How To Balance Risk, Deductibles, And Premiums With Insurance
A major part of setting up any insurance policy is balancing insurable risks, deductibles, and premiums. These are the three kinds of skin in the game for both the insurance company and the insured party. When you discuss policy options with an insurance agency, try to balance your needs in the following three ways.
Identify Loss-Based Risks
One of the biggest mistakes people make in assessing insurable risk is basing their calculations on the likelihood that something will happen to the insured asset. The question isn't how likely the bad thing is to happen. Instead, the question should be about how bad of a situation you will be in if the bad thing occurs.
Suppose you own a business that depends on an uncommon and hard-to-find machine. Even if the machine is extremely unlikely to experience a catastrophic accident, the company's dependency on the machine is an identifiable risk. Consequently, the business needs a policy that would cover both the replacement of the machine and any associated financial losses.
You don't have to run a company to have such risks. If you own one car and rely on it to get to and from work, that's an identifiable risk. You want enough insurance to ensure that you'll have a rental car and money to buy a new one if anything happens to the vehicle.
Deductibles and Premiums
These two factors play off each other. If you have a higher deductible, an insurance agency will offer a lower premium. The trade-off is that you're self-insuring the deductible portion.
Yes, a major bump down in premiums can be appealing. However, you need to be sure you'll always have enough cash on hand to cover the deductible. Otherwise, you might not be able to replace the insured asset. If you're talking about fire coverage for your house, that's a big deal.
Spreading Risk and Bundling
Another case where the insurer's interests interact with the insured party's interests involves risk spreading and bundling. On the bright side, this is a case where more is better for both you and the insurance company. Insurers offer bundle discounts because they want to spread risk across people, assets, and policies.
Bundling your home and car insurance, for example, reduces your rate on average versus buying the policies separately. Likewise, insuring additional people in your household or at your business spreads the risk for the insurer. Everybody wins because the insurance agency can offer lower average rates while mitigating its risk exposure.
To learn more, contact an insurance company in your area such as Del Toro Insurance.