Car Insurance General

Discussion in 'Auto Insurance Forum' started by andyto2, Jan 3, 2017.

  1. andyto2
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    andyto2 New Member

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    Hey.

    I had some basic questions about auto insurance and I guess insurance in general, that I guess are so basic I cant figure out the assumptions o.O

    My friend has been paying for auto insurance for years without any accidents. So if he stops driving completely why cant he get his money back??!!

    That's thousands of his dollars paid for absolutely nothing??!! It just seems like a blatant societal scam to me. The insurance company pretty much stole thousands of his dollars in my eyes, now that there's no risk of him damaging another's life or property with a car.

    I've read about car insurance refunds, all I can see is that you can get refunded for prepaid insurance...So you paid for a years worth, sold your car at 3 months you get 9 months refund.

    Edit: I am not suggesting the Government take over auto insurance lol its just a discussion, I want to know what I'm fully getting into before I buy a car.
     
    Last edited: Jan 6, 2017
  2. djs
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    djs Super Moderator Moderator

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    Actually, your friend got a LOT during those years of paying insurance. He drove with the piece of mind that if he got into an accident, it would be covered. Basically, he paid to transfer the risk of an accident from him to the insurance company.

    Over the years, he paid significantly less because he had no claims and was deemed a good risk. If he had claims, he would have been deemed a higher risk and paid more.

    Of course, you can look at it the other way. If you pay $500 in insurance and then get into an accident that cost $50,000 to repair, why should the insurance company pay anything over the $500 you paid? That is the risk they took in exchange for your $500.

    Legally, its a bit strange. Your insurance policy is a contract. Most contracts require both parties to provide value for the contract to be binding in court (one sided contracts don't typically work). With insurance you pay and get ?????. Well, in reality, you get a promise to pay, but that isn't really something in most contract talk, which makes insurance policies what they call an aleatory contract. Pretty much they get by with promising to pay for a covered event (loss) in exchange for your premium. Its a very unique situation, but its the only way insurance works to the consumers benefit.

    Dan
     
  3. mattupthehill
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    mattupthehill Expert

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    So does your friend get a refund for his Iphone Warranty after it expires? Would you get a refund for a bullet proof vest if you didn't have to use it? Same concept! Insurance is a business it's not a government handout.
     
  4. andyto2
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    andyto2 New Member

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    Thanks for the reply Dan

    Since there are so many situations where insurance companies make $$ from drivers with little to no accidents, there must be situations where a person dies or something with a huge accident on record that the insurance company paid most of?

    The insurance company seems to have all the power in the contract. They can jack up your rates after an incident to whatever they want? I would hope if the industry is not government owned than at least they're regulated; I feel like its wrong for an insurance company to make a profit directly from consumers, insurance companies and the insured as a whole should input the same amount of $$.

    ----------

    Its illegal not to have auto insurance where I live, if it wasn't I wouldn't be posting.
     
    Last edited: Jan 5, 2017
  5. VolAgent
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    VolAgent Guru

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    Step back a moment here.

    Someone could pay one month's premium, perhaps even as low as $50 or less depending on all the factors. Go out and get into a serious accident that will reach or exceed policy limits, which may be $100,000, $300,000 or even more and the insurance company will pay it to protect their insured, per the contract.

    That is a lot of responsibility, and it is immoral for the company to make a profit? Yes, you said large, large is relative. When you consider the money involved, these companies typically do not have high profit margins as a percentage of revenue.

    Yes, most people will never be in, much less cause an accident where the injuries are that severe. But for those that do, the insurance was priceless.
     
  6. indienoise
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    indienoise Guru

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    Your friend paid an agreed upon rate for the insurance company's promise to pay for a covered loss, if it were to occur.
    Did your friend have six figures in liquid capital on hand at all times in the event of a loss? If not, then he got exactly what he paid for. While, yes, the insurance company did make a profit on your friend, auto insurers as a whole actually lost money last year - the amount of claims paid exceeded the premium collected.

    If it eases your mind, the insurance industry IS regulated, and all rate changes must be filed with the state and approved before the change can take effect (unless you're GEICO, apparently they can do whatever the heck they want and get away with it, so if you want a target put them in your sights).
    However, if you want the state to take over auto insurance, step back and look at the ACA and tell me you REALLY want that nightmare in your life. I sure dont, not when my newborn son was in insurance limbo for a full 11 months before the exchange could figure out what to do with him. I am no fan of Trump, but the repeal of ACA is one subject I will cheer for him on.
     
    Last edited: Jan 5, 2017
  7. DCInsurers
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    DCInsurers New Member

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    Wouldn't it be great if it worked like that! Your friend paid for Peace of Mind he transferred the risk of driving an automobile to the insurance carrier. He received adequate coverage in exchange for the premium collected.
     
  8. LostDollar
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    LostDollar Guru

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    I like that. My current vehicle has been hit 3 times by other people. Rearended once by an uninsured driver and hit twice, while parked, by hit and run drivers.
     
  9. djs
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    djs Super Moderator Moderator

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    Actually, insurance companies have very little power in the contract. They are approved by the states dept of insurance (DOI), along in most cases with rates.

    Rating factors have to be statistically proven. For instance, if you look at it long enough, you will realize that someone who had one accident is statistically much more likely to get into a second accident. It happens all the time. Yes, insurance companies are one of the most regulated businesses in the world. This does have a big pricing impact on your rates, but those increased rates protect you at the same time.

    I really don't understand your comment about insurance companies and the insured should input the same amount of $$$$. Can you elaborate on this? Insurance companies get money from one place, the premiums they charge. They don't have a bucket of money to pay claims that didn't come from premiums as some point. (disclaimer: yes, I know about reserves, but those are either saved premiums or large investments to allow them to write policies). How can an insurance company pay a claim if they don't make a profit one day to pay losses the next?

    Dan
     
  10. Heather
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    Heather Guru

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    There seems to be a general attitude of entitlement these days.

    1. 22 year old woman thought car insurance was based on your income.
    2. another lady thought monthly payments waived if you loose your job.
    3. If you don't receive the bill in the mail you don't have to pay that month.
    4. My favorite "you mean I have to pay this every month?" the girls voice sounded so damn stupid and shocked when I told her she was about to cancel. She thought when I said $100 a month she paid $100 then didn't pay until the month - the following year.
    5. I need the insurance card to go register my car at the dmv, then when I get the plates I will come pay for the insurance, she was totally shocked that she had to pay in order to get the insurance cards.
     
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