Why Do I Need Insurance If I Don't Have Claims?


If you’re like most people, you probably don’t get a warm feeling inside when paying your insurance premiums.  It’s common to grumble a little and write the check because you “have to.”  But insurance is a valuable financial tool that is much more than a requirement or obligation.  Insurance allows us to live our lives with a degree of certainty and security by protecting the things we’ve worked so hard to earn.

Think of it in these terms: 

There are three options for managing the financial risk in our lives – (1) avoid it, (2) retain it, or (3) transfer it.  Avoiding it is nearly impossible because avoiding risk means not owning a house, car, or anything else that could potentially cause a financial loss.  Retaining it usually doesn’t make sense because most of us can’t afford to rebuild our house if it goes up in flames or pay a lawsuit for injury we cause to someone else.  That leaves us the option of transferring risk, which is exactly what an insurance policy does. 

To insure our financial position, we transfer the risk of sudden and unexpected large losses to our insurance company and, in turn, accept small predictable losses in the form of premium payments.  The instant we purchase an insurance policy, our financial position with regard to the assets specified in the policy is fixed for the term of the policy.  Regardless of whether we have ten losses or none, we remain in the same financial position because we’ve transferred our risk of loss to the insurance company.  The peace of mind provided by a solid insurance plan allows us to live our lives without being paralyzed by the constant fear of a financially devastating loss. 

On the other hand, the insurance company does the exact opposite.  They have accepted the risk of infrequent large losses in exchange for guaranteed small premiums.  Their gain from the premium payments is fixed, but their risk in regard to the assets being insured is nearly unlimited.  This is why insurance companies are as thorough as possible when evaluating insurance applications.  The risk of financial loss associated with our lifting shingles, faulty electrical systems, and distracted driving is no longer ours – it is the insurance company’s.

The question of whether or not to insure our largest purchases is hardly a question at all.  Not many people can afford (nor would many choose) to be susceptible to an unexpected loss to their $30,000 car or their $200,000 house.  Paying insurance premiums might ruin our day but losses of that magnitude will ruin our year and possibly our life.  Therefore, even though we might never have a claim on our car or house, having insurance affords us the peace of mind needed to lead a secure life and have a predictable financial future. 

We’ve selected the insurance companies we represent based on their broad coverage offerings, strong financial condition, and excellent claim paying reputations.  So, next time you pay your insurance premium, try to find that warm feeling inside knowing you’ve transferred much of your risk of devastating financial loss to a quality insurance company.  Then, enjoy a peaceful night’s sleep!

This article was written by Derek Boer.  Please send comments or questions to Derek at derek.boer@boerinsurance.com.