Most people have to deal with insurance constantly – either making claims or finding a new policy. Insurance can sound a little complicated at first and be intimidating, but if you know some general concepts and what to look for with the different types, it should be easy to find policies that suit you.
What Is An Insurance Premium?
Your premium is the amount you pay to your insurance agency to have them continue to provide coverage. The payments are usually monthly, biannual, or annual. The amount is generally determined by calculating the risk required to insure you (in whatever your personal case or situation is). At the end of the day, the insurance company is trying to make some sort of profit, so if you’re higher risk, your insurance premiums will likely also be higher. Additionally, if you purchase more coverage, the premium will go up.
Are There Ways To Lower Your Premium?
This varies wildly, but there are some general options you can look into.
- Reduce your coverage – for example, reducing auto insurance from covering collisions or reducing the total maximum it can cover will also reduce your premiums. However, this is not necessarily a good idea, sometimes it is worth it to pay a higher premium.
- Increase your deductibles – the amount you pay out of pocket. That will decrease your premium, but it will increase the amount you have to pay if any incident occurs. Again, this may be useful at times, but it can also backfire.
- Look into credits or ways to waive fees. For example, many health insurance and life insurance companies will lower your premiums if you complete something like a tobacco cessation course – and if you struggle with anything like that, check out my article on vices here.
- Shop around. If your insurer isn’t meeting your expectations, do some price comparisons to make sure you’re getting a good deal (and switch if you need to).
What Is An Insurance Limit?
An insurance agency’s limit is the maximum amount they will pay for a given policy. Usually, the more expensive the premium, the higher the limit. Depending on the type of insurance they may be based on each incident or in total. For example, a car insurance policy could have a $100,000 limit per accident. To keep it simple, just remember that a deductible is how much you pay, and the insurance limit is the opposite (i.e. the max that the insurer pays).
Health Insurance
Health insurance, per the name, is used to help cover your medical expenses and needs. This includes the medical expenses after an injury or during an illness, as well as preventative care (e.g. physicals, routine visits). Health insurance is usually a large expense, especially for those who are retired, but it is often worthwhile. An accident could cause a serious injury that might lead to insurmountable debt without insurance – if you don’t have it, seriously consider enrolling in a health insurance policy.
There Are Some Other Useful Tidbits
- If you’re a college student, you can generally stay on one of your parents’ plans into your mid-20’s.
- COBRA helps people who lost health insurance benefits keep them for a limited period if they meet a given requirement – like losing a job (voluntary or otherwise), having their hours reduced at work, transitioning between jobs, death, divorce, and several other major life events.
- If you’re a veteran in need of health insurance, check out this site (https://www.va.gov/health-care/)
- For those who are in a low-income household (learn how to increase your income to 6 figures), look into Medicaid as an option.
- If you’re 65 or older, check out Medicare. It provides a lot of coverage at a cheap cost – making it perfect for retired individuals or couples. Of course, if you retired early, you’ll have to find a different source of health insurance.
- If you and your spouse have insurance plans from your employer, it may be cheaper to keep the policies separate until you have a family. In other words, always verify your current and potential options before making a change.
- Look at the health insurance marketplace – you might be surprised at the options there.
- If you can’t waive the additional fees, tobacco use can cause a HUGE increase in your premiums.
Like other forms of insurance, premiums and deductibles work much the same. However, it also has copays, coinsurance, and out-of-pocket maximums. A copay is a precise amount you pay for certain services – for example, you may have to pay $20 for a routine visit or $30 for prescription medication (these numbers are JUST examples). Coinsurance is similar to a copay, but coinsurance is a percentage (like 20% of a bill) instead of a flat rate. Your out-of-pocket maximum is the most you’ll have to pay in a given year. Most payments count towards your out-of-pocket maximum, except for your premiums.
Dental & Vision Insurance
Subcategories of health insurance in a manner of speaking, dental and vision are usually covered under separate insurance policies. They are usually cheap and worth the price, in my opinion. I certainly recommend everyone with teeth get dental insurance! If you have perfect vision, you may decide vision insurance isn’t for you, but it doesn’t hurt to do regular check-ups every few years, especially if you look at a computer screen most of the day.
Life Insurance
Having a life insurance policy is a way to make sure your beneficiaries get a lump sum of cash in case of your untimely demise. Of course, you have to pay monthly premiums for this, which increase with your overall risk (remember, the insurance agency is a business that is trying to make money). Make sure you are as open and honest with the agency as possible – it may cause higher premiums, but it will make sure the agency doesn’t have a way of backing out from sending out the payment.
Term life insurance is a policy that ends or expires after a set period of time, often decades. Other life insurance policies typically end when the insured individual dies, ends the policy, or stops making payments. Not everyone needs life insurance, but if you have children or dependents make sure you consider it.
It’s hard to recommend an amount of life insurance to buy, as it is always case-by-case. Make sure you factor in your loved ones’ living expenses as well as the cost of anything you may be responsible for – like taking care of kids. As with everything else, make sure you review your life insurance policy after major life events occur like a birth or marriage.
One common option to consider is getting term life insurance for as long as you think you’ll be providing for your family (usually 20-30 years). That way, if your death is premature, your family is still taken care of. Also, locking in term life insurance while you’re still young can help you get great premiums! Once the term expires, you’d then need to rely on wealth you’ve amassed over your lifetime to provide for your family after death, or you’d need to purchase another life insurance policy – which would likely be incredibly expensive at that point.
Car Insurance
Car insurance is not something to skip or opt for the cheap option. It is better for it to be a little expensive than for you to not have it if an accident does occur and you desperately need it. If you ever get into an accident that is your fault, car insurance can save you from potential financial ruin.
Liability coverage is for injury as well as property damage. Good coverage on it can save you from nasty lawsuits. To be clear, liability coverage is for someone’s expenses if you’re found to be at fault in an accident – almost every state requires it to some degree. Make sure this covers enough in an absolute worst case scenario. For the other parts of your policy, you’ll need to determine what you actually need in your specific case. For example, do you want to cover rentals or towing? Do you need collision coverage (in other words, is your car worth more or less than the deductible would be anyway)?
Again, car insurance is definitely worth making sure you’re covered well, even if it costs a little bit more. Shop around with various agencies, but don’t settle or cut corners.
Homeowners Insurance
In my opinion, homeowners insurance is pretty straightforward. Policies usually have a detailed, itemized list of everything that will be covered, and different things you can opt in to have covered (for an additional fee). Make sure this policy has an appropriate rebuild cost as well as appropriate coverage for weather in your area. Additionally, it likely covers personal injury that occurs on your property and coverage for different kinds of property you store at home. Go through this list, make sure you have everything you need, and compare prices to ensure you get the best deal.
Conclusion
Insurance can be expensive, painful to deal with, and hard to understand – but it’s necessary. At the end of the day, insurance agencies will charge you more if they think you’re a higher risk, and less if you’re at a lower risk. Shop around for the best prices, and make sure you get the coverage you need for unexpected events and disasters.
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