Sometimes things happen – car accidents occur, natural disasters strike, or a person becomes injured in a sports game or activity. Incidents such as these can really harm you not only physically, but also financially. In order to lower the costs that could result from these and other accidents, you can purchase insurance. In the case of the unexpected, you can purchase insurance from an insurance company. There are many types of insurance to cover many different issues, including health insurance, automobile insurance, and homeowner’s insurance.
Purchasing insurance may seem a bit more complicated than buying a sweater or a skateboard. But after understanding what the fancy terms mean, it should make a lot more sense! When purchasing insurance, you purchase what is called a policy, which is a contract that explains the payments and details of the insurance plan. This makes you, the consumer, a policyholder. In this policy, details regarding the premium and deductible will be explained. The premium is the fee that you pay in order to be covered by insurance. The deductible is the amount of the cost you would have to pay out-of-pocket in case of an accident before insurance decides to kick in and cover the rest of the cost. Sometimes a policy will feature something called co-insurance – in this case you are also required to cover a percentage of the cost minus the paid deductible.
For example, say you have a policy that states you pay the first $600 and 15% co-insurance in an accident. If you are injured in an accident that will require a $3000 procedure, you pay $600 plus 15% of $2400 (which is $360), for a total of $960. Your insurance provider covers the remaining $2040. See? That wasn’t so complicated!
Now, insurance can come from a few different sources. You can purchase insurance as an individual directly from an insurance company. In some cases, certain insurance is provided as apart of employee benefits. In this case, typically a portion of your paycheck goes towards insurance, though the employer typically covers a large amount of the premiums. Sometimes the government has programs that provide basic insurance that protect you in economically difficult times. You have probably heard of some of the programs, such as Social Security and Medicare. Sometimes the government will have programs as a result of catastrophes, like aid provided after Hurricane Katrina.
There are many different kinds of insurance and many terms. Despite the complexity of it, it’s still important to be informed about insurance… you never know what could happen!