What is the one thing that you are required to buy? I can only think of one thing that an individual is ever required to purchase and that is only if they want to drive. That item, INSURANCE, and the amazing part, not once is the concept of insurance taught in grade school, high school, or college. On the other hand, we teach how to mix chemicals, how to buy stocks and bonds, and physics and all sorts of other skills that for the most part, don’t enter into our everyday lives. But the one thing that effects us all, and it looks like health insurance will be included, is not emphasized. No wonder we have a big problem with costs. What is insurance and how exactly does it work? First known example of sharing risk (insurance) goes back to approximately 3,000 B.C. and of course China. What they found is that when trading, they would send a ship full of certain cargo (let’s say silk), another full of other cargo (let’s say gunpowder) and a third full of food. If one of the ships went down, they lost all of that cargo. The other two ships probably made it but it only meant that they had lots of silk and gunpowder but no food. Not really a good thing. So someone, really smart, decided that if you sent the same three ships but put equal amount of silk, gunpowder, and food on each, and one of the ships were lost, you still had two ships with all three goods on board. Yes, there was less of each, but you wouldn’t starve. This was the first known “risk sharing” or what we know today as insurance.
What has this to do with today? Well the basic idea of sharing risk has been replaced with a mentality of insurance being like other products and the lowest price is best answer. When you buy a TV, you compare a 32 inch to another 32 inch and whichever one is cheaper, you purchase. When it comes to insurance, it is not that simple. How much RISK are you retaining? Too many times, the consumer is retaining way more risk than they can afford. Let’s take car insurance for an example. There are commercials that I see on TV that tout that the consumer can determine their own price. Wow, there is a novel idea. Let’s do that with my above, do you think I can purchase my 32 inch TV by naming my own price? With insurance, it works the same way. If you lower the premium, in most cases you have decided to retain more risk. Using car insurance as an example, by increasing my risk, I can lower my premium. If I purchase a policy with $25,000/50,000 liability limits, I am saying that I will be responsible for all costs above $25,000 when I harm someone else. I am not sure, but the person trying to have the lowest price is more than likely the one who does not have the means to pay all costs above $25,000.
Health insurance is much the same. Many people don’t realize the amount of risk they are retaining when they purchase a health insurance policy. Do you know how much risk you are retaining? I would love to pose that question to the general public. I think it is high time that professional agents take the approach of educators and quit allowing others to paint them as pushy salespeople. Only by educating the consumer can we actually make any difference in the future costs of healthcare and insurance.