The concept of insurance is basically very simple. If you have something to lose and can't afford the loss yourself, you pay for insurance. Paying for it every month gives you peace of mind that if something goes wrong, the insurance company will pay for the things, you need to get your life back to how it was before the loss.
What Is The Insurance?
When you buy insurance, you make payments to the insurance company. These payments are called "fees".
In return for paying an insurance premium, you are protected against certain risks. The insurance company is obliged to compensate you for losses if they occur.
You can buy many types of insurance, including auto, home, life, health and disability insurance.
How Does Insurance Work?
When you buy insurance, you make payments to the company. These payments are called "fees". In comparison, you are protected against certain risks. The company is obliged to pay you in case of damage.
Insurance is based on the idea that spreading the risk of loss, such as fire or theft, among many people reduces the risk for everyone. An insurance company has many customers. They all pay premiums. Not all customers are at a loss at the same time. In the event of damage, they can receive insurance money to compensate for the damage.
Not everyone needs to buy it, but insurance is worth buying when there is a high financial risk or investments. However, if third parties have a financial interest in the property, such as a bank with a mortgage, insurance is usually required to approve the loan.
Why Does The Bank Require You To Be Insured?
Some insurances are not required by law. Lenders, banks and mortgage companies require this if you have borrowed money from them to make a major purchase, such as a house or car.
Insurance is required to buy a car or house with a loan. If you have a car loan, you need auto insurance, and if you have a mortgage, you need home insurance. It is often necessary to obtain a loan for large purchases, such as housing.
Lenders want to make sure you're protected against risks that could cause your car or home to depreciate in value if you suffer a loss before you've paid it off.
Getting a Good Price on Insurance
A premium is the amount of money an insurance company charges in exchange for the financial protection your policy provides. You can pay monthly, every six months or once a year.
If you want to lower your premium, shop with a company or use a broker who can shop for you. Find out which company can give you the best price by getting at least three quotes. Interest rates vary based on the way claims are processed and the policy of the insurance company.
Remember that If you let your car or home insurance lapse, your lender will put their own insurance on it and charge you for it. This is not a good idea. Lender insurance is more expensive than the policy you would buy on your own.
Some businesses may have discounts designed to attract certain types of customers. How well your profile matches that of the insurer will affect your rate.
For example, if an insurance company wants to attract young customers, it can create programs that offer discounts to recent graduates or young families.
Other insurers may create programs that give higher discounts to seniors or military personnel. Without shopping around, comparing policies and getting quotes, there's no way to know.
Why Should You Buy Insurance?
There are three reasons why you should buy it:
It is required by law, just like your auto liability insurance.
The lender requires it, for example to buy a home and get home insurance.
The financial loss may be more than you can afford or recover from easily. For example, if your apartment has expensive computer equipment, you should buy renter's insurance.
What Is Personal Insurance?
Personal insurance is any type of insurance that is not commercial. You buy it to protect yourself against financial losses that you couldn't afford to cover yourself. It refers to the risks you may face through accidents, illness, death or damage to your property.
Basic Types of Personal Insurance
When most people think of personal insurance, they probably think of one of these five basic types, including:
Occupancy Insurance, such as home, apartment, or condo insurance, or renter's insurance.
Car insurance and insurance for other vehicles such as motorcycles.
Boat insurance, which in certain cases can be covered by home insurance, and separate boat insurance for vessels of a certain speed or length that are not covered by home insurance.
Liability insurance that can be in any of these groups. This protects you from a lawsuit if another person's loss is your fault.
Although you can get some of your insurance from one company, it is not a guarantee.
Insurance requires permission and is divided into groups. This means that before anyone can legally sell or advise you on it, they must be licensed by the government to sell and advise on the type you are buying.
For example, your home insurer or agent may say they don't offer life or disability insurance. They can refer you to an agent in their area who is properly authorized to sell you insurance.
What Does a Residential Policy Cover?
Home insurance covers the buildings of your property. This includes the main residence and all other farm structures. It also covers apartment contents, goods stored at home, living expenses if you have to give up your home after you disappear, and liability.
Renters insurance covers the property stored in your rental apartment and the living expenses to vacate the home in case of loss. This also includes personal liability in your home and around the world.
Apartment or co-op insurance is similar to renter's insurance. In addition to your personal property, living expenses and liabilities, it also covers a number of issues related to ownership of a unit or shares in a building.
Note: It is always important to check the fine print of your insurance policy, as not all policies are created equal.
Car, Boat, and Other Vehicle Insurance
Car, boat and other vehicle insurance policies offer many options covered. The easiest is liability insurance. It covers your liability for the ownership or use of the vehicle or vessel. You can also buy additional insurance, such as against damage to the vehicle itself or to the vessel and its parts.
