How Insurance Works
Have you ever seen your insurance bill and though to yourself “why am I paying this, how does insurance work?”? You wouldn’t be alone in thinking this, especially if you’ve never had to use your insurance but you have to keep paying your monthly insurance bill. It’s a valid question that many people don’t know the answer to.
How Does Insurance Work?
Insurance works by pooling together risk from many different people. Insurance companies will guess (based on data they have) how many of those people will have to file a claim and use their insurance and how many people wont have to use their insurance. Based on this data and their projections they then determine how much your monthly insurance premium will be.
So even though you may not have to file a claim and use your insurance, other people in your same pool may have to. The premium you have paid throughout the year would then go to help pay for the person’s claim. This may seem unfair to many people, especially those who have never had a claim. However, should you ever need to file a claim, you’d then be very happy that you were on the receiving end.
How Insurance Companies Work
It’s important to realize that insurance companies are in the business of making money. We’ve already discussed that insurance companies calculate your premium based on data that shows how likely you and others in the risk pool are to get in an accident. However, that isn’t the only factor used in determining how much you pay for insurance. They also have to make money and pay their agents, their claims adjusters, their administrators and so on. All of these costs will also be factored into your premium. So when asking yourself “how does insurance work”, remember, the insurance companies have to make money as well.
How Does Car Insurance Work?
Car insurance works as every other type of insurance, by pooling risk. There are hundreds of different data points that a car insurance company will look at when trying to determine your car insurance rates. Age, gender, credit, address, accidents, violations are just a few different data points. The insurance company can look at all of this information and accurately assess how likely they think you are to get in an accident.
If you have more favorable data- not too young (or old), no accidents or tickets, good credit, etc- then you will be offered a better rate from the insurance company or your auto insurance. If your data is not so favorable, then you are going to pay more for auto insurance. This only makes sense because the insurance company is more likely to pay out a claim to you if you’ve had 3 accidents in the past 2 years.
This is how auto insurance works. While you may not like how car insurance works and not like paying your monthly insurance bill, you’ll never dislike getting a check from the insurance company should you ever have to file a claim.
Here’s the good thing- with Safe Street Insurance, we have many options when it comes to insurance companies and we can shop your car insurance rates and find the best rate available for you.
How Does Car Insurance Work in an Accident
Now that we know how car insurance works when it comes to taking your money, let’s talk about when it comes time to you getting the insurance companies money! There are many different variables when it comes to figuring out how do car insurance claims work or what does insurance do, so we’ll talk in general terms.
When you first purchase your car insurance policy you get to select what coverage you want. You also will receive a policy that will list what is covered and more importantly what is excluded or not covered. This policy is what becomes law should you have to file a claim on your car insurance. When deciding what will be paid and what wont be paid, the insurance company will always reference back to this policy.
How Does Car Insurance Work in an Accident- Example
You purchase a policy, you purchase a policy with $500 deductibles for both comprehensive and collision coverage. You also purchase rental car reimbursement with limits of $40 a day up to 30 days. Your car is then damaged in a freak weather storm, there is $10,000 in damage.
As long as there are no exclusions on your policy, the claim would pay out as follows- the insurance company would give you the $10,000 to repair your car, minus the $500 deductible. So you would get a check for $9,500. Also, because you purchased rental car coverage, you would be provided a rental car while your car was in the shop getting fixed.
So when you ask yourself what does insurance do, you now have your answer- it restores whatever was damaged back to it’s original state. This is how do car insurance claims work.
How Does Insurance Help You?
what does car insurance do? It helps restore whatever was damaged to it’s original state. So even though you may complain every month when you see your payment, just remember- one day you will be in need and will need to file a claim. So long as you have selected a good policy, with a reputable company, you can rest easy knowing that your insurance company is ready to help you.
Even if you’ve never used your insurance to file a claim, you can rest easy knowing that should you ever need to, you can. The pool that you’ve been paying into will be there to help you.
If you feel like you’re paying too much for your insurance and would like a quote, click here now. We’ll search multiple companies for you and get the best price available.