When the unexpected happens, do you have a plan of how you would handle the situation? Unfortunately, many people do not have any idea of what they would do should a disaster strike, and this can be financially devastating. Accidents can and will happen, and no one is safe from them. One of the most important financial decisions one can make for their family is to purchase insurance coverage; however, there are various types of insurance to choose from. There is insurance coverage for practically any accident or disaster one can think of. So, what people need to do is look at their individual circumstances to decide which insurance is needed and why. People work hard to keep food on the table and a roof over their heads, so it makes sense to insure some of the most important things in life.
The bottom line is that insurance has to exist to protect people from risks. No matter one's income level or state where they live, no one is immune from risk. At any time, people all over the world are victims of things such as fires, theft, illness, accidents, severe weather and much more. (Super Pages, 2014) These incidents can happen anytime and anywhere. The idea of insurance goes back hundreds of years and is something that has been used since the beginning of time in one way or another.
Several types of insurance to choose from
Many people are still unaware of how many different types of insurance coverage that is available to consumers. Below are some different types of insurance that will be covered in this article, but keep in mind that there are many different types to choose from, no matter what needs to be protected.
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Health insurance
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Auto insurance
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Life insurance
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Gap insurance
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Accident or sickness insurance
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Property insurance
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Liability insurance
In addition, there are also many different types of miscellaneous insurance coverage that is available to consumers such as kidnapping insurance, legal insurance, pet insurance, travel insurance, and much more. Keep in mind that even though there are several different types of insurance to choose from, you don't need them all. There are many types of insurance that is wrong for certain people. Make sure you use your money wisely and that the insurance purchased will actually help your financial situation instead of paying out high monthly premiums.
Pros and cons of purchasing insurance
When it comes to purchasing insurance, there are pros and cons; however, do keep in mind that the pros greatly outweigh the cons. It is important to purchase insurance that will protect you, your family members and/or possessions, because there any some types of insurance that will unnecessarily drain your savings. Insurance is one of the most important things you can invest in because it will protect you from risk, and everyone is prone to some type of risk at some time in their lives. Always remember that no one is immune.
Pros:
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Protect people, home, other possessions
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Protect your finances
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Reduce stress
Cons:
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Unnecessary coverage. There are many types of insurance that is not needed, or you can have too much or not enough coverage.
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Having to keep up with premium payments.
How exactly does insurance work?
Once you have decided what you need to insure, it is important to meet with an insurance agent so they can talk with you about all the different options and coverages available. Coverage will depend on what state you live in, whether you rent or own your home, whether you own a car and much more. Basically, insurance helps people to recover from certain types of financial consequences by pooling the resources of a large group to pay for the losses of a small group. (Super Pages, 2014)
Everyone who purchases insurance coverage will have to pay premium payments in order to keep the coverage. The amount of one's premium payment is dependent on many things such as age, gender, where they live, health, occupation, and much more, depending on the type of insurance they are seeking. These premium payments is will cover any anticipated losses. The insurance company uses this money to pay any claims that may arise from any of their customers. So, the losses and expenses are shared by everyone. (Insurance Institute of Michigan, 2014)
Insurance companies use all types of statistical analysis to project what actual losses will be in any given group. (Pareto, n.d.) For example, when it comes to auto insurance, a customer's rates will all depend on their driving record. The better the driving record, the better the rates, and this is one of the many things that the insurance company is going to look at. The insurance industry is well versed in all the many areas, including how much money to set back in order to pay the claims, while being profitable at the same time.
Once you have decided which insurance coverage you need, a policy will be drawn up. This policy is a legal and binding contract. It is important to take the time to read all of the fine print and to make sure that you understand exactly what you are purchasing. Should you have any questions, be sure to ask your insurance agent before signing all of the paperwork. Since this is a legal contract, once it has been fully executed, it cannot be changed.
Common basic insurance terminology
Below is a list of common terms used in the insurance industry (National Association of Insurance Commissioners, n.d.):
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Insurer – This is the insurance company.
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Insured – This is the customer that pays the premium and will be compensated for any loss that is covered under their insurance contract.
