An insurance policy is a contractual agreement between an insurer, also known as an insurance business, and an insured, also known as a person. Under the terms of this agreement, the insured gets financial protection from the insurer against any losses that may be incurred as a result of certain events.
Coverage for liability. This automobile insurance covers property damage and injuries you cause in an accident. If you’re sued for an automobile accident, liability car insurance covers your legal defense and settlements. Driving legally requires liability insurance in all states except New Hampshire and Virginia.
Underinsured motorist (UM) coverage. This coverage covers your and your passengers’ medical bills if an uninsured motorist hits your car. The uninsured motorist policy might also cover lost earnings and pain and suffering. Some states need UM. UM coverage may also cover uninsured/underinsured driver damage in certain areas.
Personal injury insurance. PIP insurance covers your and your passengers’ injuries regardless of who caused an accident. This coverage may also cover missed pay, rehabilitation, and child care you cannot do after being wounded. PIP is mandatory in certain states, elective in others, and unavailable in others.
Insurance for medical expenses. MedPay covers you and your passengers’ medical bills after an accident, regardless of responsibility. Insurance amounts are normally $1,000–$5,000.
Crash and comprehensive coverage. Together, these coverages cover vehicle damage. No matter the cause, collision insurance repairs or replaces your automobile. Comprehensive insurance covers automobile theft, hail, fire, vandalism, falling objects, and animal attacks. Optional collision and comprehensive coverage are sometimes marketed simultaneously. Your lender will demand you to acquire your financed automobile. Same with automobile leasing.
Even if you do not own a property, you still require insurance. Theft or damage to your personal property, such as electronics, furniture, and apparel, is covered by renters insurance. Included are issues such as fire, tornadoes, and explosions, among others.
Without insurance, you would be responsible for replacing all of your belongings if your rental property were to catch fire. While your landlord’s insurance covers damage to the building, it does not cover tenant property. In some instances, landlords will require proof of coverage in order to rent an apartment.
Auto, homeowners, and tenants insurance include liability coverage that safeguards your and your family’s assets against litigation. However, all policies have liability limits. If you have substantial assets, your homeowner’s, renter’s, or auto liability insurance may not cover the costs of a costly lawsuit if you are found liable.
If the unexpected occurs and you become liable, umbrella insurance can provide additional liability coverage. For instance, suppose someone sues you for $500,000 in medical expenses after stumbling and injuring their back on your sidewalk. If your homeowner’s insurance liability limit is only $300,000, the remaining $200,000 is your responsibility. This would be covered by umbrella insurance.
Term life insurance
Term life insurance allows you to lock in rates for a specific time period, such as 10, 15, 20, or 30 years. During this period, your premiums remain unchanged. Once the level term period expires, you can typically renew the policy annually for a higher premium.
If you want to cover a specific financial obligation, such as college years or a debt, you may find term life insurance suitable. Term life insurance is typically the least expensive form of life insurance available.
Permanent life insurance
Permanent life insurance can offer lifetime protection. If the cash value increases, you can access the funds through a loan or withdrawal. Permanent life insurance comprises both a death benefit and a cash value component. If you decide to cancel your policy, you can receive the cash surrender value (less any surrender fee).
Consider permanent life insurance if you want to develop cash value to supplement retirement resources or if you want to provide a mortality benefit for a long-term dependent. Permanent life insurance costs significantly more than term life insurance.
According to the American Public Health Association, medical expenses are a common cause of financial hardship in the United States. Even if you are youthful and robust, a three-day hospital stay could cost you approximately $30,000, according to Healthcare.gov. Without insurance, you risk ruining your finances.
Typically, you can obtain health insurance through your employer. If your employer does not provide health insurance or if you are unemployed, you can search for health insurance plans on the federal health insurance exchange. If you meet income and eligibility requirements, health insurance plans from the federal marketplace may offer subsidies.
You can also purchase health insurance by contacting health insurance companies directly or by using an agent or broker.
If the monthly premiums are unaffordable, investigate the costs of a health plan with a high deductible. This form of coverage requires a higher deductible before coverage begins, but it reduces the monthly cost of health insurance.
In addition, you can combine a plan with a high deductible with a Health Savings Account to save tax-free funds for future medical expenses.
Typically, you can only purchase health insurance during the open enrollment periods specified by health insurance providers. Generally, the enrollment period for marketplace plans is from November 1 to December 15, although some states prolong the deadline.
Exceptions to the open enrollment period are permitted if you have recently experienced a life-altering event, such as getting married or having a child.
You may believe that you only need disability insurance if your job involves hazardous activities. However, most impairments are not work-related. According to the Council for Disabilities Awareness, arthritis, cancer, diabetes, and back pain are among the most prevalent causes of disability. Therefore, it is prudent to include disability insurance in your financial plan.
If you become ill or disabled and are unable to work, disability insurance will supplement your income. It typically replaces 40 to 70 percent of your basic income, has a waiting period before coverage begins, and has a monthly payout limit.
Long-Term Care Insurance
The Department of Health & Human Services estimates that 70% of 65-year-olds will require long-term care. Most seniors will require aid at some time, whether it’s in-home help with daily duties or a nursing facility stay. And long-term care is costly. Genworth, which offers life and long-term care insurance, estimates that private nursing home rooms cost $9,000 per month.
LTC insurance covers in-home, adult day, and nursing home care. Long-term care insurance is best purchased in your 50s or 60s. This age group is generally the cheapest time to obtain insurance. LTC insurance costs rise with age.
Plans for Children
Even if you are not physically there, you may help your kid achieve important life objectives like getting a higher education and getting married by purchasing a child plan, which is a kind of life insurance policy. To put it another way, child plans combine the advantages of savings accounts and insurance policies in order to assist you in meeting the future needs of your kid at the proper age.
Public and Private Insurance
Occasionally, a distinction between public and private insurance is made. Public (or social) insurance includes government-funded programs such as Social Security, Medicare, and temporary disability insurance. In contrast, private insurance policies include all forms of coverage offered by private corporations or organizations. This chapter focuses on private insurance.