What is insurance? How does it work? And when do I need to think about it?

Here’s how it works. When you borrow money to buy a house, you can’t afford to pay the mortgage and completely rebuild the house if a fire completely destroyed it. Instead, you pay money, a premium, to have an insurance company take on risks that are too expensive for you to carry yourself. Your premium is determined by the insurance company’s estimates of how likely you are to have something bad happen, and how much it would cost to put you back to where you were.

Your premiums don’t work like a savings account though. The insurance company uses your premiums along with other people’s premiums to cover all the risks. Your premium for a catastrophic fire loss is based on how many fires they have for all their customers in an average year. Even if you don’t have a fire that year, the insurance company is still using your premiums to pay for other people’s fires. By spreading the risk among a lot of people, the company is able to charge you less than they would if you were just saving for your own losses.

For all this to work to your advantage, the insurance company has to know what risks you have. As your life changes, your insurance has to change with it. If you haven’t talked to your insurance agent since you added that brand-new kitchen, you may not have the right coverage to fully restore it. Your agent can help you figure out what the right balance is for you, between paying premiums and covering your own losses if something happens. Some examples of when you need to give your agency a call:

• Did you recently have your roof replaced? Roofs protect your home from weather damage. A new roof may mean you pay less premium.
• Did you start or finish a home remodeling project? These usually increase the value of your home and you need to make sure you are covered for the new value.
• Did you install a new pool or trampoline? This may cost you a little more premium, but if someone is injured using them, you may be liable for significant money if you don’t have the right insurance.
• Did you finally buy that special thing you’ve been saving up for – an engagement ring maybe? Make sure it’s covered so you don’t have to pay for it twice!

If you have any questions about the items above, please give our agency a call at 913.303.8908, or email us at info@maxiainsurance.com and we’d be happy to help you with your home insurance.