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Insurance policies aren’t just difficult to read—sometimes they’re downright impossible to understand. Just ask Lori Lugo, an elementary school teacher from Corpus Christi, Texas.
She tried to renew an umbrella insurancepolicy that covered her home and car, only to collide with the fine print. You know, declaration pages with long lists of risks and perils. And, of course, sentences that run on for paragraphs.
Lugo phoned her insurance agent and asked him what everything meant. It was a long call.
“I want to know what I’m paying for,” she says.
“Insurance contracts are a nearly impossible-to-solve puzzle for the average person,” says Jason Turchin, a personal injury lawyerin Miami. In his opinion, insurance companies market insurance as something that does more than it actually does.
“When you look at the actual terms, there are only a few specific items that may actually qualify for coverage.”
So why are insurance policies impossible to read? What makes them so hard to understand? Answering those questions leads to more questions: Do policyholders benefit from these byzantine contracts? And do head-scratching insurance policies stack the odds against you when you need to make a claim?
This is Why Insurance Contracts are Impossible to Read
“Policies are written in a unique language that takes years to understand and speak fluently,” says Gina Clausen Lozier,a partner at the Florida law firm Berger Singermanwho specializes in insurance claims. “Lawyers well-versed in analyzing insurance policies recognize the nuances of how policies are constructed and formed.”
But why?
“The insurance policy contract needs to spell out what is covered and what is not,” says John Espenschied, a principal at Insurance Brokers Group, an insurance agency based in Missouri. “People assume something will be covered, but you need to read or ask questions about coverage, especially if you are buying a very inexpensive policy compared to other carriers.”
An insurance policy is a legal document that has to hold up in court. So that’s why you see lots of legalese and specialized terms in an insurance contract, according to experts.
“Simple language opens things up to ambiguity,” says P.J. Miller, partner with Wallace & Turner Insurance, an independent insurance agency. And ambiguous contracts are prone to be torn apart by attorneys, he adds. In court, ambiguous policy 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 started to add complexity to the contracts.
In other words, insurance contracts are complicated because they have to cover all their bases in case of a lawsuit or a large claim. Increased regulation has pushed insurance companies to make the contracts denser, making them difficult to read for the average policyholder.
Blame the Lawyers
Still, do policies have to be so dense? According to Zhaneta Gechev, founder of One Stop Life Insurance, it all adds up.
“Insurance companies have a team of lawyers drafting 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 for carriers to have all of the terms and exclusions spelled out, to comply and again protect themselves should a dispute arise.”
She adds, “At the end of the day, it is a legal contract between you and the insurance company. This makes the matter dry and difficult to read.”
“Insurance policies are typically 150- to 200-page long documents and may be hard to navigate for regular consumers,” notes Petro Zinkovetsky, a New York attorney who specializes in insurance. “They often contain exceptions and exclusions, and sometimes there are exceptions to exceptions. Most small businesses are not in a position to hire an attorney to review insurance policies in advance, especially since many of these policies are non-negotiable.”
Mandates for Readability
So this may come as a shock: The contracts are supposedto be easy to read.
“Believe it or not, travel insurance policies usually have readability standards, which were established in the 1980s,” explains John Cook, president of QuoteWright, a travel insurance site. He says insurance companies are supposed to follow readability standards adopted three decades ago.
“Insurance policies have a target readability of 8th or 9th grade level,” he adds. “But scoring on an 8th or 9th grade level doesn’t mean that the policy is readable—or easy to understand.”
The Centers for Medicare & Medicaid Services provides extensive materialon readability for health insurance plans administered through government-run programs such as Medicare.
And some states mandate a certain readability level in auto insurance policies, and insurers must submit their readability scores to the state’s department of insurance when they create new policies. For example, in Colorado,auto insurers cannot issue or renew policies that exceed the 10th grade reading level, or that score less than 50 on the “Flesch reading ease” scale.
