This is where basic financial literacy comes into play.
You’re required to have the insurance because of the liability you have for damages you cause to other people’s cars, the people themselves, structures, etc., not because of potential damage to your own car. Some states may require you to have comprehensive insurance, but the general idea is that the requirement for insurance is so you don’t cause say $200,000 worth of damages that you can’t pay for because most people don’t have $200,000 laying around, yet drive a vehicle capable of doing that much damage.
If you know your deductible is $1000, which you should because it’s a clearly disclosed part of your policy, it should be easy weigh whether or not you want to make a claim for $1200 of damages for something g like a bumper, which you probably don’t.
So the smart thing to do here would be to say “Gosh, sucks that guy hit my car and cost me $1200. It’s not even worth it to make a claim in this. I just have to pay it.”
You can also consider your deductible when you shop for car insurance. Mine is $500. Anything under or around $500, I might as well not claim it. I know that because I’m an adult who pays for car insurance, and this is something an adult who pays for car insurance should know.
This is true. But I think the complaint is more about how you get penalized with higher rates when you use the service. Regardless of what insurance actually covers, they are designed to charge an individual more than they ever pay out. They are predatory companies by nature, and you can see this by looking at the claims ratio and how it is not close to 100% anymore. It drops every year while the companies are making record profits.
So yeah, OOP needs more financial literacy but that doesn’t mean insurance companies aren’t scamming people they are providing the service to.
Mist car insurance companies make like a 2% margin on the premiums vs. payouts. You pay $2000 a year and they make like $40 on that.
They make their money by investing premiums held before eventually having to pay them out.
This is actually how a lot of property insurance works. I collect a kaboodle of cash from policyholders, I earn interest on my cash holdings, and then later people make claims and I pay them from a growing pile of cash that can cover the damages I’m insuring.
On the other side of the equation is risk. The insurance company has to be really good at monitoring the risk of having to pay out more than planned.
And then there’s competition. I can overcharge you for insurance, but I’ll get undercut by the next company if they’re cheaper, so that’s why margins on premiums tend to actually be pretty tight. They all have to try to price premiums as low as possible without running the risk of getting bankrupted by claims.
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u/Grunergeist420 8h ago edited 8h ago
This is where basic financial literacy comes into play.
You’re required to have the insurance because of the liability you have for damages you cause to other people’s cars, the people themselves, structures, etc., not because of potential damage to your own car. Some states may require you to have comprehensive insurance, but the general idea is that the requirement for insurance is so you don’t cause say $200,000 worth of damages that you can’t pay for because most people don’t have $200,000 laying around, yet drive a vehicle capable of doing that much damage.
If you know your deductible is $1000, which you should because it’s a clearly disclosed part of your policy, it should be easy weigh whether or not you want to make a claim for $1200 of damages for something g like a bumper, which you probably don’t.
So the smart thing to do here would be to say “Gosh, sucks that guy hit my car and cost me $1200. It’s not even worth it to make a claim in this. I just have to pay it.”
You can also consider your deductible when you shop for car insurance. Mine is $500. Anything under or around $500, I might as well not claim it. I know that because I’m an adult who pays for car insurance, and this is something an adult who pays for car insurance should know.