Introduction to Understanding Insurance: Insurance Definition
Your first step toward understanding insurance is to know what the word means. Insurance is an agreement that you put money towards every month.That way, if there’s an emergency, then your insurance can help you cover the cost. So insurance is like a special type of savings. But you can only get the money if you need it.
Understanding Insurance Language
A very important part of understanding insurance is the words companies use. You need to understand them so that you can compare different insurance plans.
- Claim – a request asking your provider to pay for expenses after something happens.
- Co-insurance – the part of the expenses that you pay. For example, your insurance pays 80%, but you have to pay the other 20%.
- Co-payment – the fixed amount of fees that you pay for an expense that’s covered by your insurance.
- Deductible – the amount of money you need to pay before insurance will pay any claim. After you pay this amount, insurance will help you with expenses. But this is only for a certain period of time. You need to pay deductibles every year.
- Liability – your insurance pays liability if you’re responsible for someone else’s damages. This can also include injuries. For example, if you cause an accident, you pay the liability.
- Limit – the most money your insurance company will pay over a certain period of time. After you reach this limit, you have to pay for everything again. But there are also two types of limit. A total limit is for the policy period. For example, your health insurance will only pay $50,000 a year. You also have a per-claim limit. In other words, how much money your insurance will pay for one claim.
- Out-of-pocket expenses – expenses that you pay for yourself. These include your co-payments and deductibles.
- Out-of-pocket max limit – you are only expected to pay this much for expenses. After you reach this limit, your insurance has to pay 100%. But they’ll only pay 100% until you reach your total limit.
- Premium – the amount of money that you have to pay every month for insurance.
What Type of Insurance Should I Have?
There are many different types of insurance available. You should have at least four:
- Auto insurance
- Health insurance
- Personal liability insurance
- Property insurance
Understanding Insurance: Conclusion
Now you know the different terms that are important for understanding insurance. You also know which types of insurance everyone needs to have. But it’s also very important that you have the right risk protection. As time goes by, you should ask an insurance agent to help you review your insurance policies. They’ll help you make sure that you aren’t wasting money on any insurance that you don’t actually need.