What is insurance? Insurance at its most basic level is protection from a financial loss. It is a form of risk management that is used to protect against an uncertain or unforeseeable loss. Well if that seems so simple, then why is my insurance policy 58 pages long?!
In my opinion, insurance is made too complicated sometimes. I always try to look at insurance kind of like math, if you know the basics you can build on them and work your way into more complicated scenarios. While being able to understand and write complicated insurance policies is good for me, my business and my clients that need those services, most people don’t care. The majority of people just want to somewhat understand their insurance policy so they can forget about it until they have an accident or need to make a change. If you are one of these people, you have come to the right blog! I’m going to aim to educate briefly the basics of insurance, and then I am going to dive into some of the most common questions that I hear every day. Questions like, do I need to buy insurance for my rental car? Or is my hot water heater covered? I’ll take some of these questions and try to give you the logic behind the answers as well.
First, the most important term you can ever learn in the insurance industry is insurable interest. Insurable interest is where the whole process starts and finding who has the insurable interest can tell you things from who should be paying for an insurance policy down to should this person be receiving an insurance pay out. Now, hold that thought for two second and let me introduce one more term: legally liable. Being legally liable is not good in insurance, but it is the sole reason you purchase insurance.
An insurance policy protects you and your insurable interest from unforeseen losses and anything you could be held legally liable for.
Let’s take a look at some examples:
Car insurance – when you buy a car you instantly have insurable interest in that vehicle because you just spent thousands of dollars on it. If something were to happen to your new car you would like to have it fixed to as good as new but without the cost of buying a new car. In steps insurance. When you purchase comprehensive coverage and collision coverage on your car insurance, that is you protecting your insurable interest in your car. The second part of car insurance, the part required by law, is liability insurance. This is to protect you from any bodily injury or property damage you could cause while driving your car. Liability like I said is required by law but comprehensive and collision coverage is your decision and if you don’t have those coverages your car will not be fixed in an at-fault accident.
Homeowner’s insurance – if you are the owner of the home then you have an insurable interest in protecting your house so you should be the one that purchases your insurance policy. If you have a mortgage then you are required by the bank or lender to purchase home insurance. The reason the bank can require you to purchase homeowner’s insurance is because they too, through a mortgage, have an insurable interest in the house. When the bank lends the money for a mortgage they are using the actual home as collateral. If you stop paying your bills then the bank can take the house back and try to resell it to get their money back. If the house burns down to the ground and you as the owner walk away, the bank doesn’t have anything to resell. In steps insurance. The bank and the homeowner both have an insurable interest in the house and are both reliant on the insurance policy to protect that interest.
The liability side of homeowners insurance is a little different then car insurance because you can’t wreck anyone with your house. In every homeowners policy you will find personal liability protection, and this protects you against anything you could be found legally liable for. Example, you’re playing golf and shank a ball and hit another golfer. Who pays for his medical bills? Legal liability can be hidden around any corner and you may never know it until it is too late. If you don’t own a home you still live somewhere, renters insurance will provide the same liability protection.
Business owners insurance – I’m not going to dive too deep here. The reason you formed an LLC or incorporated was so that it wasn’t your personal name out there doing business and getting sued when you screwed up. The same thing needs to go with your insurance. You need business owner’s insurance policies written in the business’ name. You as the owner have the insurable interest so you need to purchase the policy for the business in the business’ name. The name is important because that is who is “insured” and if ABC Company doesn’t have a policy protecting the business and the business’ assets then the business is unprotected. Your business owner’s insurance policy is the only thing that stands between a lawyer saying “we are going after the insurance policy” and the lawyer saying “we are going after the business and then their personal assets.”
Hopefully you now have a little better understand about the basics of insurance. If you have an insurable interest then you have a liability risk and you need an insurance policy to protect both. If you have any more questions about any of this topic make sure you give us a call at Bridge First Insurance. And since we are on the topic of insurance questions, here are a few of the most popular questions with some of the most unpopular answers:
Do I need to buy the insurance on my rental car? Most insurance companies will extend whatever coverage you have on your personal vehicle to a rental car. The thing you want to check is where that coverage extends to, most of the time US and Canada are good but not overseas.
Whose car insurance claim is it if my friend wrecks my car? It is called car insurance not driver insurance. Your insurance follows the vehicle not the driver. If a friend wrecks your car, call your insurance company. If you wreck a friend’s car, call their insurance company. Don’t let bad driving friends drive your car.
My hot water heater broke and everything is wet and I need a new water heater, what’ covered? Any damage caused by the water from the water heater but not the unit itself. This is the same for pipes, dishwashers, wash machine and any appliances. The damage caused by the malfunction but not replacing the actual units. The reason is because that would get out of control, insurance companies would be the number buyer of dishwashers. There is no way to underwrite and charge the appropriate premium to cover that risk.
Does homeowner’s insurance cover floods? No. Flood insurance is a government control industry and I recommend reading our flood insurance blog to learn more.
Speak with a Bridge First Insurance Agent today! (571) 249-3857
Previously on the Blog:
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.