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Motorcycle insurance: A quick recap before the spring riding season get under way...

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What is Motorcycle Insurance? This question is often asked by young and inexperienced riders, as well as some of us who have just think of it as a 'levy' on riding our bikes!

You can go to the insurance web pages, pages, or a technical book for an explanation of motorcycle insurance in real detail - but here's my simple recap in everyday terms that hopefully anyone can understand:

An insurance company is like a big, community savings scheme. The scheme is open to the motorcycle insurance companies customers, whoever they may be. Everyone contributes into a big pot, in case someone needs to withdraw from it on a 'rainy day'.

For example: At its most simple level all the players on a soccer team could contribute $100, which is the premium in insurance jargon, towards an end-of season payout (claim) for one player. The payout could be for the unluckiest, injured or anything, but for motorcycle insurance it is for accidents - so there is say 20 players , that 20 times 100 = $2000 available for paying out . A payout would be a claim on your motorcycle insurance.

Now, lets say this season did not produce any really bad injuries and the team only decided to pay $500 to Brad who broke his leg in the last game. This means that there is still $1500 in the fund - so to keep the fund at the $2000 level, the team only needs to make up $500 next season, which makes each players contribution (premium) $500 divided by 20 = $25. This is the equivalent of a drop in your motorcycle insurance premium.

But imagine Brad had broken his leg at the first game, and he had to sit out the season as well as miss work. The team did not think the $1500 went very far, so they might decide that the pot should be twice as big, in which case $3000 divided by 20 is $150 each.

This is a very simple explanation of how motorcycle insurance companies work. Insurance companies have powerful financial models that are able to predict the risk of different extents of risk.

It's easy to understand that if you are a young rider on a Hayabusa who has already had a couple of wrecks and citations is more likely to claim than a rider who has ridden for 20 years without mishap.

Real insurance companies must follow government guidelines regarding business practices and also keep a big fund in reserve in case a lot of motorcycle riders crash in a short time. In addition they have to pay their bills, employees and of course shareholders. So the pot of money available to you as somone who pays motorcycle insurance premiums is never as much as you think it is. If you take into account the level of accidents, which tends to increase year on year, and the fact that this will almost always puch up the amount of money you pay to the motorcycle insurance company, you can see it definitely makes it worthwhile shopping around for your motorcycle insurance.

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