Ugh. Insurance. Here to ruin everyone’s day by making your stuff more expensive. As annoying as paying for insurance is, it is critical to have to protect yourself from devastating financial loss. What is insurance? The official definition of insurance is “a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.” Basically, you pay an insurance company a premium and they will pay (or reimburse) you for losses you incur that are covered by the policy. We’ll run through the most important types of insurance you should have.
First, you should have health insurance. Most employers provide some kind of health insurance for their employees. If your employer doesn’t provide coverage, research how you can get coverage on your own. Health insurance will not only cover your yearly check-up and if you get ill or injured, it will help mitigate the costs associated with your treatment. Make sure you’re familiar with the following terms:
- Deductible is the amount you pay for covered services before your insurance plan starts to pay. For example, if you have a $5,000 deductible, you will have to pay $5,000 of charges (subject to deductible) before your carrier will start covering the costs. Some physicals/well-visits are not subject to deductibles. Check your policy to see what is subject to the deductible.
- Co-pay is a fixed amount you pay for a covered service after you’ve paid your deductible. If your policy has a $15 office co-pay, you will pay $15 for an appointment with your physician. Policies may have different co-pays for different services (specialists, emergency room, urgent care).
- Coinsurance is the percentage of costs of a covered service you pay after you’ve paid the deductible. Say you have a 20% coinsurance and you incur a $1,000 hospital bill. You will pay 20%, or $200, and the insurance company will pay 80%.
- Out of pocket maximum is the maximum amount you have to pay for covered services. After you spend your out of pocket maximum on deductibles, copayments, and coinsurance, your health plan pays 100% of the costs of covered benefits. The out-of-pocket limit doesn’t include premiums.
It’s important to note that all of the items above reset at the beginning of your policy year. If your policy period starts on 1/1, any amounts applied toward your deductible and out of pocket maximum will reset after 12/31 of that year.
If you own a car, it’s against the law to not carry auto insurance in most states. There are state required minimum liability limits and your insurance company won’t offer limits lower than your state’s requirement. When looking at auto insurance limits, you should be familiar with these terms:
- Liability: protection against claims resulting from injuries and damage to other people or their property. Liability insurance policies cover any legal costs and payouts an insured party is responsible for if they are found legally liable. Liability insurance covers you for others.. In auto insurance it’s usually expressed as two limits (per person/per accident) or one limit (combined single limit). If your policy has liability limits of $100,000/$300,000, it will cover up to $100,000 per person or $300,000 per accident. If your policy has $300,000 CSL, it will cover up to $300,000 total.
- Property Damage: liability coverage that pays for damage you cause to another person’s vehicle or property (fence, garage, mailbox, etc.).
- Uninsured/Underinsured Motorist coverage: protection for claims resulting from an accident with someone who is not insured (uninsured) or who does not have sufficient coverage for the sustained injuries (underinsured). This coverage protects you against others.
- Collision: coverage for your own vehicle if you get in an accident, whether with another person or by yourself (running into a pole, for example).
- Comprehensive: also called “other than collision,” this coverage is for exactly that- anything besides a collision. Wind, fire, burglary, vandalism, etc.
- Deductible: like with health insurance, the deductible is the amount you pay before your policy begins to pay. There is a separate deductible for collision and comprehensive. There is no deductible for the liability coverages.
There are other coverages you can add, such as rental reimbursement if your car is undrivable due to a covered loss, roadside assistance, medical payments to cover others’ medical costs, and GAP coverage to cover if your car is totaled and is worth less than you owe on it.
Most lease agreements and every mortgage will require renters and homeowners insurance, respectively. These coverages provide liability coverage should someone get injured on your property, as well as coverage for your personal property inside. Homeowners insurance also covers the building (renters insurance doesn’t cover this as you don’t own the actual structure).
If you live in flood or earthquake prone areas, you can consider insurance for those as well. They can be pricey for not very much coverage, so weigh your options carefully.
Term Life Insurance
If you have anyone who is dependent upon you financially, you should definitely consider term life insurance. Term life is an affordable way to cover your debts (mortgage, student loans, car loans, etc.) should you pass away, so your loved ones won’t be caught with financial burdens.
An umbrella policy covers you in case you’re liable for damages that exceed your liability coverages on your auto or renters/homeowners policy. It’s relatively inexpensive so it may be worth protecting your savings, home, future earnings, etc.
There are other types of insurance (disability, long term care, pet, etc.), but these are the types that should be first priority. Beware of coverages you don’t need or are not a good investment (accidental death, whole/variable life, etc.). These policies usually serve the agent getting commissions more than the good they’ll do you.
Do I Need Term Life Insurance?
“Life insurance” is an interesting term. It may conjure up visions of a stodgy salesperson in a suit going door to door selling some product only your grandparents need. Or maybe a lab technician coming to your house to draw your parents’ blood so they could get life insurance. No? Maybe that’s just me. But in both of those cases, you may be thinking “life insurance” isn’t relevant to you.
Why Do I Need Renters Insurance?
Most people have a love-hate relationship with insurance. No one wants to buy it, but everyone is sure glad they have it when they have a claim. Maybe you think your “stuff” isn’t worth insuring, but as we’ll show in this article, renters insurance provides coverage for more than just the lumpy couch you were handed down from your parents.
Auto Insurance Basics
If your only experience with auto insurance is what you inherited from your parents, you may not be familiar with all the coverages and limits on your policy. Actually, even if you’ve carried your own coverage for a few years, you still may not understand the coverages and limits (it’s ok, I’ve been there). We’ll go through the most common coverages to ensure you’re properly covered out there on the road.