Insurance Basics

Insurance is something you buy that protects you against an unexpected financial loss based on the terms of your contract. The insurance company pays you or someone else when something bad happens. If you don't have insurance and something happens, you may wind up being financially responsible for any costs associated with the accident. Insurance can also help pay for routine things, like medical checkups and dental care.

- Health Insurance
Health insurance helps you pay for doctor visits, prescriptions, and surgeries. Like any insurance, it is important to understand the terms and what is covered in your policy. Some medications, procedures, or doctor offices may not be covered. It is also important to understand what your deductible and copay may be under your health insurance as that is the amount you agree to pay before your insurance kicks in.

- Life Insurance
Life insurance pays someone you choose, known as a beneficiary, a select amount of money when you pass away. This money is meant to help you family cover and bills or living expenses after you pass. The two most common types of life insurances are term and whole life. Term life insurance pays out money if the insured person passes away during the term of the life insurance policy. These terms typically range anywhere from one to thirty years. Whole life insurance does not have a term limit, and as long as payments are being regularly made, will pay out money whenever the insured person passes away.

- Auto Insurance
Auto insurance protects you from paying the full cost of any vehicle repairs and medical expenses in the event that there is an accident or collision to the vehicle. There are usually multiple tiers of auto insurance but the most common include full coverage, which covers practically any incident; liability coverage, which covers the damage and injuries to others if you are at fault in the accident; and collision insurance, which covers damage to your vehicle in the event that you get into a vehicle collision. There are many other tiers of insurance, but many states require you to have some type of auto insurance on any vehicle you operate, and most financial institutions require you to have full coverage on any vehicle you have financed.

- Homeowner's/Renter's Insurance
Homeowner's and renter's insurance helps cover your home and the items inside your home in the event that there is a theft or damage to the home, like a fire, storms or burst pipes. This insurance helps cover the cost of the repairs needed and the replacement for the items taken or destroyed. Typically, if you have a mortgage you are required to have homeowner's insurance. Renter's insurance isn't required by some landlords, but some do require it. Landlords typically have their own insurance on the building, but this insurance usually will not cover a loss to the renter.

- Flood Insurance
Flood insurance typically covers your home in the event of a water damage specifically due to flooding. Most homeowner and renter's insurance policies do not cover damage from floodwaters caused by external events like rain, snow, storms, collapsed or failed infrastructure. Most mortgage companies require flood insurance if you live in a FEMA (Federal Emergency Management Agency) flood plain.

- Claim : An insurance claim is a request submitted for your insurance company to pay for something that they cover in the policy you signed.

- Loss : The injury or damage sustained by the incident or accident.

- Premium : The amount you pay for your insurance, whether monthly, quarterly, bi-annually, or annually.

- Total Loss : When the property you have insured, like a vehicle, is damaged to a point that it can not be recovered or repaired to use in the future. An exception to this is when a vehicle is salvaged. A salvaged vehicle may still be usable but it is important to check with your mechanic or insurance company for more information.

- Policy : The document outlining the terms and condition of the insurance. This includes coverage, payments, deductible, etc.

- Policyholder : The person or entity who has purchased and owns the insurance policy. In some instances, the policyholder is different than the insured. For example, this can happen when the company you work for purchases a life insurance policy for you. Your employer is the policyholder, but you are the insured person.

- Exclusion : A clause within an insurance policy that eliminates coverage for certain circumstances, property, perils, hazards, etc.

- Deductible : The amount you have to pay before your insurance starts to pay.

Insurance policies typically cover from one point in time to another before needing to be renewed. When you purchase an insurance policy, you have to pay what is called a premium. Some premiums are paid monthly, but premiums can also be paid in full or a few times every year. How much you pay typically depends on how much of a risk you are deemed to be with the insurance company. For example, if you drive a lot, you may pay more for auto insurance than someone who barely drives.

Most insurance policies also have some form of deductible. This is the amount that is required that you pay first before the insurance company pays their portion. Some insurances allow you to change how much your deductible is, but doing so typically comes with a change in the cost of your premium. A lower deductible typically comes with a higher premium.

It is important to read through the policy before agreeing to pay the premium as insurance policies will only pay for items that are laid out in the policy.