Most people are confused about insurance. And rightfully so. Even many people in the insurance industry are confused about some of the forces behind one of the largest industries that produces nothing. Yes, when you think about it insurance produces no actual product or service. Banks at least provide money for businesses and people to conduct business.
Taxes collected by local, state and federal agencies fund services such as roads, police, schools. fire protection, etc. Insurance companies collect money at each step of your life. Medical. Auto. Home. Life. Business. Yet you get nothing back unless you have a claim and then the true objective of insurance it to make you whole – return you to the state you started – as opposed to advance you. If you are in a car wreck – the insurance fixes your care. They don’t just buy you a newer one. And they will only fix your car if it is wrecked. Not just because you need a new car because it is old and wore out.
At some point, we shopped around for insurance – found it confusing and it appeared to be about the same in price and service so we figured insurance is insurance is insurance. It does not matter what company we get it from, it is basically the same. You have reached the conclusion that insurance is insurance is insurance. That is far from the truth. So you finally settle on a company or an agent that you like or that sounds good to you.
Several things can change affecting your insurance and your coverage – and some of them you may not even realize. Insurance companies work on the premise of spreading the risk among lots of players. The basis is that a lot of people each put a little money in a pool or pot that is then available for the expenses of the few that need it for an emergency. (Well, that was the the original idea anyway.) What happens behind the scenes, is that as companies notice higher then expected claims in one category, they adjust up the amount they want people to pay for that coverage. The Premiums.
One part of calculating insurance premiums that you have no control over is the insurance companies business model. Companies make behind the scenes changes that can dramatically alter your coverage. Company managers, in an attempt to increase a certain class of coverage (i.e. investment property, commercial property, etc) may sudden drop their premiums. This, of course, brings in more business. You may be one of the them that changes companies to enjoy the low prices. Overtime, the company is bringing in insufficient cash flow to cover claims and expenses. The company suddenly realizes this and starts raising prices. Your premiums might go up 4-5-6% every year (or even 6 months) several times in a row.
There are basically two types of agents: Independent Agents that represent numerous companies while Exclusive agents work for only one company. Examples of Exclusive agents would be State Farm, Farmers, Allstate, etc. Independent Agents have the option to write coverage or policies with any company that they have an agreement with. Not all agents represent all the companies and each agent will have their favorite company.
Your insurance agent is not always your friend, even is they are your friend. Agents are paid a commission on premiums. Different policies or policies types will pay different amounts. Different companies also pay different percentages. Because agents are primarily paid on commissions – the higher the price, the more money they make. Not that all agents are dishonest or will always place they income wants over what is best for you – you still should always place close attention to the details.
There is nothing wrong with getting regular insurance checkups and doing some comparison shopping. And it does not hurt to shop other agents. Unless you are in the insurance business you will never be an expert. t is possible that even if you are associated with insurance, that you will only know and understand a small part of the industry. Being an informed shopper is the only way to get them maximum value for your insurance money.
And one final point – Price is not always the most important part of the decision. You need the right coverage for your situation.