If you’re new to insurance, you probably are curious. What is this whole industry made up of? What makes insurance work? How much does it cost and what do I really need to cover? There’s a ton of different opinions and there’s a ton of different ways that people do it is a lot of agents don’t really know to get you the right coverage because they’re focused on price.
And that’s the first issue that I see where people take, where they only focus on how much the cost is. Yes, it’s got to fit in your budget, but they don’t focus on what coverage you should have. The difference between those two is you could have a $10 a month cheaper policy but lose $100,000 worth of coverage. If you’re in that case where you needed that $100,000, you’re now being deducted from your paycheck for years and years, maybe your lifetime, and you’re paying back those amounts that you should have had covered. That could have cost you maybe $10 to have. So let’s go over what the industry is and where you should be looking at to fit into the insurance piece. If you’re the type that came to this video and you’re thinking, you know what, I don’t really care about the industry. I don’t care about all that. I just want to find the best price. Just give me the cheapest deal.
We are going to talk about that in the topic. But if that’s the case, it’s really simple. If you’re just shopping around in this topic just popped up. There’s a company called Cover. They shop 30 plus different companies.
So they’re likely going to give you one of the best rates. In most of the cases, they’re going to shop your progressive, your Safecos, your Allstate, and a whole bunch of other companies in your area. And there’s a good chance that they’re going to have a good deal for you. Personally, I think they’re a channel sponsor. I put them where I feel that they would fit for customers.
If that’s the route that you’re looking to go, that’s there as well. Otherwise, let’s show you what the industry is going to have an effect on, what type of insurance you should have. It only takes about a minute to tell you exactly how the industry works. It’s a company. Think of it like Apple and Android.
You’ve got Apple and Android. There are two different companies trying to win the tech market. They want you to buy their watch, they want you to buy their phone, all of that technology, and they’re trying to make a profit. So they make the phone for $800 to sell it for $1,000. It’s no different in the insurance industry except for the fact that the insurance industry is regulated so that they can’t rip you off.
Now I get it. Insurance has a bad rap for ripping people off. And that’s a different part we’re going to talk about here in just a moment, which is more tied to claims insurance is a pool of collective income. People are putting money in. They’re paying what we call a premium for that product, and it’s all regulated by a company.
So in this example, we’ll use Company A, could be State Farm, Allstate progressive, whatever. They have their own different ways of doing it. Essentially, they all do the same thing. They create a price that’s a model to where they’re going to make a small profit. You pay in your premium, $10, $100, $200, whatever that case is, and they spread that risk across the whole group of people.
Everybody’s paying. And then when somebody has to get paid back because they have a major claim, that coverage that they paid for is going to protect them in that situation. Instead of them having to come up with that $500,000 paycheck or bill, they only paid their $100 premium, and then it’s just covered. It’s paid across everybody’s pool of money. And it just takes a little bit out.
The problem that you run into is rates don’t stay the same. It’s because they have less claims, more claims they raise, and lower the price. Typically in today’s age because of inflation, the cost of materials, all of that stuff, there’s just a ton of factors that go into it. You’re seeing the rates go up about 6% to 8% in 2022 alone. The best way to fix that and fight that is to shop with other companies that don’t have that rate increase.
Well, how can other companies not have that rate increase? It’s because they don’t have the claims like Company B. If Company A has no claims, there’s no reason they need to raise their rates. If Company B is the one with all the claims, the big guy that had all of that stuff happened, their rates are going to go through the roof. If you’re in Florida, you’re noticing the pain of that more than anybody because there’s just been catastrophic losses across the board and the insurance companies just can’t stay there unless they raise the rates.
It seems ridiculous, it seems unfair, but what’s your choice? You either pay the higher premium or the company just locks out Florida altogether. And now you’ve got nobody to go to. Now the government has to step in and they have to pay the premiums, and they’re just going to charge you a crazy amount for what is worse than what you would have gotten through company A. That’s essentially what it is.
