What is Insurance?  Do I need it? What are the costs and benefits?  These are all common questions and there are easy to understand answers. 

Insurance can seem complicated and confusing because you are paying for something that you don’t intend to use. Nobody wants to have something terrible happen to them. However, a loss without insurance can lead to financial difficulties. Insurance is coverage by contract that offers financial protection in case of an unforeseeable tragedy. Let’s help you get started understanding more about insurance.

Do you need insurance?

Insurance can help you manage your risk. Insurance provides protection against financial loss. If something happens to you, the insurance company will pay you or someone else that you are responsible for. Otherwise, you may be responsible for any costs incurred if you don’t have insurance. It can make a huge difference in your life to have the right insurance that covers the risks you face.

An insurance policy is a contract between the policyholder, the individual or company who gets the policy, as well as the insurer, the insurance company. This protection is provided by the insurance company because it pools risk from many individuals and entities that have similar needs.

Insurance generally protects you against losses that you cannot otherwise pay for. You may be 100% responsible for any costs or expenses incurred by an accident if you don’t have insurance. An insurance policy provides protection for an individual or company against financial loss. The insurance company will reimburse your losses if you lose in a covered event.

What are the most common types of insurance?

There are many types of insurance. Here are some of the most common.

Health Insurance. This insurance helps you pay for doctor visits and prescription drugs. Your health insurer and you agree to share a portion of your medical expenses once you have purchased health insurance coverage. This is usually a percentage or a dollar amount and is usually done after your deductible has been met. Once you have paid the deductible, your insurer will pay the remainder of your covered expenses for the rest of the calendar year.

Auto Insurance. Covers you against the cost of vehicle repairs and any medical expenses that result from a collision. Auto insurance is required in most states to operate a motor vehicle. Auto insurance can help you and get your car repaired in the event of an accident. It covers liability, as well as medical payments and collisions.  You are responsible for paying your deductible every time you file a claim, just like homeowners insurance.

Life insurance. Pays a specified amount to a person that you choose if and when you die. Life insurance promises that your survivors, the beneficiaries of your life insurance policy, will receive a lump sum. Your family can use the money from your life insurance policy to pay for living expenses and to help with bills.

Renter’s and Homeowner’s Insurance. Covers your personal and financial property from damage and loss. It also covers you for injuries that may occur on your property. Most lenders require that you have homeowner’s coverage if you have a mortgage on your home.  Also, many landlords require that you have renter’s insurance to protect the property.

How does an insurance policy work?

Insurance policies can be in place for a certain period of time, which is known as the policy term. You will need to renew or purchase a new policy at the end of the term.

A premium is a fee that you pay when you purchase an insurance policy. Premiums for some insurance policies are paid monthly, such as for health insurance. Others, like homeowner’s or auto insurance, may be paid only once or twice per year. Your risk to the insurance company will determine how high your premium.

Let’s suppose you have just purchased a car and are looking for insurance. The insurance company and you would sign a contract in which they agree to cover your car against certain kinds of damage. Three months later, your car is damaged in an accident. In general, your insurer will help repair any damage that is covered by your car insurance policy if your policy covers the damage to your car.

Most insurance policies also include a deductible. This is the amount that you must pay first before your insurance company will pay their share. If you have a $500 auto policy deductible and have damages of $2,000, you will be responsible for $500, and your insurance company for $1,500. Some policies allow you to choose your deductible. A higher deductible usually means a lower premium. It is important that you carefully read the policy before you purchase it. This will ensure you know what you are covered for.

Insurance is a valuable financial tool. Insurance can help you to live your life without worrying about sudden financial issues. It could also mean that you have more money to pay for repairs and a replacement vehicle in the event of an accident. After an accident, insurance can help you keep your life on track.