Insurance is about protecting yourself against financial losses that come from unexpected events like a car accident, a medical emergency, or even the sudden death of a loved one. Sometimes insurance is required, like when you own a car or have a mortgage. Other times it’s optional, but may be a good idea. What’s important is knowing how to get insurance coverage that balances what you can afford to pay with what you can’t afford to lose.
What should you insure?
Your dwelling—a homeowners policy covers the physical structure of your home, as well as your belongings.
Your car—an auto policy covers your ride.
Yourself—you’ll need health insurance, and many people require life insurance at some point, too.
Is insurance required by law?
For some things, yes. The Affordable Care Act mandates that most people carry health insurance, and many states require auto policies.
Even when insurance isn’t required by law, you may need it in order to get a loan. You can’t get a mortgage without homeowners insurance, for instance, or a car loan without an auto policy.
What is an insurance policy?
It’s a contract that you take out with an insurance company to provide a specific dollar amount of insurance coverage over a specific amount of time.
Auto, home, and health policies tend to run for one year, while life insurance goes for 20 years or longer.
What is a premium?
It’s the amount that you pay for insurance coverage.
The premium is determined by factors including the type of insurance, your personal circumstances, and how much coverage you want.
How much insurance do you need?
Many states have minimum limits for certain types of coverage, like auto insurance.
When you take out a loan to buy a home or a car, your bank may have minimum coverage requirements.
It’s up to you to decide whether the minimum coverage is enough.
What is a deductible?
The portion of any loss that you must pay for out of your pocket.
It’s counter-intuitive, but you want to go with the highest deductible you can comfortably afford to pay. Why? Because a higher deductible results in a lower premium.
What is life insurance?
If you die, it pays money to your family.
If you have kids, you’ll want it.
Life insurance is relatively affordable while you’re young because the price is based upon how likely the insurance company thinks you are to actually die while you have your policy.
You want the policy to be in place long enough to cover the years when your children will still be financially dependent on your spouse or someone else.