Depending on state financial responsibility laws or minimum auto insurance requirements, additional or mandatory options may be added for other medical payments and for death or injury resulting from the use of the vehicle.
Health, Life, and Disability Insurance
Health, life, disability and other less common types, such as long-term care, all provide coverage that pays you for events related to health, illness or death.
Health insurance includes many types of insurance. In addition to other health policies, such as dental or long-term care, you will find basic health benefits. There is a wide range of insurance types to suit your needs.
Some Insurance Policy Terms You Must Know
These are some of the key phrases you'll find in the fine print of your policy. You should know what they mean.
- Deductible is the amount of money you pay for advertising. The higher the deductible, the more risk you take, but the lower your payments. Some people choose a high deductible to save money.
- Exclusions: not covered by your insurance. It is important to ask about the exclusions of the policies you purchase so that the fine print does not surprise you in the event of a claim.
- Type of insurance: Companies offer different levels of insurance. If you get a really good price from the offer, you should ask what kind of insurance you have or what the limits are. Compare this information with information from other citations.
- Special Limits: All policies contain specific sections that list limits on the amounts to be paid. This applies to all types of policies, from health to auto. It becomes urgent when a claim is made. Ask what protections are limited and what the restrictions are. If the limits shown on the policy apply to you, you may often wonder which type of policy offers you higher limits.
- Waiting periods and special clauses: Some types of insurance have a waiting period before you are covered. For example, you may have a waiting period for dental treatment. With life, you may find yourself in competition.
- These are just two examples. You always want to ask when you will be covered. You should also ask if there are any waiting periods or special clauses that may affect what you get when you buy a new policy.
- Endorsements are policy add-ons to provide greater coverage. In some cases, they can change the policy to reduce or limit coverage.
The basis on which claims are settled will greatly affect how much you will be paid. You should always ask how compensation is paid and what the compensation process is.
How Do Insurance Companies Pay Claims?
If you have an accident, such as a car accident or fire, call your insurance company right away and report it. They will record your claim and investigate it to find out what happened and how you will be protected.
If they determine that you are covered, they may send you a check for the damage, or perhaps a repair shop if you were in an accident. The check is your loss minus the deductible. You pay for it out of your own pocket.
Premium vs. Claims Payments
If you've been paying for insurance for years, you might start to wonder why you've paid so much when you've never had a claim. Some people even think they should get their money back if they don't have a claim. That's not how it works. Insurance companies collect your money and set it aside to make payments in case of claims.
This is the concept of "shared risk". The idea is that over time the money paid as compensation will be less than the premiums collected. If you never make a claim, you may feel like you're throwing money out the window, but knowing you're covered in the event of a major loss can be worth its weight in gold.
What Makes Insurance Rates Go up or Down?
Consider this example to help you see how premium and claims payments differ.
Imagine you pay $500 a year to insure your $100,000 home. You have 8 years of making payments, and you’ve made no claims. That comes out to $500 times 8 years. This means you've paid $4,000 for home insurance.
You start to wonder why you are paying so much for nothing. In the 9th year, you have a fire in your kitchen, which must be replaced. The company pays you $20,000 to get your kitchen fixed.
If the insurance company gave everyone back their money when there was no claim, they would never build up enough assets to pay out on claims. Even the $4,000 you paid them over 8 years doesn’t cover your $20,000 loss.
If you have even one loss, you become unprofitable to the company. Because insurance is based on spreading the risk among many people, it is the pooled money of all people paying for it that allows the company to build assets and cover claims when they happen.
What Are Agents, Captive Agents, and Insurance Brokers?
Insurance is a business. While it would be nice for companies to keep interest rates the same all the time, the reality is that they need to make enough money to cover potential claims from policyholders.
When a company adds up the amount of claims paid and insurance premiums at the end of the year, it must adjust its interest rate to make money. Changes in the insurance business and the rise or fall of interest rates are based on the results of the insurance company in recent years.
The main people you deal with when buying insurance are the agents and brokers who represent the insurance company. They explain what products they have.
A captive agent represents only one insurance company. They know the products or offerings of that company, but cannot talk about other companies' policies, prices, or product offerings.
An insurance broker or independent agent can deal with more than one company on your behalf. They have access to more than one company and need to know the range of products offered by all the companies they represent.
How to Decide What Coverage You Need
You can ask yourself some basic questions to help you decide what kind of coverage you need.
For example:
- How much risk or loss of money can you take yourself?
- Do you have money to cover your expenses or debts in case of an accident? What if your home or car is destroyed?
- Do you have savings to cover if you cannot work due to accident or illness?
- Can you pay a higher deductible to lower your costs?
- Do you have special needs in your life that require additional protection?
- What worries you the most? Rules can be tailored to your needs and identify what you are most concerned about protecting. This can help you narrow down the policy you need and keep costs down.