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Part 1 - Insurance Basics - The Devil is in the Details…

30 September 2013 By In Blog style
Insurance Contract Closing Insurance Contract Closing

What are the benefits of insurance and why should I care?

The picture above is one that hangs in my office and is titled "The Closing", but to me it as easily represents the helpless feeling many people get when trying to understand their insurance contracts. As many of you are aware, insurance is a “dry subject” that you cannot see, taste or feel.

It is the “ultimate abstract product” with the highest cost that you never know if it is any good or not (many times not until it is too late). Most property management companies, as well as most people, would rather do anything (volunteer to handle that irate customer phone call, pump out the septic tank that is backing up at one of your managed properties) but discuss or investigate insurance policies and coverage issues.

In my experience most people will start with the bottom line (cost) and make their decision from that point forward, instead of assessing their company’s particular exposure to risk to best identify the companies needs and tolerance for risk transfer. This is the absolute wrong way to approach something as important as your potential future or failure. What I hope to achieve with this series of articles (1 part published weekly) is to give you a foundation that will make you comfortable with discussing insurance and perhaps a better understanding of what to look for, and what to look out for.

What is insurance anyway? There is the complicated version that goes on for pages “principles of insurance” that basically states insurance is the law of large numbers averaging the losses of a few against the premiums of many at a profit.

Webster’s defines it as: 1) coverage by contract where one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. 2) a means of guaranteeing protection or safety <the contract is your insurance against price changes>

But what is insurance in its most basic definition as it relates to you?

Insurance is a contractual promise to pay for a future unforeseen event(s); It is the act of transferring potential risk from your company's balance sheet to an insurance carrier’s balance sheet allowing you to stay in business.

Once you understand that the sole purpose of insurance is to take away financial risk and uncertainty and protect your ability to remain in business, it gets a little less complicated. One of the keywords in that definition that most people miss is, contractual. I often feel that an insurance agent should be required to take a contract law course in order to become or remained licensed to sell insurance. What we sell as an insurance agent or as program manager, are nothing more than contracts that specify if this happens to you, and then this is what I will do to assist you. The “devil is in the details” applies more to an insurance contract than perhaps any other thing you will purchase for your property management firm or on behalf of your clients.

Most people would never think of signing a contract without first reviewing it, or if it is extremely important and complicated having it reviewed by their attorney. Yet, because an insurance contract doesn’t require a signature by the purchaser, most people write their check, receive their policy and then file it away somewhere to collect dust. I paid the premium and got a great deal so I will worry about it when and if I need it. Sound familiar? Would you ever allow one of your properties or clients to make a purchase or sign a contract without giving it at least a “once over glance?”?

There is an old joke in the insurance industry about a new simplified policy with only one exclusion and one definition that goes like this: Exclusion- “That’s not covered”; Definition- “That” –what just happened to you. The time to find out what isn’t covered isn’t at the time of loss when you are trying to submit a large claim and get the liability off of your balance sheet (get paid); but ideally when you make the decision to purchase a policy to begin with. I am a firm believer in that you get what you pay for and what you don’t know most definitely can hurt you.

When I was younger my parents took me to see the play, “Man of La Mancha” , the infamous story of a man “tilting at windmills and fighting injustice” in that play there was one line that I remember to this day where Sancho says to Don Quixote, whether the pitcher hits the stone or the stone hits the pitcher; it’s going to be bad news for the pitcher…

Our goal here is to make sure that you and your choice of insurance contracts are the stone rather than the pitcher. I will do this in a number of articles to help you make an informed decision, one based on risk assumption/transfer as well as price. Hopefully by the time we are done with insurance 101 you will be in a better position to evaluate your risks and decide on what coverage are worth purchasing and which others you are comfortable with keeping on your balance sheet (paying out of pocket).

Don’t worry the basics are pretty simple and we hope to make it somewhat less stressful for you then requiring you to read every line of every insurance contract you buy. You will note that throughout this series of articles I will refrain from calling it an insurance policy.

Part Two will discuss the basics of property insurance...


Read 4858 times Last modified on Thursday, 12 December 2013 00:24


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