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Details on readability issues with insurance policies and state requirements

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Insureds have tremendous difficulty understanding most insurance policies. At times, the most educated agents and insurance pros have trouble, according to Insurancequotes.com.

According to an online Harris Interactive poll commissioned by InsuranceQuotes.com, 87 percent of drivers who currently have auto insurance said they had read at least part of their auto insurance policies. Thirty-six percent of surveyed drivers who had read their auto insurance policies found them to be somewhat or very difficult to understand.

Even though more than 30 states have enacted readability laws designed to simplify the language in insurance policies — including auto and home — many consumers are confused by how their policies are written, and have trouble determining what’s covered and what’s not.

“What makes it tough is the long lists of items that are covered or excluded,” says Linda Alschuler, a policyholder from Chicago.

Despite reading through her entire auto insurance policy, Alschuler hasn’t been able to determine whether she has coverage for rental cars. “I suspect we don’t, but it wasn’t listed in the optional coverage section either,” she says.

Robert Hunter, insurance director at the Consumer Federation of America, sympathizes with Alschuler. Hunter says that even policies “written in plain English are above the average person’s grade level. There are so many twists and turns in the language that you can read through the whole policy and not understand it.”

State readability regulations

Beginning in the early 1980s, a number of states began to regulate the “readability” of insurance policies. In many of these states, the language used in auto, life, health and other insurance policies must pass the Flesch Reading Ease test, which analyzes the number of syllables in words to determine reading comprehension by grade level. Generally, the text should be “readable” for someone at an eighth- or ninth-grade reading level.

The Flesch Reading Ease test measures text on a 100-point scale. The higher the score, the easier it is to understand the document. For states that include Flesch in their readability laws, the required scores range from 40 to 50.

Connecticut’s “definition of readable language” means there must be a standard layout and font, and the policy must avoid “the use of unnecessarily long, complicated, or obscure words, sentences, paragraphs, or constructions.” If the entire policy is 10,000 words or fewer, the entire policy will be analyzed for readability; for longer texts, two 200-word samples per page will be measured. Although requirements differ slightly from state to state, the general terms are relatively common to all of the states that have readability standards.

The problem is, these regulations don’t tend to make the policies any easier to read for the average policyholder.

“The Flesch test is a good starting point, but the structure of the policy itself is difficult for the average consumer to understand,” says Jeffrey Thomas, a professor at the University of Missouri-Kansas City School of Law. “The relationships between coverage and exclusions are often convoluted. It’s not uncommon for people to assume that something is covered and then find out it’s not when they need to file a claim.”

What causes confusion?

For instance, many consumers don’t recognize the difference between comprehensive and collision coverage. “If you ask someone what comprehensive means, they think it’s everything, but it only covers certain damages to your car,” Hunter says.

Generally, comprehensive coverage applies only to damages when the policyholder is not driving the car, such as when a tree falls on it while it’s parked in your driveway. To make a claim for damages that happen in an auto accident, you’d need collision coverage as well.

John Couture, a State Farm Insurance agent in Gray, Maine, acknowledges that such distinctions often trip up his customers.

“I don’t think the terminology itself is that bad, but in an auto policy, you have the general provisions and then you go to the exclusions,” Couture says. “If you don’t read them through completely, you may not realize that something isn’t covered.”

For instance, if a policyholder is involved in an accident while driving someone else’s vehicle, he may think that he’ll be covered under his policy, but the coverage may not apply because of an exclusion buried in his policy.

To make sure his customers understand their policies, Couture goes over the details with them in person.

“When someone gets coverage, even if he says he knows what’s covered, we’ll almost always go through the general provisions,” Couture says. “Obviously, though, we can’t go through every single possibility.”

How can ckient's get clarification?

If a clients not certain about what theirr auto insurance policy includes, help them understand he details before they're in an accident and need to file a claim to find out the answer. Get in touch with the carrier's customer service or agent relations area right away. It’s their job to ensure that you understand your policy, and know what it does and does not cover.

“What I recommend is that if (a client) feels worried about something in their policy, they should write a letter to the agent to say, ‘Here’s how I interpret this. I want you to put it in writing if I’m right or not,’” Hunter says.

Also, state insurance regulators provide free assistance to consumers who don’t understand their policies. Kerry Hall, a spokeswoman for the North Carolina Department of Insurance, says her agency runs a consumer hotline available to anyone in the state where they can get “free, unbiased information.” The Texas Department of Insurance provides a toll-free consumer help line as well. In addition, the department’s website supplies information to help consumers understand their insurance policies, spokesman Jerry Hagins says.

Neither state tracks insurance complaints tied to policy readability, but both Hall and Hagins believe the number received is small. State insurance regulators do address such complaints with insurance companies.

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