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Community Advocacy Organization

Finance Corner with Matthew Thornton-Understanding how and why we pay for Insurance

Courtesy Photo-Matthew Thornton

"Why are my insurance payments so high?"

"What can be done to bring down my payments?"

"Why does my premium keep going up?"

3 most popular insurance questions on the minds of many consumers.

Most of the time, rates are tied to cost vs coverage… or ‘price’ vs ‘protection’. For those worried about the bottom line, this article is for you.

Insurance is a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

Big picture: Many elements play a role in how individuals and businesses are rated for insurance. Claim history, zip code and credit are just some of the factors that help decide what you pay monthly for your insurance premiums. Insurance is meant to help in your time of need; there to assist in restoring financial losses.

While in business to assist, Insurance companies are for profit entities. Their business is to handle the risks (threats or perils that the insurance company has agreed to insure against in the policy wording) of their clients. Remember the factors covered above? Those help insurance companies figure out how much of a risk YOU are, and the likelihood of you filing a claim.

Your credit score may not dictate the chances of you filing a claim, but if you don't pay your other bills, there's a higher statistical probability that you won't pay your insurance premium. Insurance companies can't insure every person that walks in the door, just like every bank can't open accounts or give loans to every person. These companies build a framework by using data about you, to analyze whether your peril is worth the risk.

Understanding coverage limits: The point of insurance is to put you back to normal when you have a claim, so a solid understanding of what you're paying for is crucial. Paying for something that isn’t going to cover what’s important to you is like wearing a groin cup to protect your butthole. 3 guarantees!

Groins and buttholes vary in shape and location- promise It won’t fit you right

It's not protecting the intended asset

you’re definitely going to pay for it dearly if and when something happens.

A comprehensive discussion with your insurance advisor is critical to minimize…. ‘Exposure’.

Deductibles and claims: Deductibles are your skin in the game. If you incur a loss that costs $6000 to repair or replace, and your deductible is $1000, $1000.00 will be coming out of pocket. The more you’re willing to pay when something happens, the less your premium will be. The questions to ask yourself are:

“If something happens to (insert insurable item) how easily can I replace it?” “How easily can I be made whole again?”

“How much am I willing to pay to protect (Insert insurable item)?

“Is replacing (insert insurable item) important or necessary to me?”

Make sure to ask questions if you have them. Better to know before something happens.

Cramming one more insurance analogy into this article and the done/promise.

Imagine the premiums paid into an insurance company as a tranquil oasis. The water ever so gently moves to the eastern breeze. Then all of a sudden, a giant rock comes crashing in and splashes water out of the pond and all over the dirt… then another rock, and another, and another. Every rock depletes the water supply. You may not be the one throwing them, but it still impacts your access to affordable coverage. Insurance companies do review renewals for changes and claims to try and adjust premiums accordingly, which accounts for some of the rise in premiums over time. Does that happen all the time? Definitely not, but that's an article for another time…..

Just a reminder to protect yourself properly, and check your coverage periodically, especially when things change in your life.

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