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What Insurance Does vs. What Insurance Is

By June 15, 2021Insurance
Blog - What Insurance Does vs. What Insurance Is

Defining what insurance does rather than what it is, and why that matters.

  • Individuals do not understand insurance, because they are told what it is, rather than how the contract gets to work.
  • Different types of insurance companies, and their teams, communicate insurance differently to a potential buyer.
  • Making sure you walk away with your new insurance policy with peace-of-mind, clear expectations, and a sound understanding of what it does, will help you take control of your life and your interests.

“Insurance,” a term that makes individuals cringe, upset, irritated, etc. One that typically does not provide anyone with a positive feeling.

Why does the term, insurance, give someone such a nasty feeling?

Because they don’t understand how it works.

Many times, our office has heard phrases like, “I did not get the pay out I deserved,” “I am paying a ridiculous amount of money,” and, “the government is making me.”

Time and time again, these individuals reach out to us, because of these factors. However, we never hear the positives of what their current insurance is doing for them.

Why is that?

Individuals are unhappy with their insurance, because they do not understand the value of what they are paying for. The value of insurance is lost in translation, when not properly communicated.

When we hear, “I did not get the payout I deserved,” we must ask what their insurance was covering. Often, they were underinsured and did not have the most accurate amount of insurance for their needs.

When we hear, “I am paying a ridiculous amount of money,” we must ask if the amount they are paying for, is covering all their needs. Often, these individuals forget the value of what they are paying for, especially when they do not see returns on their investment.

When we hear, “the government is making me,” we must ask why the government is making them. Often, it is to cover everyone financially in a situation like an accident. Because, if they were called “purposes” instead of “accidents,” then there would be no need for insurance.

Each time we have these discussions, we need to investigate and find out the route meaning of what they are saying.

And what they are saying, is that they do not understand what their insurance is doing for them.

It is on the hands of the advisor to take the time to explain what their insurance does, rather than what it is. If these individuals understood everything about insurance, they would not need an advisor in the first place.

So, what does insurance do?

Insurance provides individuals with a financial “blanket” in the event of a catastrophe that could, without it, financially cripple them and rip their most important investments from their hands.

Their home, their car, their boat, their motorcycle, and even their own life, could financially cripple them or their loved ones around them.

In the event of a “claim,” a request to receive financial compensation at the time of a covered loss, individuals get to see their contracts, and the insurance company, at work.

This is the “doing” part of insurance.

When individuals begin their insurance buying process, the advisor will inform them of what each part of the contract is, and what that cost of the contract will be.

Have these individuals ever had an advisor explain the “doing” part of what they are paying for?

Did the advisor do the due diligence on explaining how that part of the contract will protect the buyer and their insurable interests?

If they have not, the buyer could develop feelings of being “ripped-off” or “swindled”.

So, how do successful, morally right advisors provide their clients with the knowledge and peace-of-mind to fully feel confident in their purchase?

During the quoting, or in our office, proposal process, advisors will go into length on how the contract does its job and what steps you will need to take during a claims process.

Our advisors will walk our clients through a step-by-step claims process before it even happens.

Here is a simplified version of an independent insurance agency’s handling of a claims request:

  • An insurance covered loss occurs.
  • The client then contacts independent insurance agency office with details of the loss.
  • The independent insurance agency contacts the client’s insurance carrier with the claim information.
  • The client’s insurance carrier then assigns an adjuster to the claim.
  • The adjuster will speak with the client regarding the incident and will setup a meeting to inspect the loss.
  • The adjuster will diagnose whether it was a sudden and accidental occurrence, as well as, covered under the insured’s policy.
  • Then, the adjuster will reach out to the client with the determination of the claim and how to get the damages fixed, if covered under the insured’s policy.

This information is crucial to the whole point of insurance, peace-of-mind.

Another example would be our clickable coverage interactive graphics we have located throughout our website:

Risk Factor

Most fires are devastating. Besides the emotional impact, the physical damage to your home can be significant. If you lost your home to fire, do you have adequate insurance to replace your home and its contents? Remember, inflation rates on building materials and construction costs rarely track with real estate values. As a result, rebuilding a home can often cost significantly more than expected.


