Whether you are new to insurance or would just like to understand it better, this topic will explain how insurance works for you, providing financial protection when you need it most.
Car accidents happen. Fires happen – in the kitchen, the garage or the basement. Even though we want to think it will never happen to us, these unfortunate events do happen. The sudden need for insurance, whether car insurance or home insurance, can occur in a split second with harrowing results in the event of a disaster. Having peace of mind knowing that you are financially covered in the event of a major disaster is why we buy insurance. But how would your monthly premiums pay for a new car if needed, or to recover from a disaster?
How insurance works
Insurance companies pool your monthly premiums with the payments from their other clients to form a monetary reservoir to pay out for the claims that will happen. Recovering from any financial loss can easily exhaust your own savings. Insurance protects you from having to deal with a huge payment in the event of a collision or natural disaster.
What if a fire happened?
Imagine an electrical spark accidentally ignites a fire that quickly engulfs your entire home. If left to your own financial resources, it may not be possible to repair your home or rebuild it on your own. Your home insurance company pays for the losses that are detailed in your policy using the pool of premiums available to help all of their home insurance clients protected under their financial umbrella.
How insurance companies cover you
First, your insurance professional will assess the risk to cover you with home and/or car insurance. The cost to cover your risk factor is divided into smaller, monthly payments, which you pay to the insurer who has agreed to cover your risk.
Pool of funds
As mentioned, your premiums are added to a larger pool of payments, and by pooling premium resources together, your insurance company guarantees that they will be able to pay out on any claims. This financial reservoir operates for one year at a time so your insurance contract is in effect for a full year. Using this pool of funds allows your insurance company to cover the losses of those drivers and/or homeowners who need to file a claim during that year.
Clearly, by pooling your funds with other policyholders, everyone is better covered in the event of an accident or some other eligible claim.
Join the pool
For any insurance questions or no-obligation quotes, feel free to call the insurance experts at Mitch Insurance Brokers at 1-800-731-2228 or email us at email@example.com. We’d be happy to talk with you.