The basic elements of risk, coverage and exposure are what determine the kind of insurance you need to buy, how much insurance you need and how you can best manage your own risk to help keep costs to a minimum.

When you pay your premium to an insurance company:

• Your premium dollars are combined with premiums paid by others
  • This is called risk sharing or pooling risk
• The insurance company then groups you with others with similar risk of having a loss
  • This is called classifying risk and is the key factor in determining the cost of your insurance
• The higher the risk factors, the more you can expect to pay for insurance
• The more you do to prevent or avoid the risk of loss, the less you can expect to pay for insurance