words you should know
Insurance companies use a lot of words you might not understand.
what is insurance?
Insurance is a way for you to lower your risk of financial losses if you have an accident, get sick, or experience some other unexpected event. You pay some money every month (your premium) and the insurance company agrees to help you pay for it if something bad happens.
types of insurance
There are many types of insurance. Here are a few examples of the most common types of insurance.
- Health insurance – This helps you pay for doctor visits, medical tests, hospital stays, and sometimes prescription drugs. Some policies will require you to pay a certain dollar amount or a percentage of the costs.
- Life insurance – You pay the monthly premium, and the insurance company pays a person that you select if or when you die.
- Auto insurance – You are required by law to have some kind of auto insurance in most U.S. states. Auto insurance helps pay for repairs and medical expenses caused by crashes or other accidents.
- Long-term care (LTC) insurance – These policies help you pay for the cost of assisted living or other nursing facilities. You can buy it for yourself, or you may purchase it for a loved one.
- Pet insurance – This is a healthcare policy for your pet that helps pay for certain veterinary bills. It protects you from having to pay a lot of money out of pocket if your pet needs an expensive surgery.
- Disability insurance – If you get sick or injured and you can’t work, disability insurance helps you pay your bills. Your employer might offer some version of disability insurance as a benefit. You can also purchase it yourself.
how does insurance work?
You pay your premium every month. If something bad happens, you submit a claim to your insurance company. Your insurance company will then give you money to help you pay for whatever that event cost. Depending on your policy, certain things might not be covered, which means the insurance company won’t have to pay for those things. Also, depending on your policy, you might have to pay a part of the costs yourself. Of course, if you had no insurance, you would have to pay for all of the costs yourself. Here are some examples:
- Auto insurance – You hit a deer and wreck the front of your car. The damage to the car costs $2500. Your deductible is $500. This means you have to pay $500 to get your car fixed, and the insurance company will pay the other $2000.
- Renter’s insurance – A pipe bursts in the apartment above you, which fills your living room with water and destroys all of your electronics. The insurance company pays for you to replace the ruined items.
what affects your premium?
Usually you will pay a lower premium when you agree to pay a higher deductible. A good strategy is to get a policy with the highest deductible that you’d be able to comfortably afford if you had to. This will keep the cost of your policy low.
Your credit score could impact how much insurance companies charge you in premiums. To learn more, visit the Credit section.
Keep in mind that the younger and healthier you are when buying a health insurance or life insurance policy, the less expensive it’s likely to be.
Note: This information is not intended as legal or financial advice. Please consult your legal or financial advisor for more information.