Insurance Explained

Happy 2013!


We thought we would start off the New Year explaining the general principles of insurance.

Many people wonder why rates continue to go up when they have not had a claim; therefore we would like to explain the logistics of insurance.

Imagine a giant swimming pool; Insurance is much like that giant pool.

Looks refreshing doesn't it?

When you purchase a policy you are paying into that pool.
If you file a claim against your insurance policy because a roof has been damaged or a car was hit, the claim is being paid out of that pool rather than from the money you have paid in for your premiums.

In addition to that very few people stay with the same company for any extended period of time so you are starting over in a different pool every time you switch companies.

Say a neighborhood of 100 houses is hit with hail damage and they all need their roof replaced. Each roof may cost $18,000 to replace…that means one neighborhood in the U.S. could cost insurance companies $1,800,000 for one storm. Usually these storms hit several neighborhoods in any given region. Millions upon millions of dollars are paid out for just one storm.

Over the course of one’s life, it will take a long time to pay $18,000 in insurance premiums to account for the value of a roof replacement. Example: if your homeowners premium is $1,000 a year, it would take 18 years to pay enough premium to pay for the roof replacement that was claimed on your policy.

Because of the high rate of storms we have had in 2011 and 2012, insurance companies have needed to increase premium rates to be able to cover everyone within the "pool" mentioned above which we all share.

It may be very frustrating and inconvenient but we can all find comfort in knowing that if we get hit with some bad luck we will have insurance to fall back on. Insurance is there for those catastrophic losses.

We hope this has shed some light on the operations of insurance companies.

As always, if you have any questions or need clarification we are always willing to talk to you!

We at Mars Insurance hope that 2013 will be your best year yet!



Mary K. Marsh

Mars Insurance Agency Inc