Understanding Insurance: What Do You Get for Your Premium?


An insurance policy won’t provide immediate satisfaction like buying a TV, washing machine, or other items you use every day. In fact, we often hear clients say:

“I have never been in an accident with a vehicle.” Or “I never get sick.” Or, “My employees have never been injured on the job… What am I getting for my premium?

It’s a great question. The answer to that question requires a change in thinking and a bit of history about insurance coverage and it’s original purpose.

What am I buying?

Insurance is a valuable but intangible product. Insurance provides protection and peace-of-mind.

You can protect yourself with a good insurance policy.

  • You have valuable assets that you have invested a lot of money in, such as your house, car, boat or motorcycle.
  • Your spouse, children, and employees are all people you care about and would be willing to help if they were physically hurt.

You can also have peace of mind knowing that insurance provides:

  • Your financial security is not at risk.
  • You won’t lose your business or your family’s finances if something goes wrong
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These items are valuable even though you might not be able hold them in your hands.

What is Insurance?

Understanding the concept of risk is essential. Insurance is the combination of different types of risk and the transfer to a central entity (e.g. an insurance company) that will cover future losses. A loss can be caused by an accident at work, an illness, or a crop failure.

In exchange for protection from such catastrophic events, customers pay a predictable premium. Another important insurance concept is “catastrophic”. Insurance was originally created to protect against catastrophic, enormous losses rather than daily expenses.

A Bit Of History

Insurance dates back to the 3rd century B.C. when Chinese merchants who were traveling through treacherous river rapids would distribute their goods across several vessels to reduce loss from a single vessel capsize. In essence, they were spreading their risk much as an insurance company spreads its risk over many policies.

Insurance for the 21st Century

Here’s how to shop for insurance today.

  • You are buying protection. This is an intangible product you hope to never use, but which you will be extremely grateful for should anything bad happen.
  • Basic insurance policies do not cover day-to-day expenses but only catastrophic events that can lead to financial ruin.
  • There are hundreds of options for insurance today to suit every budget. For those on a tight budget, basic plans can be a great option. However, for those with the financial means, a more comprehensive policy may be more appealing. There are many options.
  • Agents should be able both to simplify the insurance process and present you with options that are tailored to your budget and needs.
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The most important lesson you can learn about insurance is to never leave without it. Emotional trauma often goes hand-in-hand financially. It is not a good idea to worry about money when you are trying to care for your employees or loved ones.

Search online to find an agent if you don’t already have one. Ask for recommendations and meet with several agents. Choose one that listens to you and creates a plan tailored to your needs. It’s a great idea to establish a personal relationship with your agent, which you will be grateful for in the event of a disaster.