Understanding the importance of insurance

An unexpected occurrence, such as a death, disability, or other personal loss, is certainly not the type of event for which you can easily plan. Yet, the financial ramifications can be staggering—not only for you, but for your family as well. Therefore, it is important to make a risk management plan part of your overall financial strategy.

Insurance, in all its varied forms, is simply a method for handling risk. In order to plan an effective insurance program, you need to consider the risks to which you and your family are exposed and how financial loss could affect you. For each risk exposure, the key elements to consider are the severity and frequency of loss.

All Risks Are Not Created Equal

In certain situations, insurance is required: For example, some states require a driver to obtain auto insurance in order to receive or maintain a license, and some lending institutions will not approve a mortgage application if the potential owner does not also purchase homeowner’s insurance. While a base level of coverage may be required in these instances, you, as the insured, still may choose the amounts and levels of coverage purchased, according to your specific risk needs.

Some risks may be so negligible that you may decide to accept more responsibility for any potential loss. In insurance language, you “self-insure” for risks you choose to accept. For example, it is rarely cost-effective to carry a large amount of collision coverage on a ten-year-old automobile. Since collision coverage generally pays actual cash value, and since a ten-year-old car may have little value, it is common to self-insure collision coverage in such cases. In making this choice, you assume responsibility for any accidental damage that you might cause to the vehicle.

In contrast, in other situations, the risk is so large (or the cost of self-insurance so great) that the best strategy is to try to avoid the risk entirely. You practice risk avoidance in daily life when you decide something is “not worth the risk.” In addition to required coverage, you may customize insurance to protect against certain extras according to your needs. For example, it may be wise to purchase a policy rider for your homeowners policy if you own an antique art collection that is worth more than the value provided by standard coverage.

Sometimes, risk can be reduced by taking extra measures to control the potential conditions that may lead to loss. For instance, installing an auto-mobile anti-theft device or a home security system may reduce the chances of burglary to your car or home.

Risk Transfer and Risk Sharing

Buying insurance is the process of transferring risk you cannot afford, or choose not to accept. Since you may be unable to afford to rebuild your home and replace all of its contents in the event of fire, you may choose to transfer that risk to an insurer by purchasing the appropriate amount of homeowners insurance. However, even in situations of risk transfer, it is quite common to share some of the risk. For example, the deductible on an automobile or homeowners insurance policy is a form of risk sharing—you accept responsibility for a small portion of the risk while transferring the bulk of the risk to the insurer.

Taking a closer look at the types of risks that you and your family face on a daily basis can help you answer questions such as the following: What is my risk level and how much of that risk can I afford to carry? What types of insurance, in addition to required coverage, might I need? And, how much coverage should I purchase? The fundamental rationale behind all forms of insurance is the ability to determine which risks can be transferred on a cost-effective basis.

If you would like to review your current insurance coverage in light of your needs, give us a call. One of our qualified professionals would be happy to assist you.

Getting more miles from a tank of gas

With volatile gas prices and mounting concerns about global warming, conserving gas has become a national priority. While trading in your car or truck for a fuel-efficient sub-compact or hybrid may not be an immediate option, there are strategies you can use to minimize gas consumption while continuing to drive your current vehicle.

Tests conducted by Ford Motor Company have demonstrated that the combination of inefficient driver habits and vehicle maintenance can result in a 38% loss of potential fuel economy. The following steps may help your car cover longer distances on each gallon of gas:

Monitor tire pressure. Under-inflated tires create rolling resistance and lower fuel efficiency. By keeping tires inflated at the highest recommended pressure level, you can improve your car’s gas mileage by around 3.3%, according to the U.S. Department of Energy (DOE). Proper inflation also lessens wear on tires and reduces the risk of accidents due to tire failure or blowouts.

Get regular tune-ups. Because malfunctions cause the engine to work harder, cars that aren’t regularly maintained tend to burn more gas. Problems such as clogged air and fuel filters, faulty oxygen sensors, or worn and dirty spark plugs can lead to a dramatic drop in fuel efficiency. Getting a tune-up at least every 30,000 miles can save on gas and protect the engine from damage.

