Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 26, 2021

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider. Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.

Anyone who has ever shopped for or purchased insurance has surely asked this question. It can be asked about any sort of coverage, be it for your home or your vehicle.

Many of us feel like we don’t really need insurance, and only purchase it because it is mandatory to operate a motor vehicle or necessary if we carry a mortgage.

Insurance agents regularly hear the complaint from clients who have paid for insurance for x-amount of years without ever having an accident or filing a single insurance claim. However, those people usually sing a different tune when something happens to them or their personal property, and they end up needing that coverage after all.

Having coverage ensures the safety of you and your property, even if it may seem like a waste of money the majority of the time you have it.

Can insurance be looked at as a cheap risk management tool?

The reality of the situation is that insurance is an extremely cheap tool for transferring risk. For every one of us who hasn’t had an accident, we know of someone who has totaled a brand new car, has had a tree fall on the roof of their house, has had something stolen out of their car, or worse, caused a car accident where someone was injured and needed expensive medical attention.

All of the above are risks we take every day by operating a car or owning property. That said, where would those who suffered one of these losses be without some sort of insurance policy to cover their liability or property damage?

Depending on the severity of the loss, the answer is likely bankrupt! Better yet, ask the individual who suffered the loss and was reimbursed how they feel about it. Their point of view is probably radically different than the person who wasn’t given a single penny.

Without some form of protection, someone else’s medical bills, or any damage done to their vehicle in the event of an accident, could see you in dire financial straits. We’re talking potentially thousands of dollars that have to come out of your pocket, because you didn’t have any sort of liability coverage.

If you think out of pocket costs are scary, think about what could happen if they take you to court. There’s such a variety of factors that go into why you should have insurance, but those should be some important ones to consider.

Compare Quotes From Top Companies and Save

 Secured with SHA-256 Encryption

Can you have insurance costs split within a group?

It is important to understand how insurance rates are determined to fully grasp why the costs are what they are. Insurance is a social tool. This means that everyone in the group pitches in, or pays a small insurance premium to benefit the group as a whole.

In exchange for the small premium, the insurer might pay out a vast sum of money at any given time as a result of your negligence or to replace your property if it is stolen or otherwise damaged. The amount the insurer pays out would likely be much more than the average individual could afford at any given time, which is exactly what makes insurance so important.

Some people pay into the pool and don’t get benefits (file claims) while others do. The problem is that you never know when your time to get something will be.

There can be many reasons why an accident happens, and they can unfortunately occur at any time. The best plan of action is to usually be prepared for anything, at any point in time.

Therefore, we must continually pay into the pool to ensure we get the benefits when they become necessary.

Does the cost of insurance vary based on individual characteristics?

An insurance rate depends greatly on individual characteristics, some of which are under our control, and others that aren’t.

For example, when it comes to auto insurers, you cannot help what age you are at any given time (such as a teenager), but you can certainly control how fast you drive, or how expensive of a home or car you purchase or how you manage your personal finances (insurance score). Sometimes your credit score is also used, so keeping an eye on that could be useful too.

You may be wondering why being a teen driver has anything to do with price, but if you think about it from the business standpoint, a younger person is going to be a high-risk driver because they lack driving experience. The older you get, the more you’ll supposedly be driving. Just be sure to keep that driving history pristine!

There are also several discounts available to us (good drivers discountgood student discount) as insured that we can take advantage of when trying to snag a cheap rate.

For home owners, bad credit may be a major factor in why you’re not able to get lower rates on the level of coverage you want for your house. However, it may also be because the crime rate in the neighborhood is higher than the rest of the state average, or that you’re simply attempting to shop with an expensive insurer.

Does it pay to shop around?

Independent insurance agents know one of the biggest reasons a person pays too much for insurance is their loyalty to a particular insurance company, which stops them from shopping around for a new rate every few years.

Often times, people who are insured will mistakenly believe that one particular insurance company is more dependable than another, based on limited knowledge of the industry, or simply by believing in a television ad campaign.

This leads to blindly accepting higher rates each year from your insurance company. Many of the largest insurance companies in the United States also have the highest insurance rates!

While there are less-than-reputable insurers in the U.S., they are few and far between. Each State Department of Insurance aggressively regulates insurance companies who conduct business within their borders.

Insurers must meet strict financial guidelines to ensure they can pay claims and answer to any consumer complaints filed against them. Additionally, a reputable insurance agent will not sell insurance for a company that has a history of poor customer service. It’s bad for their business!

So yes, if you’re a driver or a homeowner, you’re going to see expensive price tags on insuring your property as well as yourself, but the care that you put into buying insurance definitely seems to be worth it.

Just do yourself a favor and shop around for the best insurance rate, while making sure that you have a good idea of the types of coverage that are out there for you.

Read more: Do I need insurance?