Insurance can preserve wealth by protecting you from major expenses that you otherwise couldn’t afford.
Basic insurance terminology
When you buy insurance, you receive an insurance policy, a document that spells out exactly what is and isn’t covered. The covered items are called your benefits. The amount you pay for insurance is called the premium. When you have costs and submit bills to your insurance company, this is known as filing a claim.
Who pays what
When you file a claim, typically your insurance company will pay only a portion of your costs. The amount of a claim that you must pay before the insurance company will cover the rest is called the deductible; the amount you pay toward each medical bill is called the co-pay.
How deductible impacts premium
Typically, the higher the deductible amount, the less expensive the insurance premium. So it’s a good strategy to get a policy with the highest deductible that you’d be able to comfortably afford if you had to. This will minimize the cost of your policy.
“Save” on health insurance?
If you’re young and in good health, you may be tempted to “save money” by not buying health insurance. But with today’s high costs of medical care, taking your chances that you’ll stay healthy is a strategy that may have serious financial consequences. One serious illness has the potential to financially wipe out you – and your family. Keep in mind that the younger and healthier you are when buying a health insurance policy, the less expensive it’s likely to be.
Benefits of life insurance
Regardless of your family circumstances or your age, you should consider life insurance. While its primary purpose is to ease the financial burden of an untimely death, it can be an effective tool for both asset protection and wealth accumulation. Some types of life insurance can be used as a source of retirement income or to fund a child’s education. Click on Articles for an article about life insurance and consult a professional to learn more.
Before you buy
Always check the “financial strength rating” of an insurance company. This measures their financial soundness and how capable they are of handling the claims of their customers. The highest rating is AAA, followed by AA. Avoid companies without at least an A rating. You can research these ratings on the Web with companies including AM Best, Moody’s, and Standard & Poors. The most reputable insurers receive consistently high ratings from all of these companies.
How much coverage?
Ask insurance professionals to determine how much coverage and the types of coverage you need. A general rule of smart money management is to never insure something you can afford to pay for yourself.
This is provided for informational purposes only and should not be construed as legal or financial advice. Please consult your legal or financial advisor for more information.
Your credit score could impact how much insurance companies charge you in premiums. To learn more, see the topic All About Credit.
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