When I used to work at an insurance company, people would come in with the expectation that they are simply depositing money in an account. In their minds, insurance policies are very much like bank accounts.
You keep putting money in and when the accident or disaster comes, you get to withdraw the full amount. I wish I could tell that that’s how it works but it doesn’t. When it comes to typical accident insurance, you are simply engaged in a bet.
This means that in a certain period of time, when you paid your premium and the accident happens within that timeframe, your insurance company will make you hold. They will pay you money to get you to the situation where you are in before the accident or loss.
This is a far cry from a bank deposit situation. With a bank deposit, you put money in over an extended period of time and by the time you need to make a withdrawal, you get access to all the money that you’ve put in. With insurance, you only get access to the insurance limit for your policy. Thankfully, this is many times what you pay in a year in premiums.
The downside to this is the previous years’ payments are completely discounted. In other words, they don’t count. So even if you take out an insurance for, let say, a half million dollars, then you get in an accident with damages amounting to exactly half a million dollars, you should make that claim when you were still covered by the insurance policy. Normally, people don’t have a problem with this. Normally, they would make a claim within the valid period. But if you get out of that window by not paying your premiums on time, there’s going to be a problem because like I said, insurance works by only covering you for the period that you paid the premium for. The insurance company is under no legal obligation to cover your losses if you do not pay your premiums. If your policy is expired, the insurance company has no obligation to pay you.
Another issue here is the amount of coverage you get. Please understand that there are policy limits. Your insurance policy will state that maximum amount of dollars they can pay for your damages. They are not going to pay a penny more unless certain special circumstances are present. Other than that, which usually involves a lawsuit, you’re stuck with policy limits. Keep this in mind because if you get a clear understanding of these factors, then you would know full well that an insurance policy is not like a bank account. Keep this in mind so you can make better insurance decisions.