Understanding insurance is important so that, in difficult times, you know you’re covered so you can get back to your normal routine and enjoy peace of mind.
A car collision can happen at any moment. A massive wind storm could bring a tree down on to your home. Your business might be damaged by vandals. Everyday life can change in significant ways after a loss. While it’s impossible to anticipate what might happen, you can be prepared to a large degree. Typically, recovering from a loss situation costs more than most people can manage on their own. That’s where insurance comes in.
Proper insurance protects you from having to pay out a huge amount in the event of the unexpected: that car collision, fallen tree, or wretched vandals.
Understanding the basic elements of insurance can help you make informed decisions to ensure you’re as prepared and protected as possible given the unknown occurrences that can so easily impact our lives.
Without insurance, driving a car, buying a home, or taking that trip abroad would be an unaffordable risk.
What is insurance and How Can It Help?
When someone purchases insurance, that money is put into a premium pool with the many others who’ve purchased. That is the money that’s drawn upon to help those who’ve suffered an unexpected hardship due to loss from a home fire, vehicle collision, or business interruption that year.
The payouts for these losses are referred to as ‘claims’. Insurers are required by law to have sufficient funds to pay out claims.
Why Should I Have Insurance?
Without insurance, driving a vehicle, buying a home, starting a business, or traveling abroad would present an unaffordable risk as losses or mishaps would have to be paid out of pocket in these and other instances.
Why do I Pay for Insurance Annually?
With a few exceptions, an insurance policy is an annual contract. The premium pool operates for only a year at a time. Insurance companies predict how much money they will need to pay the coming year’s claims.
Your premiums do not carry over or build up over time.
Calculating insurance premiums is complicated and involves a process that requires a risk assessment based on actuarial science.
Premiums are based on informed predictions about how much money may be needed to pay future claims. Insurers gather the information that they understand from experience will help them set fair yet accurate premium prices.
What Will Be Covered By My Insurance Policy?
Insurance pays for only the insured losses described in your insurance contract. Read and understand your policy – talk to your insurance representative with any questions!
Talk to her about what you are covered for and, equally importantly, what you are not.
Insurance will not pay for every problem you may encounter, nor is it meant to. For instance, your home insurance will not cover regular home maintenance.
Insurance is generally intended – and priced – to help you cope with the financial impact and consequences of unpredictable events that are sudden and accidental.
If, for example, you live on a floodplain near a river, the seasonal flooding of your property in the spring is neither sudden or accidental; it is an inevitability and, consequently, unable to be insured.
Speaking directly to your insurance agent is always recommended to ensure you have considered all possibilities and any potential inevitabilities, not to mention the variety of questions you may have. You want to understand fully the details of your insurance policy and the coverage you have or are purchasing.
4 Steps in the Insurance Process
- Your insurance company estimates an annual cost, or premium, to accept the risk of covering your home, vehicle, travels, or business.
- On an annual, or monthly, basis you pay a premium to your insurance provider for assuming the risk on your behalf.
- Your insurance company puts all premiums into one large pool, contractually operating only one year at a time.
- Your insurance company uses the pool to pay for the losses of the few who make claims that year.
Life and all of its various facets bring risk. Thankfully, insurance can give you the peace of mind you need to take it on!
Have questions about an existing or new policy? We want to help! Contact us today to talk about your insurance needs.