Alberta Risk Advice by Cielito Villanueva

When was the last time you looked at your insurance policy? Have you ever considered if the deductibles in your policy reflect your insurance philosophy? To be specific, ask yourself if you believe that insurance is a maintenance contract. For instance, let’s say you have minor damage on your shop’s entrance from an attempted burglary. You get an $1100 estimate to repair the entry locking mechanism and broken glass. The policy deductible for your shop is $500. You decide that since you’ve been paying premiums for the last five years with no claims that you will let the insurance cover the remaining $600 and you’re perfectly entitled to do so. A few months later on your renewal you notice your premium went up by $800 so you’re infuriated because you feel that you are being penalized for a claim that you had every right to make. But hold on a second. The insurance company did not raise your premium; they merely did what they had every right to do which was to remove the claims-free discount. Was the claim worth it? Some might feel it is and they are the ones who feel that insurance is a maintenance policy.  To claim any minor losses they encounter; a philosophy that is neither right nor wrong, but I can almost guarantee they are not paying the lowest premium possible.

On the other hand, there are those who believe that they want to go through years and years of paying the least amount of insurance premium while maintaining effective coverage. These folks are the ones who carry high deductibles which gives an additional deductible discount on top of a claims-free discount. Their insurance philosophy is that they will only ever expect to use their insurance in a catastrophe. For example, an electrical fire in a shop causes $35,000 in direct physical damage as well as an additional $115,000 in losses due to the business being shut down for three months for repairing the damaged section of the shop. This totals $150,000 in damages for which the shop owner paid a $2500 deductible. The following year his policy renews at $1,000 more per year and will remain so for the next three years for not having a claims-free discount.  So after years of paying low premiums he paid out a $2500 deductible and $1,000 in higher premium for the next three years which totals an additional $5,500 out of pocket. Was that loss worth claiming? To the shop owner it was because the insurance company paid out $147,500 to repair their shop and replace the lost revenue for being closed for three months.  One must be convinced that this scenario gives clarity to the benefits of an insurance policy.

In the end, both philosophies exist and both are very valid, but only you can decide which philosophy to go with. When you have given it a great deal of thought, get in touch with your broker to make the necessary changes that reflect your philosophy.