How Much Do You Know About Insurance?
There are days when we break things, lose things, have things stolen from us, or injure ourselves. Other times, nothing happens to us and we make it through the day unscathed. We have a fifty-fifty chance that something unfortunate will or will not happen, but when it does, it nearly always comes with a financial cost. A night in a hospital can set you back by thousand of dollars. Damage to your car or replacing an item of value has a price tag too. This money will come straight out of your pocket if you don’t carry insurance that covers injury and material loss.
Insurance is a solution that mitigates risk. Put simply, you are paying a third party in anticipation of an event, and that party will replace or repair damaged or lost items or cover costs, such as medical bills, if something happens.
Generally, the higher the premium you pay, usually on a monthly basis, the greater the risk covered. Insurance companies agree to cover businesses and people against everyday risks as well as unforeseen risks, such as natural disasters, theft, and accidents. For each insurance policy, the risk of what you’re insuring against is based on the probability of its occurrence. For example, if you park your car in a high-crime area rather than a quiet neighborhood, your insurance premium will be higher because of the higher probability that the vehicle will be broken into.
If you live in a region where hurricanes and bad weather are common, there is a greater chance that your property will sustain damage, and therefore a claim will be made, and so on. Risk affects premiums. Insurance companies calculate the risk, charge accordingly, and pool the money collected from all their policyholders. Statistically, an insurer will have enough money in its pool to cover all claims and remain profitable. And if enough claims are made, the company may increase premiums to offset its outgoing costs.
Prices will vary from one insurance company to another. To keep your costs down, compare policies, ask for discounts, and look at ways to lower your risk. You could always increase your deductible, which will reduce the premium. But remember, by doing this, you will pay more initially.