When deciding whether to purchase a specific line of insurance coverage to protect your health, income, or property, it helps to understand what the purpose of insurance is. An insurance policy is not about minimizing the risk that something bad will happen to you; it's also not there to pay for your pain and suffering. The goal of an insurance policy is to make you whole after experiencing an unexpected insurable incident and to keep you whole after a liability claim.
How Insurance Makes You Whole
For policies that protect tangible assets, such as contents coverage in flood or Houston home insurance, the concept of making you whole may be based on the actual value of your lost assets or it may be based on the replacement value, which does not take the depreciation of your property into account. Other property, such as your dwelling, may be regarded in terms of its rebuilding costs rather than property values or comparable sales in your area.
In terms of liability coverage, your insurance policies will keep the injured individuals whole by reimbursing them for certain expenses related to their medical care and damaged property. This also helps to keep you whole by allowing you to preserve your savings rather than spending it on the liability.
Understanding Policy Boundaries
Insurance policies can only make you whole within certain limits. For instance, your policy may have a deductible that requires a certain financial contribution from you before insurance benefits kick in. Additionally, your policy may have a limit that puts a cap on the amount of damages it will pay for.
The idea that you can be made whole within these confines makes insurance an extremely powerful product, but also one that must be self regulated. Because insurance is meant to make you whole, it is not going to pay out amounts that have been over insured. For example, if the value of the contents in your home total $100,000, but your policy’s limit is $150,000, your insurance company will pay out only the actual or replacement value of your property (depending on the terms of your policy) which, in this example, is $100,000. It will not pay out the additional $50,000 that is over insured. When you've insured your stuff from more than it's worth you could be wasting valuable premium dollars.
Give us a call at 877-349-0200 today and we’ll work with you to create an insurance portfolio that accurately reflects the value of the items you want insured and keeps you, your family, and your financial future whole.