Insurance is something you think you do not need it and paying unnecessarily but when you really get in need, you feel thankful that you have the insurance. It works as a life jacket, which does not come in place until you really need it. In some countries, the government is taking measures to make sure their citizens are covered. In our day to day life, we need certain types of Insurances. Here I am enlisting some basic types of insurance and its explanations.
Auto Insurance
Auto insurance is a law in United Status, yet some people do not bother about it. In the US only, an uninsured motorist has to pay about $5000 with each accident. If you are not covered and are in fault, you have to pay for other damage. Even if it is not your fault, you still have to pay to fix your own vehicle. So, it is advisable to never drive without auto insurance. Here are some basic terms of auto insurance
Collision: This coverage covers the cost of damage/injury incurred to you and your vehicle in case of an accident.
Comprehensive: Comprehensive coverage comes in place when you get in a situation other than a direct accident. This will cover situations like theft, flooding, Fire, fail and vandalism.
Liability: Liability coverage is usually the minimum coverage required in many states. This coverage covers the costs of damage and injury in the case of an accident.
I will be discussing a comprehensive, collision, third party insurance etc in my upcoming posts.
Some major auto insurance firms are Geico, StateFarm, Liberty, Progressive, AAA, and Allstate.
Home Insurance
For most people, home is the most expensive purchase in a lifetime. If something goes wrong and you have to pay a big bill to repair it, it gives extra burden to your pockets.
Home insurance covers any breakage, damage to a home, it also protects you from situations like hail, flood, and storm. Dwelling protection coverage makes sure the insurance company pay for the damages; repair done to your home that covered into your policy. For certain areas, is necessary to have flood coverage included in your policy.
If you do not own a home and renting there is a renter’s insurance for you. For many places, it is mandatory if you want to rent there. Renter’s insurance covers damage, personal belonging in case of an emergency, fire, flood, theft, burglary, storm, etc.
Health Insurance
It covers all health-related expenses as per your policy. Medical expenses are growing bigger and bigger. It is unexpected and even if you have a fund to cover, it can simply mess up your financial balance. Uninsured are vulnerable to financial catastrophes and it is more relevant in case of a health emergency. Medical coverages are getting expensive but this should not be an excuse for you to stay uncovered. In fact, in the long run, uncovered people pay more compare to uncovered.
You can also take advantage of tax benefit measures like Health Savings Account (HSA). An HSA account allows you to save some tax-free money each month or year that you can spend on healthcare costs. If you are worrying about paying more money upfront each month, take advantage of high deductible insurance. This will allow you to pay less each month but you have to pay more deductible when you need medical services.
Find some HSA providers here. I have also mentioned some banks offered HSA accounts in my earlier post.
Life
Many of us do not pay much attention to it. Term life insurance is important for your loved once. It pays when you are not around. No one is immortal and if you were to pass away somehow and you were the major breadwinner at home, how would your family (Spouse, kids, parents or any other dependents) manage to survive without your income? If you have a life insurance policy, your family would not have to worry about making ends meet, for usual monthly expenses, pay mortgages or kids tuition fees.
There is a second type of life insurance called whole life insurance. I am going to post a separate article differentiating them both. For now, understand term life covers you for a certain period while whole life covers you for whole life. In my understanding, I feel term life is a better option than whole life.
In a Nutshell…
Understand that having insurance is for your own financial safety and peace of mind. Be careful to purchase the insurance from a reputed agent or firm. Make sure you read all the terms and understand it properly before purchasing. Keep in mind that this is just a piece of basic information regarding different types, I will be posting a separate article for each of these to provide more in-depth details.
If you would like to go to any other Finance topic, go through this Personal Finance article.