Almost every American has at least some form of insurance. For example, according to USA Today, six in seven drivers have automobile insurance. Likewise, slightly over 90% have health insurance.
However, in many of these situations, purchasing insurance was not a choice. On the contrary, auto insurance is required in 48 of the 50 states, with New Hampshire and Virginia allowing drivers to operate a vehicle without insurance. Similarly, about 84% of people with health insurance receive coverage automatically from their employer or a government-sponsored plan like Medicare or Medicaid, with only 16% of Americans choosing to buy health insurance.
However, purchasers receive many benefits of being insured. These benefits of being insured will vary depending on the type of insurance and the claims that can be made. Here are ten benefits of being insured:
Spread the Risk of Loss
The primary benefits of being insured comes from the underlying theory of insurance — spreading the risk and cost of loss. Insurance works by signing up as many clients as possible and spreading the risk of loss across a large pool.
So, for example, if the risk of having an auto accident is about 3%, an auto insurance company with 1,000 clients will, on average, have to pay for about 30 accidents every year. It does this by using the insurance premiums from all 1,000 clients to pay 30 claims. In effect, the clients who did not suffer an accident help pay claims for those who did.
Under this theory, all 1,000 clients were protected from loss, even though only a random 30 clients actually had a loss. More importantly, the cost of those claims was spread out. The premiums from 1,000 clients were pooled to pay for the claims. This means that rather than paying 100% of the damage suffered, as would happen if a driver were uninsured, the driver only paid the annual premiums which usually amounts to only a small percentage of the claim. For example, for a $30,000 policy, a client might pay a few hundred dollars per year.
Provide Peace of Mind
Particularly with health insurance, one of the benefits of being insured is peace of mind. Specifically, illness or injury can happen at any time. Without health insurance, any medical problems could go untreated and result in permanent disability or even death. With health insurance, however, the insured knows that medical treatment will be paid by the health insurer for any illness or accident.
Even more importantly, buying a policy from a health insurance agency protects the insured from bankruptcy. As discussed above, health insurance spreads the cost of medical claims out so that no single patient has to carry the full burden of those costs. To do this, however, an insurance pool must include both clients who are healthy and have a lower risk of medical claims along with clients who are not as healthy and, thus, are more likely to file medical claims.
However, every client is protected against health problems, regardless of their current health condition. Thus, a client who has a heart attack unexpectedly will be entitled to the same benefits as a client who has a history of high blood pressure. This provides both clients with the peace of mind that their health and finances are protected by their insurance policy.
Health insurance companies know that one of the best ways to reduce insurance claims is to keep their clients healthy. As a result, health insurance companies often cover preventative health services, such as immunizations, annual checkups, and wellness visits, for their customers. These services provide one of the most important benefits of being insured — improved health.
One technique for being able to offer these services to all their clients is for insurance providers to own medical clinics. Because the doctors and support staff in the clinics are employees of the health insurance company, costs can be contained. This allows the insurance company to provide medical services to all their customers without running up the costs.
Another technique is called health insurance claims repricing. In this technique, the insurer and medical provider negotiate a price for covered services. The benefit to the health insurance company is cost containment and the benefit to the medical provider is being able to accept all the customers of an insurance company at the negotiated price.
Protection Against Lawsuits
For businesses and homeowners, one of the most important benefits of being insured is protection against lawsuits. For example, a property owner is liable for slip-and-fall injuries suffered by guests on their property. If the property owner’s property has a known hazard and a customer or other invitee to the property is injured as a result, the guest can sue the property owner for medical expenses, lost wages, and other damages suffered as a result of the accident.
When a property owner has an insurance policy from a home insurance company, the policy will cover any damages suffered by the guest. Specifically, rather than suing the property owner, the guest would file a claim against the owner’s property insurance policy. If the claim falls within the scope of the property insurance policy, the claim would be paid, thereby negating the need for the guest to file a lawsuit.
If the property owner’s insurance company denies the claim, however, the guest may file a lawsuit naming both the property owner and the insurer. When this happens, the insurer is usually obligated to provide legal representation to the insured party. Thus, in this example, the insurance company would provide a property insurance attorney to defend the property owner in the lawsuit.
In practice, this can take two different forms:
- Insurance company hires the lawyer: In some cases, the insurance company will hire the lawyer to represent the property owner. Although the insurance company is paying the bills, the lawyer’s client is the property owner and is required to take instruction from the property owner.
- Property owner hires the lawyer: Some insurance companies prefer to avoid the potential risk of a conflict of interest by allowing the property owner to hire the lawyer directly. The lawyer either works out a payment agreement with the insurance company or receives payment from the property owner, who is reimbursed by the insurance company.
Protection of Assets
Their home and car are, for most Americans, the most valuable assets that people own. One of the key benefits of being insured is the protection of those assets.
Every home or automobile policy provides some protection against loss. For example, even cheap car insurance will pay for repairs to damage to the vehicle that results from a car accident.
Depending on the policy, the insured party may need to meet a deductible before their insurance company pays for additional damages. However, the asset protection is there if the repair bills exceed the deductible amount.
