Insurance
If you are going to need any of the insurance coverage explained in the next
several units (health, life, or car, etc.), then you need to read this unit
first. The basics of the insurance industry are presented here and will help you
understand what you are dealing with when you begin to look at actual policies.
The basic concept of insurance is really quite simple. There are a variety of
things that may happen in a person’s life that can be so devastating that there
is virtually no way the average person or family would be able to handle it
financially without severely impacting their goals. For example, few people
would be able to recover from a fire that destroyed everything they owned
without some type of homeowner insurance in place. Even more dramatic would be a
major medical crisis that required expensive treatment. Whenever you are
confronted with that possibility, you need to transfer the risk to an insurance
company. For the payment of a premium, you are covered against certain specified
hazards.
Insurance is based on being proactive in handling risk. You cannot wait for
something to happen before you secure insurance coverage. If it were possible to
get coverage for something after it happened, then no one would get insurance
until after a significant loss and they were looking for someone to pay their
bills. Most people understand this when it comes to certain types of insurance
(auto insurance, life insurance) but not with other kinds of insurance (health
insurance). Most people would not expect that they could pay a small premium and
have a stolen car replaced, but some do expect that they can experience a health
crisis and then be able to get insurance. It’s important to be proactive. You
need to have the right kinds of coverage in place to protect you and your family
from a whole host of things that are relatively unlikely to happen but would be
financially devastating if they did.
 It is important to know more about insurance and to begin to look at ways you
can minimize costs associated with insurance while not minimizing your exposure
to risk. Insurance policies are contracts between you and the company that
issued the policy. For a premium, they will provide you with specified coverage
for named perils and make you “whole” or pay up to a certain limit. In some
instances you will be expected to share some of the risk associated with the
perils that you are facing. This is usually done through a “deductible” that you
are 100 percent responsible for and through coinsurance where you and the
insurance company split the cost of making you whole. Finally, there is usually
some sort of “stop-loss limit” beyond which the insurance company is responsible
for all of the costs up to the limits of the policy.
Since insurance is a contract between you and the insurance company, the laws of
the state where you live apply. This will mean that the specifics of the
contract available in your particular state may differ from what is available in
other states. It is beyond the scope of this resource to summarize the specifics
for each type of coverage, state by state. But it is designed to provide an
overview of each type of coverage and give you a way to learn more at specific
sites on the Internet. If you find that terminology used in your state differs
from the terminology in this resource, do your best to understand the concepts
behind the different insurance products and apply what you learn to what is
available.
Units that follow include specific types of insurance. Not everything that is in
each unit will apply to you. One unit, Insurance to Avoid, deals with insurance
products that are available but may not necessarily be in your, or your
family’s, best interest. Alternatives, including not having any coverage, will
be presented, and you will be free to make a decision as to how you want to
manage your risk.
WEB SITES
General Insurance Information
http://www.iii.org/
http://www.usaaedfoundation.org/default.asp
http://www.insweb.com/cgi-bin/gic.exe?id=UzB94xbaYQ-wpGWHlZbh8l8ZtxL&page=/gic/Quicken.htj
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