Make sure your homeowners policy contains replacement cost coverage with no cap. This protects you if the cost to reconstruct your home is higher than your current limit of coverage. And, be sure that your insurance includes rebuilding your home to code. Very often, local ordinances and building codes change over time, which may require additional costs.

Personal Property / Contents - Property Damage
Risk Factor

When your home suffers damage due to an unexpected event, your personal property is also at risk. Furniture, appliances, clothing, electronics, and other personal items can also be damaged or destroyed.


Your homeowners insurance policy typically covers personal property, including the contents of your home and other personal items owned by you or family members who live with you. Make sure your homeowners policy includes replacement cost coverage for personal property so that you always receive the full cost to replace whatever item is damaged.

Additional Living Expense / Loss of Use
Risk Factor

When there is substantial damage to your home due to unexpected events such as lightning, fire, or a storm, you may not be able to live in your home until it can be repaired or rebuilt–potentially incurring additional living expenses for lodging, food, and other daily needs.


Ensure that your homeowners insurance policy provides additional living expense or loss of use coverage to compensate you for the additional costs you incur for reasonable housing and living expenses if a covered event makes your house temporarily uninhabitable while it's being repaired or rebuilt.

Valuable Possessions
Risk Factor

Typically, there is a sublimit on homeowner insurance policies for valuable possessions, such as jewelry, furs, fine arts, and other collectibles.


Obtain a personal floater or schedule your valuable possessions to ensure you’ll have the money to replace them.

Medical Expenses
Risk Factor

If a guest is injured while on your property, even when it’s due to a friendly game of baseball, you may be required to pay any medical expenses associated with their injury.


Your homeowners policy should include medical expenses coverage to take care of injuries and treatment - generally not of a serious nature. In the event a person is injured on your property and requires medical attention, you would be able to submit the injury-related medical expenses to your insurance carrier. Medical expenses are usually paid without a liability claim being filed against you.

Personal Liability
Risk Factor

In the unfortunate event that someone slips and falls while on your property, you and your family may be held liable for any injuries that result.


Your homeowners policy includes personal liability coverage to respond to incidents where injuries or damages occur to a third party where you may be deemed negligent. However, you should consider purchasing a personal umbrella or excess liability policy to provide additional coverage limits to protect your assets in case a lawsuit is brought against you.

Miscellaneous Coverage
Risk Factor

The fun that comes with having a trampoline in your backyard can also be accompanied by serious risks, which may not be covered under your standard homeowners insurance policy since coverage varies from state to state and between insurance companies.


You should make sure your homeowners insurance policy covers your trampoline, as many insurance providers refuse to take on trampoline liability and exclude the item from coverage.

Personal Injury / Defamation
Risk Factor

Young people are usually very active online. However, using social media and other sites can increase the possibility of them directly or indirectly damaging someone's reputation and exposing you, the parent, to a lawsuit.


Your homeowners insurance policy includes liability coverage for property damage caused by any member in the family, but likely does not cover rumors or statements that damage a reputation. You may need to seek additional coverage to include liability protection that covers personal injury or defamation.

Umbrella / Excess Liability Coverage
Risk Factor

You invite guests over for a pool party and one of your guests dives into the shallow end of the pool and is permanently injured. They hire a lawyer to represent them and after a long legal battle, you and your family are left financially responsible for their injuries. Do you have enough money in savings to cover your legal responsibilities as well as the legal defense costs?


An umbrella or excess liability policy increases your personal liability limits by adding protection over and above your current auto, boat, or homeowners policies-providing real financial value, as well as priceless peace of mind. Excess liability insurance is available either by an endorsement to your homeowners policy or available as separate coverage.

Flood Coverage
Risk Factor

You do not have to live near a body of water to suffer loss due to flooding. With the changing weather patterns and more damaging storms occurring around the globe, flood losses are becoming more common in places that are not normally prone to flood damage. Your homeowners policy does not cover damage from flood. Could your home be at risk?


Purchase a flood insurance policy to protect your home and covered contents from certain types of flood losses as designated by the National Flood Insurance Program. A flood policy is purchased as a separate policy through the federal program (NFIP) or through a servicing carrier known as a write your own carrier.

