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Why do insurance policies include deductibles and Co-Insurance ?

So even though we pay premiums to have insurance every month or every six months we still have deductibles and coinsurance and the reason for that is what's called the problem of moral hazard and that insurance companies believe and I think you can see why that when the act of insuring an event increases the likelihood it will occur. So in other words if you have insurance you might think oh I can leave my car and lock all the time so something gets stolen I'll get it replaced or I have insurance so I can try a super risky. Jump off the. Golden Gate Bridge maneuver that I've always wanted to try. So because you have insurance people might think I can do whatever I want or I can burn down my house couldn't get the money for it and build a new one. So when you have deductibles and coinsurance it places some of that loss on you. So you are still responsible for a portion of that loss if not for the whole thing at least a better example is you might not worry about walking a car or parking it in a theft prone area. Hopes will be stolen



 If you have insurance. So this way auto insurance will pay for a new vehicle. They don't want that to happen they want you to keep track of your car or your automobile and make sure you're keeping good care of it.

The idea is that the money you get from an insurance policy is not supposed to make you better off. It's supposed to get you back to where you were before the event occurred. If you do purposefully Damage your car or your house it's called insurance fraud. And they take that very seriously and it is illegal.

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