What Type of Insurance Buyer Are You?

I have had some interesting conversations about insurance this past week. I have spoken to several individuals who are buying insurance because they are required to, forced to by government or by a lender. In each case these individuals have told me to only insure for the base requirements and not a penny more. I generally refer these individuals to another insurance agency because they will never be happy with their insurance plan and will definitely be unhappy with their insurance in the event of a claim. I sympathize with these people because I used to be one of them.

 You see, I did not understand that insurance is a financial tool. I thought of it as an unnecessary expense and hated paying the insurance premium which I considered a waste of my hard earned money. And, I didn’t understand how insurance paid in the event of a claim. I just assumed that insurance paid the same regardless what you pay in premium so I figured that you should pay for just the bare minimum. It wasn’t until a trusted insurance agent explained to me that insurance is a contract and you are purchasing a contract that the insurance company will honor but only to the limits of the contract and no more. So, by buying the lowest insurance limits I was ensuring that I would not be fully protected in the event of a loss. The insurance company would pay their contracted limits and I would be stuck paying the balance how fair is that?

 Here is the part that changed my perception and how I view insurance now as a tool. The difference in cost between being insured at the very basic limits and the cost to be insured properly is barely noticeable. The insurance companies don’t give you massive savings for choosing the lowest coverage. They still build in all of the fixed costs of insurance into the lowest limits of liability. So, when you increase the limits to be properly insured the increase in insurance is at a much lower rate. In fact, in some cases increasing your limits doesn’t increase the premium at all! So, why doesn’t everyone carry full limits if the cost to be properly insured is only nominally more?

If you read my previous blog posting you will know how I feel about the insurance industry focusing its entire message on price turning insurance into a commodity. Just like buying 4 rolls of toilet paper verses 12. And this reinforces consumers into believing that if you buy a little, the bare minimum you must be saving money! I know that it is counterintuitive but in insurance that simply isn’t true.

 Insurance is a tool. It helps you protect what you have allowing you to focus on creating wealth for your family. You can never get ahead by being insured poorly and ineffectually and the cost difference by being properly insured is shockingly low. Next time before demanding the bare minimum compare the cost between minimum coverage and proper coverage and you may become a convert like me.