When insurance was going through the R&D process, the basic idea was for a group to share the cost of the risk. This made disaster bearable for everyone. Curiously, it was not really a profitable business. It was more a cooperative venture with any profits plowed back into the group fund, reducing the premiums for all. It was only as the business got more scientific that the profit potential became real. Once the actuaries got working on the math, the probability of the losses could be calculated and a margin built into the premiums. After a while, Lloyds was the playground of the rich getting richer. Now the business model has gone around the world and, almost without exception, all companies selling insurance to consumers have a license to print money.

One of the neatest tricks to make even more profit has been selling consumers on the idea of the deductible. In the early days, you paid the premium and, if there was a loss, you made your claim. That's the point of insurance. You transfer the risk to the insurer. If you wanted to insure yourself, you would save like crazy to give yourself enough cash to cover any claims made against you, and refuse to buy a policy. Now we have people happily agreeing to insure themselves. The way it works is simple.

Here's the premium for the coverage. . . but if you agree to pay the first $$s, we will give you a discount. If you look at the accident statistics, the majority of traffic accidents are fairly trivial with the cost of repairs less than $1,000. So if you have agreed to a deductible of $1,000, every cent of the premium you pay is potential profit with you picking up the bills. Better still, you probably won't claim even for a few hundred more than $1,000 because you know that making any claim tends to trigger a premium hike. In effect, you've been tricked into insuring yourself for most everyday accidents. The only time there's any point to insurance is when your luck fails and you hit something really expensive or injure someone whose loss of earnings is more digits than you see in five years.

So when you're filling out the questionnaire to get those all important car insurance quotes ask yourself two questions. First, if you have two accidents close together, can you afford to pay both deductibles out of your pocket? Let's say you've signed up for a deductible of $1,000. Do you have $2,000 conveniently to hand? Just think how quickly that becomes $3,000 on most credit cards when you can't afford to pay them down quickly. Second, do you really want to become your own car insurance company. For a few more dollars a year, you can transfer all the risk to your insurer. Then you can sit back without worrying. Most companies don't increase the premiums if you make a claim covered by the premiums you've paid. The rates only go up if you make multiple claims. But, if the premiums are a struggle, agreeing to a deductible does keep you insured.