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RISK MANAGEMENT
The primary means of controlling risk is through Insurance. If you are
extremely wealthy you may assume you're own risk levels and carry high
deductible insurance but if you are that wealthy you are probably not
reading this. For most of us insurance is not an option but a necessity.
We covered homeowner and life insurance earlier. My focus for this section
is automobile insurance.
If you drive most states don't allow you the option on this one. You
must carry insurance. If you have a car loan the lien holder will also
require you to protect their interest. When you consider that new cars
sell for $15,000 to $30,000 and up and that accidents may involve several
vehicles you can see that an accident may involve $100,000 in property
damage even if you are driving a $2500 vehicle. When you add the cost
of injuries your liability can be hundreds of thousands of dollars.
I'm not a fan of insurance agents. I don't trust them to tell me the
most cost-effective way to insure myself. I have to do my own research.
Rates vary greatly and you should compare the rates of several reputable
companies for the same coverage. You should also check whether the company
you choose pays its' claims in a reputable way.
Let me include some incidents in my experience. You won't have to search
far to find friends with similar experience. I purchased my first auto
insurance at 1/2 the going rate. I was really proud of my shopping ability
till I got my first ticket. Then the company threatened to cancel me
as a risk driver. I discovered that by being canceled I automatically
became a risk driver for all other insurance companies. My rates would
quadruple. This unscrupulous company offered to maintain my insurance
if my father would transfer his car and homeowner's insurance to them.
We then found out that they had done the same thing to my cousin. After
a few cycles they raised the rates. My point is that you must check
the rates and the reputation of the company you deal with.
If your budget is tight and your insurance expires stop driving until
it is activated. My wife has a day care customer who was rear ended
by a woman in a new car. The woman was financially stressed and had
let her insurance expire. She was driving a brand new car and both cars
were totaled. That's about $30 to $35,000 in damage and no insurance.
This woman broke the law and is faced with an awesome financial liability.
If you don't care about yourself consider your victims. When I was five
my family was in a collision with a driver with little or no insurance.
My mother was in a hospital bed for six months and was crippled for
life. She should have received over a hundred thousand dollars in damages
in the early 1950's. Our insurance paid her hospital bills. We choose
not to sue the driver for everything he would ever own partly out of
pity for him and partly because we would destroy his life and most of
the money would have gone to legal costs. Not every victim can be counted
on to let you off the hook. I don't believe you can bankrupt your way
out this type of liability judgment. It is your responsibility to take
care or your financial future and provide for potential victims if you
ever contribute to an accident.
There are two ways to control cost and risk in auto insurance. You can
carry a low or high deductible and you have a wide choice of upper liability
levels.
Let's start with deductibles. You can carry anything from $100 to $
1000 or more deductible. That's the amount of damage you must pay before
your insurance covers higher losses. You have to pay more for lower
deductibles. Smart money managers will usually tell you to carry a high
deductible. If you don't have an accident in one or two years you will
save more in premiums than the deductible. But when you have an accident
you have to pay the deductible part of the repair. You must ask yourself
how much you can afford to come up with when you have that accident.
The other major factor in insurance cost is upper liability. You may
see expressions like 30/100 or 50/200. The first amount is the amount
in thousands per vehicle or person and the second figure is the amount
per accident. There are amounts for bodily injury and for property damage.
There is a minimum requirement in most states. If you carry the minimum
and an accident costs more than that limit you are responsible for the
higher amount. That loss can eat up future income, savings and investments
and equity in your personal property. You can choose to protect your
own assets or you can choose to provide adequate protection for other
motorists that share the road with you.
Finally for this section there are the extras. They can add up in premiums
but may be good loss prevention. Comprehensive covers losses like broken
windows, deer collisions and damage that may come from something other
than a car collision such as fire and vandalism. The least expensive
and perhaps most valuable option is the uninsured and underinsured option.
This covers you when the other guy doesn't carry enough insurance. Because
Minnesota requires insurance this rate is fairly low for good additional
coverage.
Bob Berens, Copyright Pending
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