Understanding Insurance and Why it Doesn't Cover Everything

For decades, the insurance industry has had an image problem. Many see insurance as a way for insurers to simply rip people off by collecting premiums but not paying out for claims. Insurers are seen as having deep pockets that should pay for everything, isn’t that what it’s for? But herein lies the problem. There are many factors in insurance that consumers don’t understand or take into consideration.

First, insurance is not a social service. It is a for-profit industry providing a particular service to those who buy a policy. The policy is designed to provide coverage for certain losses that can be predicted and rated for. The collapse of the Surfside condominium highlights this; the building collapsed, and many figure that’s what insurance is for. But in order to develop a premium for any type of loss, there has to be enough of those losses for carriers to look at the costs of those losses, make predictions on the possible number of future losses and predicted costs of those losses, so premiums can be developed that will actually allow the carriers to accumulate enough funds to provide coverage when that event does happen.