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(From the Financial Literacy Blog) – Expect the unexpected. Our experiences in 2020 and 2021 taught us this lesson, which we can apply heading into 2022. For many, the pandemic negatively impacted their personal finances. While being prepared for a worldwide pandemic is something nobody could have truly anticipated, there are things people can do to protect their finances against other kinds of disasters in the future. Examples include increasing savings, building up an emergency fund, and taking advantage of insurance.
What Is Insurance?
Insurance is a protection policy that helps people manage their risk. When someone buys insurance for something, they are paying for protection against unexpected financial losses. For example, if someone bought a new car and then purchased auto insurance, their investment would be better protected. If they got into an accident and their car was damaged, the company they purchased insurance through would pay for the costs of repairs. Without auto insurance, the car owner would have to pay for the repairs on their own. This could be a difficult thing to afford––especially if they’re already making monthly car payments.
People can purchase insurance to help safeguard losses against their home, apartment, vehicle, and more. In order to have insurance, people need to pay a fee. This fee is called a premium and is usually expected to be paid for monthly. However, some premiums are paid only once or twice a year. Along with the premiums, some insurance policies include a deductible. A deductible is the amount someone would have to pay before the insurance company would cover the rest. For example, let’s say someone has homeowner’s insurance with a $500 deductible. If a storm causes $2,000 in damage to their home, they would pay $500 and the insurance company would pay the remaining $1,500. Usually, the higher the deductible amount, the lower the insurance will cost.
What Are Common Types of Insurance?
- Health insurance – This is a contract that requires a health insurer to pay for some or all of a person’s healthcare costs in exchange for a premium. A recent study has reported that healthcare has become this country’s largest source of debt in collections. If someone doesn’t have health insurance and ends up needing medical care, they can be left with very expensive medical bills.
- Auto insurance – This type of insurance protects people from having to pay the full cost of vehicle repairs, a replacement vehicle, or medical expenses following an accident. In Maine, it is against the law to operate a vehicle without paying for auto insurance.
- Life insurance – When someone pays for life insurance, they have a contract with the insurance company to pay a person of their choice a set amount of money if they die. For example, a parent may choose to have their child be the recipient of their life insurance in the event the parent passes away. This can help family pay bills and cover living expenses, or pay for funeral costs. Ultimately, the recipient can use the insurance money however they wish.
- Homeowners insurance – This type of insurance protects what is often a homeowners biggest investment––their home. After a premium is paid, the insurance company will help the homeowner cover the cost of repairs or a replacement in the event of a disaster at their home.
- Renters insurance – If someone is renting a home or apartment, this type of insurance would cover their personal belongings in the event of a fire, theft, windstorm, or other disasters. Renters can choose between actual cash value coverage, which will reimburse them for the value of the items at the time of the damage or loss, or replacement cost coverage. This covers the cost it takes to replace the items lost or damaged.
There are many other types of insurance, such as pet insurance or travel insurance. Whatever type of insurance it may be, insurance helps people manage their risk and protect their assets.
Where Can People Secure Insurance
People can sign up and pay for certain insurances with their employer, such as health or life insurance. Alternatively, people can search from a list of insurance coverage options on comparison websites or contact a local insurance agent. To find a local insurance agent, visit usinsuranceagents.com.