Ask Your Peers  What is the difference, if any, between taking out insurance and making a bet? (Closed)

A lot of my clients request the bare minimum coverage for their policy requirements, and even more will only get the coverage they are required to obtain. My concern is they are not being covered as significantly as they need. The clients that have excess coverage, higher limits, etc are the ones who have gone through a loss and experienced how limited coverage can hurt you in the long run. What are your clients doing? Do they fully understand what would happen if they were sued and their policy only covered a portion of the awarded damages? I try to express this need, but I feel like the economy has put my clients in a tough position of taking lower policy limits, higher deductibles, and bare minimum coverage. Lower insurance = higher risks in case of a claim.

And the problem is exaserbated by the minimums required by law, in Personal Auto, for example.

I always try to illustrate the difference between the protection provided by what's required, versus the peace of mind avaialble, often for not too much more (No one wants unexpected expenses). You can find examples that illustrate the types and amounts of losses that can occur, and position these in relation to coverage limits, to show where the minimum required limits might be inadequate.

True, but many of my clients think "it won't happen to me." Personal Auto does tend to be the lowest coverage possible at all times, especially for some of my clients who are not as financially stable as others. It's hard for them to justify a larger cost on the month-to-month basis if they consider themselves a safe driver or live in a small town. I had one client that finally paid off her brand new car, had never been in an accident before, and decided to drop her coverage to state minimum to lower her monthly premium cost. What happened 4 months later? We had a bad snow storm and she ended up totaling her car. Because she was at fault (no other drivers involved) and only had liability coverage, there was nothing I could do for her. As an agent I want to protect my clients from situations like this, but how can we expect them to cover the rising policy rates when they're being affected by the economy as well?

I found this article in the "Blogs" section of CompleteMarkets called "WHEN WILL INSURANCE BENEFIT YOU (AND WHEN WILL IT NOT)?" It makes a really good point about how to get clients to understand the benefit of insurance and how to calculate the amount of coverage you will need.

"After all, in many cases, coverage isn’t about something that will certainly happen, but is instead a matter of understanding the size of your risk of an event, and whether or not it will be worth the premiums that you must pay in order to protect yourself from it. In many situations, the odds of an event actually occurring – such as a house fire – are quite low, but it is still highly recommended that you obtain a policy that includes that damage, as it would be devastating should luck play against you."

I know this is a P&C post, but I will hijack it with some input from the Life/Health side of the business.

It all comes down to point of reference. If they have known someone, or themselves, experienced loss, and the financial strife that comes with it, then they will be more open to discussion. If, on the other hand, they have no reference point to start from, then your ROI as far as your time with them is going to be low. For some, you can help them picture the loss, and the need to cover it. For most, though, it is like Charlie Brown's teacher - WA WA WA WA WA WA.

The second they hear, "One out of three.." they are thinking, "I am the two thirds who can buy time, until I have more money". We all do it. Even those of us in the industry.

Now, to your question between making a bet and insurance. There is no difference. You are betting the insurance company a certain amount each day, that nothing will happen to you. Every time you get behind the wheel of a car, you are betting the other drivers that you won't be distracted by the radio, your cell phone, or the kids in back, and won't plow into them, sometimes leaving them with permanent damage.

Life is a risk every day. How you protect yourself from exposure to that risk is entirely up to you.