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Bound – This is the term that is used once all parties have agreed to the terms in the insurance contract and it is in place.
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Rider – This is an amendment, or attachment, that alters the insurance policy's terms.
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Adjuster – A person who investigates any claims made and recommends settlement options. Many times, both the insurance company and the customer(s) involved will use their own adjuster and then they will all work together to agree on a fair settlement.
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Agent – A person who sells insurance through a large insurance company.
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Deductible – This is a portion of the loss that the insured needs to pay. For example, some common deductibles are $500, $1,000, and more. In theory, the higher deductible an insured has the lower premium they will pay.
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Effective Date – This is the date the policy goes into effect.
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Lapse – Termination of a policy due to missed premium payments.
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Policy Period – This is the time period which the insurance is in effect. Normally, this is for six (6) months at a time.
Conclusion
Health Insurance
When it comes to insurance, health insurance is one of the most important types to have, if not the absolute must haves. First of all, your health is the most important thing you have. Medical bills are so expensive that a serious illness or accident can cause great financial hardship. These types of expenses can cause a financial disaster even if you have thousands of dollars in the bank. Unfortunately, it does not take long for medical costs to become astronomical.
Health insurance can also include medical, dental and/or vision coverage. Basically, health insurance pays the incurred medical expenses in exchange for premiums paid directly to the insurance company. (Pareto, 2014) These premiums can be paid either monthly or annually, depending on what is worked out with your particular insurance policy.
How does it work?
Health insurance can be purchased through a group plan, with the most common way being through your employer, or individually. If you have health insurance through your employer, both you and your employer will pay a portion of the premium. The amount vary depending on the particular benefit plan the employer has worked out with the insurance company. If health insurance isn't available through an employer, then there is always the option to purchase it yourself through an insurance agent, but this is normally more expensive. The different medical costs are normally at a lower, contracted rate with particular physicians and medical facilities, including hospitals.
When it comes time to go to the doctor, you will probably have a co-pay that you will need to give to the doctor as payment. The amount varies depending on the particular health plan you have. Normally, you can expect to pay anywhere from $30 to $50 for co-pays (and that amount can be lower or higher).
All health plans also have a co-insurance. This is basically the amount you will pay and the amount that the insurance will cover. For example, if your co-insurance is 90/10, then you will pay 10% and the insurance will cover 90%. You will also have a deductible which will have to be paid before any of the insurance benefits take effect.
The items that are covered under one's particular health plan depends all on what is covered under the plan. Most health insurance plans have restrictions, and it is important to know what the plan covers and what it doesn't cover. If you choose to have a medical procedure that is not covered by your insurance, then that will be an out-of-pocket expense. (Pareto, 2014) Always be sure to check your individual plan so you aren't stuck with unexpected medical bills.
Example
As an example of how health insurance works, review this scenario:
Amanda has a medical insurance plan with a $500 deductible, a co-insurance of 90/10 and an out of pocket max of $3,000. She has to have a simple outpatient procedure at the hospital that will cost $7,000. How much will she have to pay out of pocket?
First, subtract the deductible from the total amount: $7,000 - $500 = $6,500
Amanda will need to pay 10% of $6,500, so multiply that: $6,500 x 0.10 = $650 .
So, Amanda's total out of pocket expense is the deductible plus her co-insurance: $500 + $650 = $1,150 . For this example, she would pay a total of $1,150.
Keep in mind that she has an out of pocket max of $3,000; however, once this has been met, then she will no longer have to pay any more co-insurance fees or deductible for the rest of the year.
If Amanda had not had insurance, she would have to pay the total cost of the procedure, which was $7,000. So, instead of paying that large amount, she only had to come up with $1,150. This is why health insurance is so important for everyone to make sure they have.
PPOs v. HMOs
There are many different options you have when it comes to choosing the right health insurance plan for you and/or your family's individual needs. There are two different types of insurance plans that we will discuss in this section: PPO and HMO.
