Homeowner assurance Claims Process 101 - What Is Insurance?

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Insurance has been defined in many ways, including "spreading the risk from the few to the many". This working definition contains two concepts that we need to discuss. First we need to look at the view of risk.

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Risk is:
A compound of hazards with an uncertainty of loss measured by probability. If we know that an event will occur, there is no uncertainty, which is why one cannot insure the risk of loss from people with pre-existing curative conditions for the treatment of those curative conditions. What we can do is dispell the known and foreseeable losses by charging everybody else in the insurance pool for the upcoming and foreseeable losses. This has been coarse for large groups of employees where the one or two workers with cancer have their incredible curative treatment spread over the other workers premiums before the "unforeseen" risk of the wholesome worker's potential for cancer is calculated. Property insurance is not usually sold as a "group" risk so there is no reasonable way of insuring a house that is already on fire and spread it to other homes that are not.

One should understand that the view of a "pooled" risk is considerably separate because the pool is made of a large amount of insured, sharing the same geographical, climatic or political impact such as being in a flood plain, In a high crime city or an area where repairs and replacements are more or less expensive than national norms. All have equal risks of loss but as a group have higher or lower incidents because of their location.

An insurance policy is not a gamble as in, will the Chicago Cubs win the World Series next year (or ever). One can compute odds, but not actuarially compute risk as the event will happen, not randomly, but as a effect of definite activities such as selection of players, coaches and strategies. Lightening hitting Wrigley field can be calculated and many feel a more likely catastrophe than the aforementioned team winning the World Series.

It is said that for most of us, our single largest economic asset is our homes. Almost all of us would suffer a devastating loss if our home and its contents were destroyed by any means. We own both the asset and the risk of losing all or part of the asset. The destruction of just the roof, can effect in many thousands of dollars in cost and the additional loss or damage to contents if the roof is partially or totally destroyed. A roof, like all else including the house itself, has an incredible life and somewhere in the future, repairs, maintenance and exchange of part or all must be made to attain and extend that life. If a roof shingle has a 20-year rating, the maker suggests that it should be replace within twenty years. One can plan and save for this event by saving 5% of the exchange cost, each year. Nobody does, but we could. In fact, a roof seems to go bad or a storm damages it when least incredible and most devastating to personal finances. This is the risk that insurance was invented to cover.

Insurance does not and will not cover manufacturing defects or builder/contractor incompetence or malfeasance. Builders cut corners and use shoddy materials to contain costs. Building codes changed, often requiring more expensive and best work and materials than when the Building was first constructed. insurance has no selection but to pay for current costs of yielding but Never pay to correct structural insufficiencies from the maker or former contractors. insurance pays for what contractually insurance policies limit the risk on the insurance business to pay.

As an example, All homeowner's policies pay for the damage wind and hail visit upon roof shingles but not the underlying damage that the same hail stone might have done to the wood decking under the shingle. The policy will pay for shingle and felt exchange but not for insulation that was or should be in the middle of the roof and the interior ceiling as that insulation should have been installed prior to the factory of the roof.

The second view is "spreading" the risk. As previously stated, we own both the asset of our house and the risk of damage or destruction of that asset. As stated, it can be an economically catastrophic event if and when, unexpectedly and prematurely, a roof and interior damages must be borne by us. insurance limits the damage to each of us from a catastrophe to the annual cost of our insurance premiums by spreading the risk to our neighbors who are paying premiums to the same insurance company. The formulation of an insurance premium is based on the calculable risk evaluation, adding of operating and marketing costs, executive costs and profits and the combining of thousands of other policy holder's premiums to pay for the damages when they occur. This is why insurance is described and defined as "spreading the risk" from one or a few to the many (all other insured in the same pool of risk).

Contracts of insurance are aleatory and contracts of adhesion. An aleatory covenant is a covenant in which the operation of one or both parties is contingent upon the occurrence of a single event, death, sickness, accident, fire, flood, etc.

An adhesion covenant is a standardized covenant form that offers goods or services to consumers on essentially a "take it or leave it" basis without giving consumers the capability to negotiate terms. When this occurs, the buyer cannot acquire the desired stock or aid unless he or she acquiesces to the form and terms of the contract.
By law and rules and regulations, we can't even negotiate price as the state insurance commissioner would reconsider a discount as an illegal kickback or rebate or discriminating against other policyholders.

Bob Michaels, Jd - Managing Member - Git Er Dun Roofing Llc

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