Insurance, simply put, protects you against everyday risks. The risks we face on a daily basis may be to our homes, our cars, and even our health (to name a few!). Life is incredibly unpredictable, and the out-of-pocket expense for even the smallest of accidents can cause a person to plummet from financial stability to bankruptcy in an instant. It would be unreasonable to expect anyone to hold personal responsibility for every possession and every loved one in his or her life, which is exactly why insurance exists. In exchange for a fixed payment from you, insurance companies offer a promise. This promise varies by the type of policy you need, but the central theme remains the same: if you or your stuff gets hurt, insurance will pay to put all the pieces back together again.Additionally, policyholders pool their risks together when paying their premiums each month, allowing claims to be paid out from that pool of funds. This decreases the likelihood of an increase in premium rates. While the company ultimately signs the check, it’s the other policyholders who keep the overall cost of insurance from rising.
What is an insurance company?
If you walk into an insurance office to obtain coverage, you’re likely dealing with a licensed insurance agent. These are the people who sell coverage—provided by a company—directly to the consumer. Some agents have relationships with several different insurance carriers (or companies) and use them to find you the best possible rate for your specific needs, while others work solely with one company. These are called independent agents and captive agents, respectively. Because insurance companies rarely sell directly to customers, it’s pretty common for our policyholders to not know the difference between what agents do and what we do. For example, there are different types of insurance companies in the same way that there are different types of agents.
What is a mutual insurance company?
Mutual insurance companies just like usbegan takingform in the 1600’s right here in the U.S. We are owned by our policyholders—giving each customer a unique and valuable role within the company. Whereas stock insurance companies sell shares to investors, mutual companies prioritize having valued relationships with each and every customer who joins the team. To purchase a policy is to be granted automatic entrance into the mutually owned (and mutually rewarding) business model. A mutual company thrives when its policyholders are thriving, because fewer claims result in a profit surplus. Having this surplus on hand allows us to return the success back to our policyholders who made it possible in the first place. Any time our products are producing profit, we turn give it right back by reducing our premiums and even paying dividends back to our policyholders—the true owners of the company.
Unlike stock companies, which put a lot of pressure on short-term investment returns, mutual companies are much more interested in the same thing policyholders are: long-term financial stability, customer satisfaction, and overall retention. With policyholders being the primary owners and overall decision makers for the company, prioritizing the person over the dollar they might represent to other carriers is exactly what sets mutual companies apart.
Who needs insurance?
You may have heard the arguments like these before:
“I never get into accidents.” “My home has never burnt down.” “I never get sick.” “I don’t need insurance.”
For every handful of those, however, there is one person who just caused a fender bender and—oops—let his or her insurance lapse last week. The truth is, no matter how safe of a driver you are, no matter how infrequently you leave candles burning or catch the common cold, nobody is immune to every threat the world has to offer. If you are a property owner of any kind, you need insurance. If you run your own business, you need insurance. If you eat, sleep, and breathe, you need insurance. Everybody needs insurance.
But for argument’s sake, let’s say you are one of the lucky ones—and there are plenty of you out there—who rarely, if ever, file an insurance claim. Maybe you’ve had your policy for decades and have never had to pick up the phone and report an accident. To be honest, we love you people. The policyholders who never submit claims are the very people who make insurance work. In order to insure the masses, including the accident prone and downright unlucky, companies must have the funds to do so. But does that mean that we’ve rigged the system, won the bet, and skipped town with your hard-earned cash? While it’s easy to look at the monthly bank statements and feel gypped for only having received a piece of paper in return, the answer is decidedly no. And here’s why: the promise attached to that piece of paper is huge. What you’re holding is a legally binding contract, a guarantee from your insurer, that when life throws financial calamity your way, your insurance company will be there to put you back on your feet. The risk assumed by your insurance company is vast, ever-present, and entirely unpredictable.
Imagine for a minute that you’re buying a $250,000 home, and you want to protect this new asset on your own. In order to prepare for out-of-pocket replacement in the event that it burns or gets taken away by our next tornado, you’ll need to save double that amount before purchasing the home. Now you’ll likely need to wait to save such a large amount of money, which will probably cause you to forfeit the home to a buyer who’s ready now. All the while, you could have avoided the headache and saved time and money by purchasing a much more economical home policy.
The Bottom Line
Until you are no longer a living, breathing person on this planet, your likelihood of experiencing a loss doesn’t really change. That means that whether you’ve been claims free for five days or fifty years, tomorrow holds the same amount of potential to change that.
Regardless of how many claims you file in your lifetime, the amount you pay for a policy, compared to the amount we promise to pay for a loss, will always be worth it. Insurance is a gamble, but with all the uncertainties each day holds, having it will always prove to be the jackpot.