Assistance in Buying a Home
Most mortgage lenders require homeowners to carry homeowners’ insurance and this requirement will be written into the loan documents by the mortgage lender’s attorney. Depending on the location, the mortgage lender may also require flood insurance. The reason is that until the mortgage is paid off, the home and land belong to the mortgage lender. As a result, the mortgage lender requires you to protect its asset.
However, this requirement is not just for the protection of the mortgage lender. Without flood insurance and homeowner insurance, it would simply be impossible to build in much of the country. That is, if you needed to pay to rebuild if a flood, hurricane, tornado, snow or ice storm, earthquake, or wildfire damaged or destroyed your home, you would never be able to afford the home. In fact, without insurance to cover these losses, home builders might not even build homes in areas at risk of disaster because no one would want to take on the risk of buying the home.
Home insurance protects the homeowner in the event of damage to the home from a covered event. Some events require separate policies. For example, flood insurance is almost always separate from a homeowner’s policy because the U.S. government requires flood insurance to meet certain requirements and provides assistance to flood insurers to meet those requirements. However, the benefits of being insured during a flood are that you are covered against damage to your home, and even the loss of your home, so you can rebuild.
Protect Tenants and Rental Homes
Landlord insurance is a particular form of homeowner’s insurance that covers:
- Damage to your home and property caused by tenants.
- Injury to tenants resulting from hazards in your home and on your property.
For a landlord, the benefits of being insured are that the landlord will not be responsible for paying for damage caused to the rental property that falls within the policy. This allows the landlord more freedom to rent without being overly obsessed with the risk of damage.
Simultaneously, the policy protects tenants. If the rental property has some hazard, such as a broken garage door that injures a tenant or damages the tenant’s car, the tenant may receive compensation for the accident by filing a claim against the landlord’s insurance policy.
Depending on the insurer, a claims adjuster will likely review the claim and determine if it falls within the scope of the landlord’s policy. If it does, the insurance company will pay the claim. If it does not, the insurance company may deny the claim and the tenant will be forced to battle with the company’s insurance attorney to get the claim paid.
Fortunately, these types of lawsuits can usually be handled by a personal injury attorney. The personal injury attorney can try to negotiate with the insurance attorney to get the claim paid or, if that fails, file a lawsuit against the landlord and insurance company. Once the lawsuit is filed, the lawyer can then apply pressure to either settle the case or try to get a jury to award damages. In many cases, insurers and landlords will settle the case to reduce the risk of being hit with a large damages award by a jury.
Protect Your Business
Business insurance can take many different forms including:
- General business liability: General business liability policies are intended to protect customers and even bystanders from damage caused by a business’s employees. For example, damage to a fence caused by a tree-trimming company would be paid by the company’s insurer. This would be the case even if the fence belonged to a neighbor of the customer rather than the customer.
- Professional liability: Professional liability policies protect lawyers, doctors, accountants, dentists, and other professionals from malpractice claims. If a client alleges the professional failed to provide services that are reasonable under the circumstances, the insurer is responsible for defending the professional in a lawsuit and paying any damages incurred by the client.
- Property insurance: Property insurance protects your office, shop, restaurant, or other place of business against damage or loss. For example, property insurance would pay in the event of a fire. Property insurance also protects against injuries and damage that occur on a business’s property. These injuries are not limited to slip-and-fall injuries. They also include injuries caused by poor lighting, broken stairs and railings, falling objects, or other hazards on the property.
- Workers’ compensation insurance: Most states require employers to participate in the state’s workers’ compensation system. This system pays claims for on-the-job injuries to employees regardless of fault. This means that a worker can receive medical treatment and, in some cases, wage replacement if the worker is injured at work even if the worker was partially or totally at fault. Workers’ compensation is provided by the employer, which means that staffing services that provide workers to other businesses must maintain workers’ compensation insurance for those workers in most states.
- Product liability insurance: When a business puts goods into the stream of commerce, it is responsible for any injuries or damages caused by defective goods. Product liability insurance protects the business against claims that the goods contained a design defect, such as a dangerous chemical that could not be safely used, a manufacturing defect, such as an improperly manufactured product that breaks under normal use, or a warning defect, such as a lack of safety stickers.
- Business continuity insurance: Business continuity insurance protects a business’s revenue against natural or man-made disasters. For example, if a storm knocks a tree over onto a shop, the shop’s business continuity insurance would cover the business’s revenue while the shop remains closed for repairs. However, business continuity insurance would not cover the repairs themselves. For that, a business would need a property insurance policy. This form of insurance was of special interest during the recent COVID-19 pandemic which resulted in many businesses being shut down by government order. Unfortunately, most business continuity insurance policies only apply if there is physical damage to the business’s property, which excluded most businesses shut down by the pandemic.
The benefits of being insured apply to both individuals and businesses. These benefits include financial benefits, such as protection of assets and protection against lawsuits, at a premium cost that is much less than the damages incurred. However, many of the benefits of being insured are less tangible. For example, the peace of mind from having health insurance in case of injury or disease to yourself or your family has immeasurable value.