InsuranceIf 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.
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. |
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.