Purpose of Insurance
The purpose of insurance isn’t a maintenance plan or to fund home improvements. The purpose of insurance is to provide a security, so that when a disaster occurs, natural or otherwise, your financial loss can be minimized.
The industry was created to protect individuals from devastating losses. While no accident can be completely fixed, insurance companies strive to provide benefits that will offer individuals, and businesses the help needed to get back on track.
When you agree to the terms and conditions of an insurance policy, the insurance company will cover the losses specified by the policy you purchased. This means that you are responsible for keeping the policy paid, providing accurate information, and understanding the coverages and limitations of your policy. If any information affecting the risk or rating is intentionally withheld, the contract is void and the insurance company is not responsible to pay any losses.
Because the risk is being taken by the insurance company, they are the ones that get to call the shots. They may require you to fix things or clean up your property to minimize risk. Exclusions are given for anomalies or particular risks, such as a flat roof, or dogs with aggressive tendencies. Understand that an insurance company wants to protect you from disaster, but there are limitations to the risks they are willing to take on.
Premiums and Rates
Rates are based on a myriad of things that are calculated to measure the risk. Based on the risk factors, an insurance company will offer a price to cover the risk. The price is determined by the insurance company, based on the information provided on the risk and desired coverage. The insured is not able to bargain for a lower price unless they are willing to adjust the benefits provided.
An insured does have some control over the rates offered. Maintaining continuous insurance, improving credit scores, and keeping a clean driving record, are ways to keep insurance rates low. Check this post for additional information on what affects your rates.
Intent of Profit
Insurance companies, like anyone else, need to make a profit to stay in business. Properties are inspected and driving records and registration records are evaluated to confirm accurate levels of risk. A company will use this information to determine if they are able to accept the risk, and what price they will ask to insure it. The lower the risk for the company, the lower the premium will be.
Claims paid out by a company will affect the profit, and therefore the rates used for all renewal policies. And an excessive number of claims incurred by a single policy will dissuade a company from accepting or renewing one.
Despite the growing bottom line of the insurance companies, they offer a valuable product that each of us need. Everyone at some point will be grateful for the insurance coverage they have, or regret what they don’t.