Reader’s Question:

How is life insurance risk different from auto insurance risk? I’m from Detroit, Michigan.

Adam

Detroit, MI

For you to understand the difference between the two, you have to know first what life insurance is and what auto insurance is. Life insurance or life assurance is a contract between the policy holder and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual’s or individuals’ death or other event, such as terminal illness or critical illness. In return, the policy holder agrees to pay a predetermined amount called a premium at regular intervals or in lump sums.

On the other hand, auto insurance risk selection is the process by which vehicle insurers determine whether or not to insure an individual and what insurance premium to charge. Depending on the jurisdiction, the insurance premium can be either required by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Most of the time, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.

To answer your question, the major difference between auto insurance risk and life insurance risk is that, while you can only die once, you can have many auto accident claims. The details can be far more varied, with losses for things like liability, medical payments and physical damage.

Tags: auto insurance, auto insurance premium, high risk insurance