Scenario: I pay X amount of dollars per month for car insurance. I have all 4 tires stolen from my vehicle overnight. I submit a claim with my insurance company to repair any damages. I now pay a **hefty** X amount of dollars for the event that has occurred.
In: Other
It helps to understand it if you look at insurance as gambling.
The premium you pay is how much money the company thinks you need to pay to make sure you pay them more money than they think they’ll have to pay you for claims.
Part of that is your “risk profile”. They try to figure out, statistically, how many big and small claims you will make. In theory, if some road debris chips some paint on your bumper you could submit that as a claim the same way you could a more damaging accident.
So they reckon the cost of all of those tiny paint chips adds up. If you want them to pay for those, you have to pay for a much lower deductible, which means your premium goes WAY up because now they’re including, “How likely do I think you’ll need dent repair and other small fixes?”
But if you pick a higher deductible, now you’re responsible for more and more of the repairs they’re predicting. If you’re responsible for more, you pay them less.
Does it balance? Not for most people, they’re in it to profit. But they also have to spread their risk analysis across everyone. Their stats tell them some people will cost WAY more than they pay, so part of your premium is covering those other peoples’ risk too. That may sound unfair, but insurance basically can’t work if people who don’t need it aren’t helping pay for the people who do. That’s part of why US healthcare doesn’t work, we try our best to let people avoid paying in if they don’t think they’ll get sick.
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