Insurance: It’s all about that bass

Okay, so a title like ‘It’s all about that safe (no mayhem)’ would make Weird Al proud (and be more appropriate for insurance) but not quite as eye-catching – my apologies to Meghan Trainor but the tune was in my mind this morning.  Now, what kind of segue will I need to share some content you may find interesting; how about the word “aleatory”?

Two of the things people seem to struggle with is what insurance is about: why they need it and how it works! Let’s talk about my favorite word from my licensing studies; aleatory.  Insurance is simpler to understand in that it is an aleatory contract which is defined as:

  • A contract type in which the parties involved do not have to perform a particular action until a specific event occurs. Events are those which cannot be controlled by either party, such as natural disasters and death.

Aleatory contracts are historically related to gambling, and appeared in Roman law as contracts related to chance events. The main thing to know is that payouts are unbalanced; until the insurance policy results in a payout, the insured pays premiums without receiving anything in return besides coverage. When the payouts do occur, they can far outweigh the sum of premiums paid to the insurer.

Did I really say gambling?  We all gamble; the important thing is that we make smart bets.  The problem comes when people do not understand what they are wagering.  Are you willing to risk your entire life savings on a spin of a roulette wheel? How about that same bet by getting into the car and heading to the park?  Do you know the risks you face every day and what you have in place to protect what you love?

One of my favorite things is working with a client helping them decide on what coverages are appropriate for their situation.  It is a balance on making sure that they are in compliance with the law and with lenders or other interested parties while fitting their budget and their risk tolerance.  Here I go again, “risk tolerance”?

Often used in investing, risk tolerance is defined as “the amount of risk that an ‘investor’ is comfortable taking, or the degree of uncertainty that an investor is able to handle. Risk tolerance often varies with age, income and financial goals.” I am not a gambler “per se”, so my risk tolerance is pretty low, making me “risk averse”.  As far as insurance, that means I am more likely to carry slightly higher insurance  amounts than my friends, and then look for other areas of my budget to save money.  Have you had this conversation with your agent?  Does she or he know what you expect, what you value, and whether you are protected?  Do they contact you annually to make sure your situation and needs has not changed?

If you are in Ohio or Pennsylvania, contact me for a quote; if you are in any other state, contact me for a referral to someone who cares about helping you.  As we say “An 800 number can’t look you in the eye and tell you it will be okay”.

jeffspring@allstate.com, http://www.springfamilyinsuranceagency.com

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