Once in a while we get a question like this. We fielded a call from someone recently who wanted to know,
Assume I buy this policy, do I get a refund if I don’t have renters insurance claims? Since I didn’t cost the company any money, shouldn’t I get back everything I paid?
Do I Get The Cost Of Renters Insurance Back If I Have No Claims?
If I don’t have claims, how do I get my money back for renters insurance? How long does the company have to cut me a check?
Can I Get A Refund If I Don’t Have Renters Insurance Claims?
Nope. Why? If you go up to Saratoga and bet on the ponies, do you get a refund if you lose? If your horse naturally won, of course you collect on that bet. But you don’t get money back if you lose the bet. Insurance boils down to you betting you’ll have a claim, and the insurance company betting you won’t. Of course, it’s not quite that simple.
The insurance company pools and invests the money you pay them in premiums. That money is used to pay claims or create reserves for paying large claims. One way or another, the insurance company pays the money out, but to the deserving party per their contract in the policy document.
Insurance premium payments are in fact, payment for a service even if you don’t have a claim. You’re paying the carrier to assume the risk if you have a claim as defined in the policy document. Risk transference in return for a payment is one form of risk management. You can also engage in risk avoidance, which is helpful and can lower home insurance premiums in some situations. Although, it doesn’t take the place of transferring the risk to a company with the reserves to handle it and the actuaries to calculate the odds of the risk occurring.
On the opposite side of the coin is what’s called risk retention. That’s the amount of risk that you maintain responsibility for under the terms of the insurance contract, if insurance is purchased. Generally it’s a very low amount such as $500 or $1,000, and referred to as your deductible.
True self-insurance would also be risk-retention, but complete self-insurance in practice is often a losing proposition and rarely practiced as the only form of risk management by any enterprise. If Apple won’t retain 100% of their risk, keeping in mind the mountain of cash they’re sitting on, the average individual certainly shouldn’t be retaining all risk. Insurance is about reducing and controlling risk, and it’s nearly always the best way to handle personal risk.
Envision someone with no assets, but a $500,000 auto liability policy and the same limits for uninsured motorists. They are betting that they won’t get into an accident that will cause more property damage than that. Because uninsured motorist bodily injury limits generally mirror the liability coverage one carries, this hypothetical person is also betting that they will not incur more than $500,000 of bodily injury from an accident where someone without insurance is at fault. If they’re not comfortable with that, perhaps because they’re already under medical care for an illness that would be greatly exacerbated by injuries sustained from an uninsured driver, they can add an additional umbrella policy that can cover uninsured motorists as well. Understanding your risk is the first step to knowing how much coverage you need. Everyone needs coverage, it’s just a question of how much.