family member. In other words, you may not be able to ask your aunt, who is a doctor, to diagnose a medical condition that you want travel insurance to cover.

Get a second opinion. If your insurance agent seems useless, you can escalate your insurance questions.

“If you’re having trouble determining the extent of coverage provided by your policy, it’s always best to seek expert advice,” says Adria Gross, founder of MedWise Insurance Advocacy, an insurance broker and consultant. licensed by the State of New York. Beyond the services of a medical attorney like Gross, you can also consult with an attorney who understands insurance.

Before paying for an insurance policy, make sure you take the time to read and understand it. Get help if needed, so you know what coverage you’re paying for and not paying for.