I
had a call yesterday from a gentleman that was looking to replace his business
insurance. He was incensed that the premiums had gone up and was venting to me
about how unfair the insurance community was and how insurance was a big scam
to take his money. He has gone 30 years without a claim and all that money was
wasted. He could have gone all that time without insurance and would be
thousands of dollars richer.
As
an insurance professional I do get calls from people who are frustrated and I
do understand the frustration. And, the industry that I represent doesn’t
always reflect compassion and clearly outline what insurance does and does not
do. The confusion grows to anger especially when the insurance is mandated by
government, a lender or another business that you need to do business with.
I
used the following example to explain: I asked the caller if he had a home and
he said yes. I asked him what the replacement cost value of his home was
approximately and he said about $625,000. I asked him if he had a loan on the
home and he said yes so I then stated that he probably had to have insurance on
the home and he said yes and don’t get him started on the cost of homeowners
insurance! I asked him approximately the cost of his homeowners insurance and
he said $750. So I said you have been paying that premium for about how long on
your home and he said 21 years. I said you have never had a claim and he said
that was correct and all that premium he has paid over 20 years has just gone
down the drain, in fact he could have burned the money and would have gotten
the same value. So, I added, just to make sure that I understand you have paid
about $750 per year for 21 years and never received any benefit from a claim?
He said that was right. So, he had paid out $15,750 over 21 years (maybe a
little less as the premium was lower 21 years ago).
Now
it just so happened that our agency had a client whose home burned to the
ground and was valued at $550,000. He had been with the company that insured
him for less than 5 years and the insurance company paid the full replacement
cost to rebuild the home and picked up the cost to haul away the debris from
the ruined home and picked up the cost to build to current building code. In
addition, the insurance company provided funds to find a temporary place for
the client and his family to live. The total cost was about $600,000. The
client was only out $1,000 for his deductible and the sum of his insurance
payments to the insurance company for less than 5 years was $3,750. But if we
use the example the caller had provided me then he could have paid for 21 years
and $15,750. If our client was faced with paying $15,750 over 21 years to
recoup $600,000 and his family’s financial health would he consider the $15,750
a fair investment? I guarantee you that he would and so would anyone else in
the same situation.
There
are two frames of mind when considering insurance: One, it’s an expense that
costs me or, Two, it’s an investment in my family’s plan for developing wealth
and protecting our assets. In the end I didn’t change the callers mind but it
reminded me why I protect my clients and why I look to find value for them and
why I prefer to work with clients who understand how insurance works for them
and not against them.
