While everyone knows insurance is important and something we should all have, the overall concept seems to be shrouded in mystery to many. This is understandable for a number of reasons, but people should still take the time to understand what insurance is and why it’s important. If you’ve had questions about insurance in the past, the below primer may answer them by covering the basics.
What is Insurance?
In simplest terms, insurance is just a method of risk management. For a price, known as a premium, an insurance company takes on a specific kind of risk from their customer. The higher the risk (in terms of likelihood or potential damage), the harder it will be to find an insurance company at https://floridainsurancequotes.net/ and the more your premium will cost.
How Does Insurance Work?
If that explanation seemed a bit simplistic when compared to all the money you spend and paperwork you go through in order to secure insurance, that’s because there is more to it than that. While that is the fundamental concept behind insurance, it doesn’t address insurance as a business.
In order for the insurance company to make money and hedge against potential losses, they need to bring together a wide pool of people who want to guard against risk. This, however, does not save the insurance company from losses all by itself.
For this, an insurance company must rely on advanced analytics in order to forecast what their potential losses will be. That way they know how much to charge. Let’s look at an example. If an insurance company took on ten customers, each of whom paid $20 a month, this might seem like a profitable business for the insurance provider. But what if an analysis showed that half of these customers were likely to need a certain kind of surgery that the provider covered, but which cost $10,000 apiece? Still a great business model? Of course not.
Therefore, in order to maintain profitability, an insurance company needs to assess each individual customer for the potential risk they bring into the pool.
How Much Does Insurance Cost?
This last paragraph segues nicely into this question. The short answer is that insurance costs will depend on the customer. It will depend on them individually and on the insurance company (which often times depends on who the potential customer works for, if its health insurance). But when considered, everyone has to undergo an underwriting process.
Underwriting refers to the process of assessing a person’s risk. This process takes into consideration the likelihood of a loss occurring and how much that would cost. The result of this calculation will be whether or not the insurance company takes you on as a customer. Often times they will take you no matter what, it’s just a matter of you agreeing to their premium. That’s because the other part of that calculation is deciding how much the insurance company will have to charge someone in order to protect themselves from potential risks.
Given the importance of the underwriting process, the insurance company with https://floridainsurancequotes.net/ will often take into consideration an array of information. A health insurance provider, for example, will want access to your medical records and your driving history will usually play a part, but they could also look at insurable interest, ask you to undergo a physical, etc.
How to Lower Your Premium
If you’re like many people, now that you understand how insurance works, you’d like to know how to make it work for less. Insurance premiums can certainly be high and paying them every month is often the reminder most people need that they’d like to obtain a more affordable premium.
The easiest way you can pay less for your insurance is by becoming less of a risk. Take health insurance, for example. If you’re currently obese, a smoker or engaging in risky behavior as part of your job, those are areas you can address. Your car insurance can often be brought down to size simply by going a certain period of time without sustaining risk factors like accidents or speeding tickets.
Ultimately, though, this will be a matter you need to take up with your insurance company. Many of them are happy to speak to you about lowering your premium as it coincides with being less of a risk to them and their profits according to https://floridainsurancequotes.net/general/didnt-know-rising-insurance-premiums/. At the same time, if you’re in perfect health, are a perfect driver, etc., your only options may be opting for less coverage (and thus paying less) or switching insurance companies.
There is plenty to find confusing about insurance, despite the fact that it’s such a simple concept at its core. But if you remember that you’re paying a company to take on specific risks on your behalf, you’ll be on the right path to understanding everything else. If you’re looking to lower your premiums, look to engage in choices that make you less of a risk to your provider.