It’s a company trying to make profit. They are trying to get a 10% to 20% profit on you, and they just take it, invest it in the stock market, they make their money upfront in the long term, and so on and so forth, they’re just playing low-risk investments. Aside from having the giant pool of money available, if claims happen. So they’re just in a safe bet that they’re just reinvesting the money that you’re paying in hoping and banking on that, you won’t have claims. So what coverage are you supposed to carry and what should you pay?
The coverage are very simple. At the end of this video, I’m actually going to get a little bit more in-depth. I’ll link a video that goes really in-depth on the coverages, but let’s at least give you some idea of what coverage you’re supposed to carry. The first piece that you should always have on your policy is something called bodily injury. That’s the money that I would pay for somebody if they got injured because of my fault.
You’ve got property damage is the same situation. But now we’re talking about property. If I damage your car, if I run into a house, whatever that case is, if I cause any property damage, I’ve got uninsured and underinsured motorist. In most States, we recommend that some States the price is just too high for the budget and you got to choose that risk. What that does is that is in reverse.
That protects you if somebody hits you that has no insurance or less insurance. There’s a lot of high premiums in some areas and people have to risk or are risking the fact that they’re not going to drive even though they have to doesn’t mean they necessarily did. Do you have to carry that? Absolutely not. It’s up to you to have that.
Most States it’s not that expensive. But for some of the major areas that have those problems where people are willing to drive without the insurance, then those premiums are going to cost a lot more. Medical payments is essentially the same thing. But if you were to ignore the uninsured motorist part and just say Med pay is what it’s called. It’s basically medical insurance for you and anyone in your car.
It’s on a per-person basis. So if you have $5,000 worth of Med pay or medical payments, it’s going to cover 5000 for the driver, 5000 for the passenger, and then anyone else that fit into the vehicle. It’s very important to have because you just don’t know the situation. People in your car get hurt. It’s easier to have them have some medical than it is to have them have to fight and sue your insurance and go after all of that junk where in most cases not worth it.
A lot of medical injuries are just small in the 5000 or 10,000 or whatever you feel comfortable with, it’s going to be enough. If it’s not, then you’ve got the bodily injury to go after. You have the other person’s insurance to go after. There are places to go, but the work and effort it takes to go that route isn’t worth it most of the time. Med pay doesn’t question things like that to where they’re going to pay that medical.
If you’re injured and it’s due to a covered loss. There are a ton of other coverages like comprehensive collision, there’s gap insurance, there’s tons of other pieces. Those are really the main parts that we’re talking about. Like I said, I’m going to link at the end of this video to a more in depth. If you’re interested in that, that will be coming up shortly.
How much should you pay for the insurance? It’s hard to determine Because it’s based on each individual person. Your age plays a factor. The location you live in Plays a factor. The risk that you have is called a profile.
So your profile is sent to a company that you’re getting a quote with or going with and they’re going to determine where that product. They call it that’s your car insurance or your home insurance or whatever you’re looking for. How risky are you to file that claim? If you raise their level of risk, they’re going to ask you to pay more. If you’re not a high risk, they’re not going to ask as much money from you.
I’ve got neighbors that pay half of what I pay Mainly because of the age factor plays a piece. If you’re retired, you’re probably home more often. So the odds of having a home claim are going to be less because you’re maintenance in the house, you’re around more. You’re living in the space versus a person that is constantly gone and on trips and whatnot that person may not be around to see a claim that happens and it causes more damage and certain things come up and the insurance company out pockets those they take those pieces into factors to your profile to see what risk you have. Have you had multiple claims that’s going to raise the risk because you’ve already claimed before?
So now they know that it’s likely that there’s another claim that could come from that. So how do I find the right fit? This really isn’t super helpful because you just told me everything and I get it. That’s how they make money. It’s how you should have coverage and it’s how that it’s going to rank me.
How do I get the best deal? That’s the best piece. Is there’s a couple of ways that you can find the best deal. I’ve got a video here that’s going to show you how to shop online for the best deal on car insurance. What fit are you?
What profile is best for what company? And that’s the best route that I would recommend. Before you click that video, I would also watch the insurance 101. If you’re not sure what coverage you should carry, this is going to give you the best idea of what coverage you should have and then also watch the insurance shopping online line to give you the best way to find the best rate.
I’ll see you on the next one.