Monitor brakes and wheel alignment. Improper wheel alignment and the drag of poorly adjusted brakes can lower gas mileage. A simple inspection can reveal whether an adjustment or realignment is needed.

Park in the shade. Because gas evaporates in the heat, parking your car in a cooler spot during the summer can conserve fuel.

Do not allow your car to idle for more than a minute. Turn off your car if you plan to stop for more than a minute, as idling for longer periods uses more fuel than turning off and restarting the engine. Also, avoid warming up a car, as it is unnecessary with today’s engines.

Eliminate excess weight. Take the junk out of your trunk. Each additional 100 pounds of weight a vehicle carries can cut gas mileage by up to 2%.

Slow down. Fuel efficiency falls sharply in most cars when they are driven at speeds above 60 mph. In fact, the DOE estimates that you may pay an extra 20 cents per gallon for every 5 mph you drive over 60 mph.

Curb aggressive driving habits. Acceleration, rather than sustained cruising, accounts for nearly half the fuel burned in city driving. Accelerating smoothly from a standstill consumes much less gas than a sudden start. Use of cruise control on the highway can also improve mileage.

Find ways to drive less. To avoid long waits in traffic, telecommute for at least part of the week or schedule your commute for off-peak hours. Look for opportunities to carpool with neighbors and co-workers, or check out rideshare programs in your community. Take advantage of public transit if it is available in your area. Avoid making frequent trips to the mall by taking care of some of your shopping online. You may also want to try walking or cycling to nearby destinations.

Combine trips. Making several trips from a cold start uses more gas than making a longer trip during which the engine remains warm. By planning your route in advance and finding ways to combine errands, you may also be able to reduce the amount of time you spend driving.

Monitor your fuel economy. You can keep track of your car’s gas mileage by maintaining a log of the odometer reading and the number of gallons pumped each time you fill up. In addition to alerting you to possible engine trouble, a fuel economy log will also make you more aware of your gas consumption habits.

Your vacation: an invitation to burglars?

Returning to a burglarized home can be a shocking surprise after a relaxing vacation. Unfortunately, an empty home may be an easy target for burglars, and peak vacation times show the highest number of break-ins. However, there is good news. Taking the time to make your home less inviting to potential burglars may help prevent theft or damage while you are away.

Making your house look occupied while you’re away is a key factor in helping to deter burglary. One way to do this is to suspend mail and newspaper deliveries. You might also leave shades, blinds, or curtains in their normal positions. Consider connecting your lights and a radio to an automatic timer. Ask a neighbor to put out your garbage and mow your lawn. Finally, and most importantly, make sure all windows and doors are locked.

Before you leave for vacation, try to make your home as burglar-proof as possible. You may feel more confident coming home by taking the right precautions before you leave. Your trip will be much more relaxing and enjoyable if your home is safe while you’re away.

Replacement parts: denting your wallet?

Every year, the insurance indus- try spends huge sums for parts and labor to repair vehicles damaged in auto accidents. The high costs are due, in large part, to the price of manufacturers’ replacement parts, which often carry expensive price tags. Unfortunately, these costs are ultimately reflected in your auto insurance premiums.

LKQ—Is It for You?

The good news is that there are alternatives to expensive manufacturers’ parts. They are called quality replacement parts, also known as like-kind quality (LKQ) parts, and they typically cost less. Bear in mind that insurers are obligated by their policies to provide policyholders with replacement auto parts that are equal to or better than those of the original manufacturer. Hence, neither quality nor safety is compromised, and the cost savings often range from 25% to 40%.

Does Profit Compromise Safety?

Insurers are concerned about safety as much as you are, because safer vehicles mean fewer and less expensive accidents. LKQ parts meet the same rigid specifications as the original parts, are made in state-of-the-art factories, and are generally comparable in quality to those made by the original manufacturer. Some reputable makers of quality replacement parts offer warranties that match, and often exceed, those offered by the car manufacturer.

If your vehicle is damaged, LKQ parts may be a safe and affordable option. They are an example of how the insurance industry is always looking for new ways to help keep your premiums down while providing the quality service you deserve.