The allure is there, no doubt. Convenience sells. And add to that, the prospect of cutting out the middleman to put a couple extra dollars back in your pocket, self service is drawing insurance consumers in droves. I am talking about online insurance rating platforms; where you can quote and buy insurance online without ever having to talk to another person. But there is a catch. A BIG catch. One that the consumer won’t discover until possibly too late. Let’s dive into this problem and then uncover the solution.
Before we get into too much detail, first we must define a couple of terms:
Assumption of Risk —If a person knows the consequences of a particular act and voluntarily accepts that risk, they are solely responsible for any resulting injury.
Transfer of Risk — a risk management technique whereby risk of loss is transferred to another party through a contract (e.g., a hold harmless clause) or to a professional risk bearer (i.e., an insurance company).
Now that we have those defined, lets very briefly explain, in layman’s terms, the 4 types of Risk Management – Acceptance, Avoidance, Reduction, and Transfer.
Acceptance – I buy a home in cash; I have no legal obligation to insure because I have no mortgage. I decide to assume all financial risk associated with the home and do not purchase any insurance. If my home burns to the ground, I will pay out of pocket to rebuild.
Avoidance – I don’t buy the house.
Reduction – I install an automatic water shut off system in the house to protect my home from water damage.
Transfer – Calling an insurance agent to insure the house.
When you eliminate the insurance agent, you eliminate the “transfer” of risk. Thus, retaining the responsibility to, not only read your entire policy, but to understand your policy coverages. You are essentially forfeiting your “I didn’t know better” defense, which could cost you hundreds, thousands, or possibly even hundreds of thousands of dollars.
Think you’re smarter than the average insurance agent? Do you know the difference between replacement cost and actual cash value? How about the difference between Comprehensive and Collision coverage? Maybe. What about the difference between a named perils and an all risk policy? Can you name the perils of the named perils policy? Can you tell me how much coverage you have on your current homeowners’ policy for Jewelry, Silverware or Firearms should they be taken by theft and not fire? Did you even know there were separate limitations put on those items for loss by theft?
If you answered “no” to literally any of those questions, buying an insurance policy by yourself is probably not a good idea. I liken purchasing an insurance policy direct online, to representing yourself at a criminal trial with zero legal background. Just because you’re allowed to do it, and it could possibly save you money upfront, doesn’t mean you should risk it.
There’s a popular myth that says buying insurance through an insurance agent will cost you more because they get paid commission. Sure, that’s how we make our living. But any good insurance agent worth her salt will have the know-how to more fully protect you, which could save you boatloads of money when you actually have to file a claim. I’ve seen enough people in my career who bought insurance on their own without the help of an agent who wished they could go back in time and make sure everything was covered, instead of facing down an enormous bill due to an uninsured claim.
Those with less to lose might find the convenience and cost savings motive enough to pursue purchasing, maybe even now you feel the risk is worth it. But if I’ve done my job right as an independent insurance agent, hopefully you can now clearly see a flaw that isn’t talked about enough. One which has potential catastrophic consequences for consumers.