Thursday, August 2, 2012


    During a conversation with a friend years ago, the topic of auto insurance came up. My friend felt that she should be reimbursed for the fee she paid to her auto insurance company since she did not file a claim while she was covered under the policy; she felt like she gave away her money to the insurance company for nothing and could not understand why she was required by the state to purchase auto insurance. What she and I failed to realize at the time is that purchasing an auto insurance policy is to our benefit and auto insurance companies like other insurance companies incur a risk by insuring policy holders.
     When a insurance company sells an insurance policy, it assumes liability for what the policy holder would otherwise have been held responsible for had the holder not purchased the policy. The insurance  company is selling a product and must therefore be compensated for it. For example, if my friend purchased just the minimum auto insurance policy required by the state of New Jersey(liability insurance) and not an additional comprehensive policy, she would not assume the cost of fixing someones property or pay the hospital bills of people injured in an accident in which she is at fault up to the maximum dollar amount purchased from the insurer but she would assume the cost of fixing her car if it was damaged by a fallen tree trunk, flood or fire.
   So think of the proverbial "penny wise pound foolish" when you are thinking of skimping on getting the insurance coverage needed to protect you from unexpected medical or liability costs.


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