Insurance Term of the Day:Risk
Are you a risk-taker? Google defines “risk” as “a situation involving exposure to danger.” A risk makes you vulnerable. The outcome is a mystery. Taking risks forces you out of your comfort zone, into the realm of the Unknown, where anything could happen. Are you going to trust that things will work out for your highest good? Or are you going to live in fear of the unknown? The choice is yours.
When you take major risks in life, two things could happen: it could change your life for the better, or change your life for the worse. Taking risks takes courage and faith. Have you taken a risk that significantly changed your life for the better?
When interviewing for a job, you’re taking the risk of rejection. When making a large investment, you’re taking a financial risk. When bungee jumping, you’re risking your life.
Believe it or not, YOU are a risk. You are a risk to your insurance company. Every time you buy insurance, your insurance company is taking a chance on you. In the insurance world, the word risk holds an entirely different meaning.
According to naic.org, the definition for risk is “uncertainty concerning the possibility of loss by a peril for which insurance is pursued.” When you buy insurance, your insurance company is taking you on as a risk with the hopes that you will not have to file a claim. For example, for an auto insurance claim, your insurance company can end up spending tens of thousands of dollars. The cost of the claim depends on multiple factors, like the extent of the damage, the value of the vehicles involved in the impact, the severity of the injuries caused to the parties involved. At the end of the claim, the insurance company often pays out much more than you paid in premium. This means that they have now suffered financial loss from taking you on as an insured. Insurance is YOUR financial protection.
By you paying the insurance company, they are actually investing in you. Purchasing your insurance policy provides the financial protection that you need. The premiums they collect provides financial protection for all other insureds as well. Either your insurance company profits off you (while benefiting everyone else), or your insurance company loses thousands of dollars for taking on the risk.
This is why insurance companies are so great. They take major financial risks so that we don’t have to.