First of all, it is important to know what these acronyms stand for. PPO stands for preferred provider organization, and HMO stands for health maintenance organization. Both of these medical plans are mostly the same, and only difference between the two plans is the way the customer interacts with them. Both PPO and HMO plans use their own network of physicians and medical facilities that will give you and your family the best quality healthcare possible; however, with a HMO plan you have to choose one primary care doctor. Should you need to see a specialist, or any medical provider other than your primary care doctor, then you will need to get a referral from them before seeing other doctors. On the other hand, with a PPO plan, you are able to see any doctor you want just as long as they take the particular insurance you have (i.e. Blue Cross, United, Cigna, etc.). (BCBS, 2014) PPO plans give patients much more flexibility; however, no matter if you choose a PPO or HMO, the goal of the insurance company is to provide you with the best healthcare coverage possible.
In addition to PPOs and HMOs there are point-of-service plans (POS). With this plan, in most cases, you will be able to choose your own doctors and medical facilities, but you will have to pay more out-of-pocket expenses. (WebMD, 2014) You will also have to fill out paperwork to send to the insurance to file your claim. POS' are one of the least popular types of health insurance, even though it is one of the most flexible since it allows one to decide what services to elect. (Pareto, 2014)
Other types of health insurance
There are other types of health insurance that are available such as vision and dental. In some cases, these can be added into a health plan, and sometimes you will need to have separate policies such as VSP for vision insurance and Delta Dental for dental insurance. There are many different plans and companies to choose from.
Important things to know
In-network vs. out-of-network. Keep in mind that all physicians and medical facilities are either in-network or out-of-network in with you plan. To pay the leaset amount of money possible it is important to ensure that the medical services you are using are in-network.
Health insurance through employer . If you are employed by a company that offers health insurance coverage to its employees, then that is the way to go. The reason is that employers normally pay a percentage of the employees' premiums, so you will be getting the best healthcare available to you at the best price.
Extra coverage. Some medical services might not be covered under an insurance policy, such as maternity care or psychological care, so it is important to know the things that you are covered for. For example, if you are planning on having children then it is important to have an insurance plan that covers maternity costs.
Healthcare reform
There is a relatively new option for healthcare that everyone should be aware of by now called the Affordable Care Act (ACA). This is a United States federal statute that was signed into law by President Obama in 2010. Its main focus is to provide affordable healthcare to families all across the United States, and to make sure that everyone is covered. This act forced everyone to have healthcare insurance beginning 2014. For people who don't have insurance under this new act will have to pay penalties when it comes tax time. To find out if you qualify, all you have to do is log into www.healthcare.gov to find out more.
Common terminology
There is some common terminology you may run into when dealing with health insurance. Here are some of the most common ones:
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Co-insurance – This is the percentage of the covered expenses that are paid by your individual medical plan.
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Co-payment – This is also referred to as your co-pay and it the set amount that you will need to pay each time you go to the doctor. For example, your co-pay might be $30 each time you visit the doctor for something such as sinus infection, and your co-pay might be $50 each time you visit a specialist, such as a doctor who specializes in ear, nose and throat issues.
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Deductible – The amount of money you pay out of pocket.
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Health Maintenance Organizations (HMO) – This is a very popular type of health insurance policy, and probably one of the most frequently used. This medical coverage offers a great variety of services in exchange for a fixed payment.
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Preferred Provider Organization (PPO) – This is basically a group of healthcare providers that contract with an insurance companies, third-party administrators and even employers that provide care at a low rate.
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Out-of-pocket limit – This is the limit on the amount of money that you will have to pay each year. Basically, this is the total of your deductible, copays, and coinsurance that you pay out over the year. Note: this does not include your premium payments.
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Out-of-pocket expense – This is the cost of a medical procedure, or other medical item, that is not covered under an insurance plan, and is the amount that you will have to pay.
Conclusion
Even though health insurance can be expensive, it is more expensive to not have any coverage. An unexpected illness or accident can devastate your budget. If you are able to have health insurance through your employer, this is your best choice. The reason is that most employers, especially larger companies, usually have very good insurance plans for their employees. In most cases, the employer will pay a portion of the employees' premium and the amount you have to pay can be withdrawn from your paycheck pre-tax. This means that you will save the most amount of money that you can while still having that important health care plan for you and your family.
