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How It Works

Insurance minimizes the possibility of financial loss by transferring risk from one individual to a group, or larger "pool" of individuals.

What's Risk?
Risk is the possibility of loss to you, your family or your property. Basically, there are three types of risks of loss that you face:

1. Personal -- illness, injury or even death.

2. Property -- loss or destruction of the things you and your family own.

3. Liability -- being held accountable to someone else, for damage to their property or even to that person as in the case of injury or death.

An insurance company cannot accept every risk of loss.

What's Risk Management?
To help minimize the economic impact of one of the three types of risks of loss outlined above, individuals transfer the risk of loss to an insurance company in exchange for a predictable expense called a premium. The insurance policy is the contract between the insurance company and the individual requesting that coverage. It spells out exactly what risks the individual is transferring to the insurance carrier, how much the policyholder will pay for this protection (the premium), and how much the insurance company will pay that policyholder should a covered loss occur (the limits of coverage).

The insurance company must look for common characteristics that allow it to figure the probability of loss with a reasonable degree of certainty.

In this way, the insurance company combines the premiums from all of its policyholders, then pays claims from this pool of funds. The insurance company spreads the risk of loss over thousands of policyholders. You benefit because you're exchanging the uncertainty of loss -- the fact that it could happen any time and the loss could cost you any amount -- for a specific premium (your insurance rate) and loss coverage level.

In short, insurance provides peace of mind. You and your family can live without the worry of "what-if?"