When I first started in the insurance industry I really had no idea how insurance worked, why it is priced the way it is and why I actually needed to buy it.
Prior to entering the insurance industry in 2004 only twice can I remember a specific interaction about insurance. The first was at Fort Campbell Ky while I was stationed there sometime between 1998 and 2001. I believe I had let my insurance lapse on my auto policy and in order to get your vehicle tags that allow you to drive onto the military base you need to provide valid proof of insurance. So I drove across the street to the Geico Insurance office. At the time they had retail locations and they were very smart to place one right across the street from an Army Post where they knew there were tens of thousands of cars that all HAD to have insurance. I walked in and in 15 minutes or so I walked out with a piece of paper saying I had insurance. I have no idea who much it cost other than it was the “cheapest” policy that they had. I had no idea how much insurance coverage I had, how the coverage worked and if I really was protected in case something bad happened. Knowing what I know now about auto insurance I am certain I had a state minimum limits policy for Kentucky that would offer no real real protection if I was involved in bad car accident. But I could drive on the base, get my vehicle tags and I was 26 years old, living in the barracks, what did I have to lose if someone sued me. Nothing right…
My second real recollection of insurance happened after I left active duty and returned to Minnesota where I was recruiting for the Minnesota Army National Guard. My wife had insurance with USAA which is a great place to get insurance if you are former military or a military dependent. Yet again I walked away with an insurance policy that I didn’t understand other than knowing I got the “cheapest” price available. I didn’t know what the coverage limits were or what they meant only that I had auto insurance.
Why are those two examples important you may ask, well it’s important for this reason. People don’t like to feel stupid. I didn’t what to ask questions that would obviously point out the fact that I had no idea what I was purchasing. Once I started the process of getting licensed to become an insurance agent I was SHOCKED to find out how little insurance I was actually purchasing to protect my wife and myself and everything we have worked so hard for. We were driving around with only $30,000 in liability insurance, meaning that any accident that occurred where someone was injured and their medical bills exceeded $30,000 all of our personal assets would be on the line so to speak.
So what is insurance? Simply stated it is the transfer of risk. You enter an agreement with an insurance company to have them pay for a claim that could happen to you for a covered loss on the insurance contract and in exchange you pay them a premium. Simple as that, in exchange for your money the insurance company takes on all of your risk (as stated by the insurance policy or contract). The reason this works is that the insurance company transfers this risk among a large number of clients. If a large insurance company only had 5 clients the chance that they would have to pay a claim in a given year would be very good. However with thousands of clients spread across a large area from varying demographics the spreads the risk out and reduces the premium for all of the clients.
Now why should you care about how much Liability insurance you carry? Well it is “Life Insurance for you assets”. You buy life insurance in the event you die to pay for things like your childrens college, the mortgage, so the surviving spouse won’t have to work etc. Buying higher limits of liability insurance is Life Insurance for your assets protecting them from loss in the event something bad happens. There are hundreds of examples of people who are living there lives and in the blink of an eye are involved in something that will change their life for ever. Good choices, bad choices it doesn’t matter. When that bad thing happens, that car accident, house fire, slip and fall at your business; it is to late to spread the risk, purchase anymore insurance. What have is what you get.
So what is the moral of the story? Take some time, investigate how much insurance you have, how much you need and how much you can afford. Protect yourself, your family and everything you have worked so hard for by taking some time and siting down with a professional in the industry to understand you needs and how to protect them by spreading the risk out with insurance!