What is insurance?
Insurance
serves as a financial cushion in the event something bad happens to the insured
person – also referred to as the policyholder – and their assets.
How
insurance works varies significantly, depending on the policy and insurance
provider. Regardless, all policies come with four main components that
policyholders need to be aware of to ensure that they are getting the right
coverage. These are:
- Premium: How much they
need to pay for coverage.
- Policy term: How long the
policy lasts.
- Policy limit: The maximum
amount the policy will pay out for a covered peril.
- Deductible: The amount the policyholder
needs to pay out of pocket before the policy kicks in.
How does insurance work?
How
insurance works varies significantly, depending on the policy and insurance
provider. Regardless, all policies come with four main components that
policyholders need to be aware of to ensure that they are getting the right
coverage. These are:
- Premium: How much they
need to pay for coverage.
- Policy term: How long the
policy lasts.
- Policy limit: The maximum
amount the policy will pay out for a covered peril.
- Deductible: The amount the policyholder
needs to pay out of pocket before the policy kicks in.
Home Insurance
Unlike
auto insurance, no state law stipulates that you must have homeowners coverage.
However, if you financed your home, your lender will usually require coverage
to protect their interest in your property. This way, if your home is damaged
or destroyed, you have funds to rebuild and won’t walk away from your mortgage.
Renters Insurance
If
you don’t own a home, that doesn’t mean you don’t need insurance. Renters
insurance helps you replace your belongings such as electronics, furniture, and
clothing if they’re stolen or damaged. Problems covered include fire,
tornadoes, explosions and more.
Umbrella Insurance
Auto,
home, and renters insurance come with liability coverage that protects you and
your family’s assets from lawsuits brought against you. But every policy has
liability limits. If you have substantial assets, your homeowners, renters or
auto liability insurance may not be sufficient if you lose an expensive
lawsuit.
Life Insurance
If anyone depends on you financially, finding the best life
insurance for your situation is essential. Forty-four percent
of U.S. households would face financial hardship within six months if the primary
wage earner died—and for 28%, it would be just one month—according to LIMRA, an
industry-funded research firm. Life insurance is one way to replace your income
if you die unexpectedly.
Term life insurance
Term
life insurance lets you lock in rates for a particular length of time, like 10,
15, 20 or 30 years. During this time, your premiums are level. Once the level
term period ends, you can typically renew the policy on a yearly basis but at a
higher cost each time.
Permanent life insurance
Permanent
life insurance can provide lifelong coverage. In addition to the death benefit,
permanent life insurance includes a cash value component. If the cash value
builds, you can access the money by taking a loan or withdrawing funds. If you
decide to end the policy, you can take the cash value of the policy.
Health Insurance
Medical
bills are one of the frequent causes of financial hardship in America,
according to the American Public Health Association. Even if you’re young and
healthy, a stay in the hospital could cost you about $30,000 for three days,
according to Healthcare.gov. If you’re uninsured, that could wreck your
finances.
Disability Insurance
You
might think you need disability insurance only if you have a job involving
dangerous activities. But most disabilities aren’t work-related. Arthritis,
cancer, diabetes and back pain are among the most significant causes of
disabilities, according to the Council for Disabilities Awareness. That’s why
it’s wise to consider disability insurance as part of your financial plan.
Long-Term Care Insurance
Adults
turning age 65 have a 70% chance of needing long-term care at some point,
according to the Department of Health & Human Services. Whether it’s
in-home assistance to help with everyday tasks or an extended stay at a nursing
home, most seniors will likely need assistance at some point in their lives.
And long-term care isn’t cheap. It costs an average of $9,000 per month to stay
in a private room in a nursing home, according to Genworth, which sells life
insurance and long-term care insurance.
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