As life happens, there is the probability that things could go wrong at some point with either our physical assets or health/lives or even both. When this happens, the effect of occurrence tends to be devastating and in the absence of relevant and functional insurance in place on such assets, you will have to pay out of pocket.
Hence it is safe to say that Insurance is an important element of our personal finance. It is financial intelligence to take insurance seriously and leverage the enormous benefits and rewards it delivers. To know how insurance works, helps in making it work for anyone. And a good way to start, is to understand the common assumptions about insurance that have held lots of people back from exploring the opportunities and peace it offers to individuals, families and businesses.
The myth that you take on insurance and hardly experience loss qualifies for legalized fraud
Insurance protects against unforeseen incidence. It is possible to have insurance policy and not experience loss for a couple of years. This is peculiar to non-life insurance e.g. motor insurance, home insurance, business insurance etc. That an insured did not experience loss does not mean other policyholders within the pool did not or are not experiencing loss. Because insurance works on the concept of risk pooling. That said, refunds in form of discounts are typically given to the insured for no claim history.
The insurance industry continues to work on fine tuning its products and services in ways that gives better option of choice and fair pricing for the good of all - leveraging growing innovations such as usage-based insurance model etc.
Insurance is Gambling
Insurance is perceived by some to be a gamble but it is not. Insurance is different from gambling and here's why: Gamblers seek risk in an attempt to profit or make more money while with insurance, the goal is to prevent you from losing or suffering when life happens.
Insurance is FREE Money
The thinking that insurance is to pay out for the tiniest amount of kobo on every loss or damage we experience because a premium has been paid.
This mindset tends to be common among the insuring public because, the policy terms and conditions is either not read or properly not understood by the insured before or after signing the proposal form.
It's important that you are aware that there is something called deductibles/excesses (deductible is the amount as an insured that you must pay out of pocket before your insurer will issue payment for the remainder of your claim. This amount is usually insignificant in relation to the claims pay-out. The rationale is to keep the insured responsible and accountable. On the other hand, excess insurance policy provides additional coverage and/or higher limits above and beyond those of the underlying primary policy) and depreciation (in the case of property related insurance), stated in the policy terms and conditions to the cost of every repair or replacement in order to know ahead fairly accurately what the claims payout by your insurer will be. While bearing in mind that, the more the frequency of claims an insured reports to an insurer, the riskier that insured is to the insurer, thus, a higher rate is likely to be charged on such at renewals.
You can buy back the excess/deductible by paying a little extra on premium. In such situation, the insurer will pay out 100% of claims amount when you experience a loss.
Another mindset of insurance as free money is the attempt of the insuring public to intentionally initiate and report false claims just because they want to claim the premium they have paid overtime. Presenting false claims can land a person in court or jail. Also, it is important to be aware that losses are supposed to be fortuitous not deliberate for it to be honored by insurers. It's that simple!
Insurance is Complex especially the proposal form, the fine prints and contract, is deliberately to frustrate and mislead the public
The purpose of the series of questions being asked in the proposal form when taking up insurance policy could appear unnecessary and almost a waste of time to the insuring public but it always turns out to be the saving grace at the point of claim where questions were appropriately and clearly answered. The questions asked in proposal forms cannot be over emphasized because it helps the insurer to clearly understand the risk profile of a proposer in order to appropriately price the risk and ensure that you are offered fair pricing and terms. This also clears doubts and assumptions up front before loss occurs provided both parties were absolutely honest to the best of their knowledge on information regarding what needed to be insured.
And yes! with advancement in technology the complexity in questions asked will continue to decline while information will be automatically mined without having to provide the information yourself directly.
Understanding the point of all these basics, will help you know how insurance works. It will also help you appreciate the power of insurance, therefore awakening your consciousness and aiding your intelligence in leveraging insurance for the growth of your business and family wealth.
It's most rewarding to use insurance for the good of your business and seek out insurance professionals who can help you leverage insurance for the common and long-term good of your family and business through generation.
Insurance Works and will continue to work more effectively and efficiently as a fourth Industrial Revolution beckons.