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May 1, 2009 
Insurance is something that most people consider extremely boring. Policies, coverage, riders, exclusions, blah, blah, blah… It is the one thing that we buy that we hope NEVER PAYS US BACK…
We tend to ignore our insurance, until an accident or other event occurs… and then we dive into the small print of our policy with gusto. And sometimes swear at the things that we thought we covered but aren’t.
So, there are two factors that determine what the insurance company is going to charge us for a policy—1) what is the amount of the loss we are trying to protect, and 2) what is the probability of the event occurring.
Just as a simple example, you have Homeowners insurance… let’s say your house and contents are worth $400,000 (not including the land which will still be there no matter what). In a given year, if there is a 0.25% chance of you having a fire or other cataclysmic event that would cost the insurance company that $400,000, then they would charge you about $1000 a year plus their overhead plus a profit for themselves to take this burden. As long as they made proper guesses about the probability, then they will do well, and the 0.25% of people that suffer the huge damage will be able to recover. The lucky 99.75% paid their $1200 safe in the knowledge that a disaster wouldn’t ruin them.
Some things are not big enough to worry about insuring against—when you are able to handle the risk yourself and afford the cost of the event, then this is called being self-insured. Many people with cars that are paid off do not insure their cars against collision (relatively small bucks), but only against the liability claims of someone who might be injured (could be big bucks if death or serious injury occurs)…
In business there are a number of key insurance areas that need to be looked into…
- Automobile Liability
- Home Office
- Business Interruption
- Professional Liability
- And many others…
If you have an Insurance Agent, they are a vital part of your team and you need to schedule a time to review your coverages. Another new concept is what is called a Business Insurance consultant, and these professionals will review all your risk areas, and help you get the right coverages without any bias towards particular insurance companies. This is a great way to proceed if you don’t already have coverage.
Having the proper insurance in place so that the “Black Swan Event” doesn’t cost you everything is a vital asset protection strategy…
Have a safe and well-insured day!
Rob
17 Comments 
Asset Protection, Black Swans, insurance, Liability
(48 comments)
• May 1, 2009 @10:40 am
(51 comments)