Secondary Home
Risk Factor

Owning a secondary home has the potential of increasing your liability exposures.


Be certain that you extend the liability coverage under your homeowners policy to include your secondary home. You should also consider including the secondary home under an excess liability or umbrella policy to provide for additional liability limits.

Collector Cars
Risk Factor

Collector or classic vehicles often have significant value and require special documentation and unique insurance coverage to ensure they are adequately protected. Even if stored on your property, they are typically not covered under your homeowners insurance.


Insure your collector cars with a specialized insurance company that focuses on and understands the unique nature of collector or classic cars and other vehicles.

Wine Collection
Risk Factor

If you are a connoisseur of wine, you know that it is susceptible to outside environmental exposures that can ruin it. If the collection is damaged, coverage from your homeowners policy is a possible recourse. However, the damage is only insurable if it is a covered cause of loss as outlined in your homeowners policy. A deductible would also apply.


If you have a sizable wine collection, you may want to consider scheduling the collection on your homeowners policy. Doing so expands your coverage and eliminates the deductible in case of a loss. You can also consider unique coverages for wine, such as for spoilage.

Water Damage
Risk Factor

Whether entering from outside your home from a flood or from within your home’s plumbing system, water damage is the most common cause of loss to a home. Many policies exclude losses caused by backup of sewers and drains, and all unendorsed homeowner policies exclude damage caused by a flood.


Careful review is essential to protect your home and belongings from all sources of water damage. We recommend coverage solutions from insurance companies that include backup of sewers and drains. Also, identify cost efficient solutions to address the risk of flood damage in the first place.

Off-Premises Theft
Risk Factor

Surprisingly, standard auto insurance does not cover personal property or contents stolen from your car.


Most homeowners policies offer an option to include off-premises theft coverage as an endorsement, which covers you for theft of your personal property away from your residence.

With these, visitors to our website can click through these graphics and show what might be a covered loss and how the insurance contract works to keep their insurable interests covered.

When advisors communicate what insurance does and go into length on the client’s policies, the value of insurance is demonstrated. The knowledge of an advisor and having the personalized, one-on-one discussions, show the value of what an advisor provides.

The flip side of this would be the “direct” insurance companies, or industry-led companies like Geico, The General, or Safe Auto.

These companies spend their money on marketing efforts, rather than spending it on independent agencies and advisors.

What a majority of first-time insurance buyers end up doing, is calling these insurance companies and focusing on their rate/premium.

These insurance company’s do an excellent job at communicating how much individuals can save by getting their insurance with them. “You can save 15% in 15 minutes by switching to Geico,” for example.

That message is masterfully created because these individuals always hear how expensive insurance “is”.

But, that’s the exact problem with the industry, explaining or capitalizing on the “is.”

Companies like these will give buyers quick quotes, get the most basic information from the potential buyer, and then shoot out a cost, and if it isn’t too bad, they would typically purchase it.

Quoting from these direct companies just tell you what it “is.”

The difference between the direct companies and the independent advisor is the value and understanding of what you are paying for.

Unfortunately, just going to an independent advisor might not immediately solve this issue. Some of these advisors are taught to sell on the price rather than value and will neglect to inform you on how the contract gets to work.

That is why it is important to look around and search for a company that you can trust, demonstrates reliability, and will go the distance for you.

The reliable companies/advisors will be the ones that take the time to go into the depths of the contract and explain to you what the specifics of that policy will do.

Understanding the contract, your responsibilities within the contract, the insurance company’s responsibilities within the contract, and the insurance agent’s responsibility in the contract is essential for understanding the value of what you are paying for.

Take the time to understand your policy. Determine whether your policy accurately represents your insurable interests.


Make sure you understand the difference between what insurance does, rather than what it is.

Gem-Young Insurance & Wealth Advisors is a family business, that does business with individuals and families, that requires comprehensive risk management for their wealth and their assets. They believe clients want professional advice at a fair value and they deliver that by leveraging their reputation of professionalism, integrity, teamwork, and a “get it done right the first-time” attitude.

They believe in making a difference in their clients’ lives.