In Arizona, auto insurance forms must have a Flesch readability score of 40 or more. But there’s wiggle room. If a specific form doesn’t meet the minimum score, it can be grouped with the remainder of the policy to meet the score.
| Score | Readability Ease |
|---|---|
100.00-90.00 | Very easy to read. Easily understood by an average 11-year old student. |
90.0-80.0 | Easy to read. Conversational English for consumers. |
80.0-70.0 | Fairly easy to read. |
70.0-60.0 | Plain English. Easily understood by 13- to 15-year-old students. |
60.0-50.0 | Fairly difficult to read. |
50.0-30.0 | Difficult to read. |
30.0-10.0 | Very difficult to read. Best understood by university graduates. |
10.0-0 | Extremely difficult to read. Best understood by university graduates. |
So how do insurance companies perform? We looked at filings submitted to the Colorado insurance department that included readability scores. Here are some examples:
- A Geico “named non-owner” insurance policy was among the easier to understand policies, scoring 65.3. Geico’s recreational vehicle insurance policies are harder to read, squeaking by at 50.1.
- Among Liberty Mutual’s policies submitted in Colorado, its “Notice to Others if Cancellation Occurs” is easiest to read at a score of 65.5. Its “snowmobile endorsem*nt” is among the hardest at 50.1.
Who Benefits from Complicated Insurance Contracts?
Tina Willis, a former insurance defense lawyer, says the clear beneficiaries are insurance companies.
“Courts evaluate the policy language 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 from the consumer’s lack of awareness of technical legal arguments that are frequently used to deny coverage.”
For example, during the COVID-19 outbreak, she says many businesses filed claims on their business interruption policies. Insurance companies tried to deny many of the claims, noting the fine print. Many of those claims have ended up in court.
“Of course, many of these business owners had dutifully paid their premiums expecting this protection for years and years, without realizing the protection they thought they had would be denied when they really needed it. So insurance companies benefited from those years of collecting premiums,” she says.
Some experts say the policy language is part of the insurance industry’s business model, to confuse the average policyholder and to profit from that confusion.
“Insurance companies write insurance policies to be dense and unreadable to allow them to deny coverage as often as possible,” says Dustin Birch, an attorney in Nevada who specializes in bad faith cases. “Policies are filled with jargon, legalese and technical terms that make it easier to deny coverage of a claim. I have seen this time and time again in bad faith cases.”
But there may be a silver lining for consumers, says Michael Alavi, an agency principal at Apartment and Building Owners Insurance Agency, an insurance agency in California.
“It’s a legal contract written to stand up in court,” he says. “An insurance company that is able to clearly define what it intends to cover, and can avoid or resolve legal disputes in a less costly manner, would theoretically be more efficient and ultimately offer less expensive premiums.”
Tips for Reading an Insurance Policy
Many customers fail to review their contracts before buying insurance. That’s a mistake, according to the pros. Here are a few tips on how to review a dense contract:
Get help. Agents and attorneys are trained to decipher the densest insurance contract. “A good agent can easily point out to the client the most important riders and conditions in a policy when they deliver it,” says Suzy Zinn, an independent life insurance agent in California. “They can even send a sample beforehand, for the client to have time to review it and see if they have any questions.”
Mind the UPPERCASE words! Sometimes, the “gotchas” of insurance are hiding in plain sight.
”Pay close attention to 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 can hinge on the definition.”
For example, the definition of a physician says—in uppercase—that it can’t be a family member. In other words, you may not be able to have your aunt, who is a doctor, diagnose a medical problem that you want travel insurance to cover.
Get a second opinion.If your insurance agent seems unhelpful, you can escalate your insurance questions.
“If you are experiencing difficulty determining the scope of coverage provided by your policy, it’s always best to seek the advice of an expert,” says Adria Gross, the founder of MedWise Insurance Advocacy, a New York State-licensed insurance broker and consultant. Beyond the services of a medical advocate like Gross, you can also consult with an attorney who understands insurance.
Before you pay for any insurance policy, be sure to take the time to read and understand it. Get help if needed, so that you know what coverage you are—and aren’t—paying for.
