Tornadoes Make $7 Billion Disappear from Insurance Industry

June 9th, 2011


(photo credit: Mike_tn)

Here’s how insurance works for you: Instead of paying $200,000 to rebuild your house after it’s been destroyed in a natural disaster, you pay $200 a year (called a premium) to an insurance company that will cover the whole bill in the event that such an unfortunate thing occurs.

Here’s how insurance works for insurance companies: A lot of people pay you $200 a year for protection against the very unlikely possibility that their house will be destroyed in a natural disaster. You profit.

(Of course, you have a team of people with calculators and maps who spend every single day figuring out the likelihood that your customer’s house will, in fact, be destroyed in a natural disaster. If the odds look good, you’ll either charge them a higher premium or refuse coverage altogether.)

Here’s what happened between May 20th and 27th: Hundreds of tornadoes destroyed $7 billion in property, which the insurance companies now have to pay for. That makes 2011 the most expensive year EVER for these companies.

But… better them than you, right?

Here’s why you need insurance.

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