Why do people buy insurance? Working in this industry day in and day out I’ve heard all the reasons. We’re required, we have to... Can I be honest? My auto insurance went up by $200 last year even though I had 2 wrecks and 2 tickets fall off. I was ticked. I immediately started thinking about all these reasons I’m forced to buy auto insurance until I remembered my reason.
I asked a few clients what their reasons were for buying insurance. Their answers may surprise you...
“The law requires me to.”
That’s probably an answer that you see often. We all know people who wouldn’t buy auto insurance except that they are required by law. Did you know though that even though it’s required many people choose to not to purchase it. According to an Insurance Journal Article, the number of uninsured motorists is actually increasing and in five states, more than 20% of drivers don’t have insurance.. “It’s the law” not the best reason.
“My mortgage company insists.”
When this comes to purchasing a new home or commercial building this is always a reason. This is also a popular answer when people buy flood insurance. I’ve seen what happens when people pay off their mortgage and decide that they no longer need the expense of their homeowners’ coverage. It’s similar to what happens when we suggest flood insurance when there’s no “requirement” to buy it. They drop their insurance or they just don’t buy it. What happens if the house catches fire? What happens when the tornado hits? People are left with nothing. What happens if they have a dinner party and someone trips, falls, and injures themselves seriously? Without’ insurance, a family loses everything and has to rely on the kindness of others to restart life. “My mortgage company made me” is another bad answer.
“It gives people peace of mind.”
Usually this comes from insurance companies. Here’s the problem. While this may be the case it’s only partially true. Not to get all hippy on you, but Peace comes from other sources. Peace for some may not come from insurance. Peace is an internal sense of calm without regard to the circumstances of life. Peace is something that cannot be purchased in an insurance contract. A person without peace can’t buy enough insurance. A person at peace won’t feel the need to buy insurance.
“This manages risk...”
Does it? Insurance certainly is a part of the risk management program for a family or business. Does insurance help mitigate risk? Yes and no. Insurance is a way that someone finances the risk in their personal or business life so it’s a part of the risk management process. Yet, it isn’t an end of itself. Insurance in perspective helps to manage risk because we become aware of the risks that we have. Sometimes, we take steps to reduce our risk because it’ll lower our insurance costs. “It helps manage their risk,” is really a pretty good answer, but it’s still not the best answer.
“You can’t afford your life without it.”
Hands down when I think about why I purchase insurance this is always my reason. Think about it. For most, we’re accumulate more and more items over time. We have clothes that that still have the tags on and that favorite hoodie that is threadbare from high school. The living room furniture is probably five years old and the bedroom furniture was just replaced (praise Jesus for that new mattress!) People typically purchase homes on 15-30-year mortgages and 6-7-year loans for cars. We just have a bunch of stuff!
Beyond the property, no one could afford to drive without insurance. Even if you have a small wreck the other driver will most likely file a suit for thousands of dollars. Without insurance it’s up to our bank account to fund that. I don’t know about you, but I don’t have that kind of money! The other day, I was having a conversation with a client and he told me about a car accident that he had. Hopefully, the other driver had enough liability coverage to make him whole again.
Most businesses couldn’t afford to operate after a loss because many operate in a cash poor position, or are leveraged too much because of the amount of debt. Without property and liability insurance, most businesses will fold according to statistics. Even with insurance, without the proper coverage, most businesses won’t survive a catastrophic event.
Many times, insurance purchase decisions are made based on whether the insured can afford the policy. I would say rather; can you afford not to have the policy?
- Can you replace your home or building without the insurance policy?
- Can you replace your stuff in your home or business without the insurance policy?
- Can you afford to defend yourself in court if someone slips and falls and hurts themselves at your business?
- Can you afford to replace your store’s stock if the power goes out for three days because of a hurricane?
- Can you afford to pay medical expenses and wages for employees if they get hurt in your business?
Insurance isn’t about the law, the lender, or peace. It’s about providing money to get the insured’s life back to normal as quickly as possible.
If you have questions regarding your insurance, ECI is always here.