What is insurance?

Chances are you’ve heard of it and have it in some form. You know it’s everywhere; your home, your car, your life, your health, and maybe even your pets! We all have it, we all need it, we all pay a lot for it, but what is it?

Simply put, insurance is a transfer of risk. You’ve got something valuable: think home, car, health. There’s a risk that catastrophe strikes, and you need to repair or replace your valuable. It could cost a fortune. You want to protect yourself from that potential cost, so you pay an insurance company to take on the risk for you.

How much will that cost?

Well, it depends. I know that may be a frustrating answer, but it’s also true. So first, let’s get some terms out of the way.

A premium is what you pay the insurance company for protection. Protection can also be called coverage. The insurance company determines your premium by calculating the risk (to protect you and your valuable) of paying a covered claim (how much the company pays out).

Your insurance company sets your premium using three things: 

  • What you want covered
  • How much you want it covered
  • The risk of covering it

What is covered: adding coverage, like Dental/Vision, causes your health insurance premium to increase.

How much coverage: increasing coverage, like your death benefit on your life insurance, causes your premium to increase.

Risk: having higher risk, like lots of accidents on your driving record, causes your auto insurance premium to increase.

You get the picture. So when deciding on insurance, be sure to understand what is important to you and look at all your options. Designing the right plan for your unique situation can get you the coverage you want at a premium that works for you.

For example, if you’ve never gone a year without having a cavity filled, you should probably get Dental/Vision coverage. Or maybe you have 20/20 vision and perfect teeth. You should think about leaving Dental/Vision coverage off, save yourself on premium, and just pay cash for your check-ups. 

You should also look at how much coverage is right for you. If your life insurance is meant to replace your income and take care of your family if you die, you’ll want a death benefit that reflects that. But if you just need a plan to cover your funeral expenses, save on premium by having a smaller death benefit.

Lowering your risk is another way to lower your premium. Don’t like the increase for earthquake coverage because you live on a fault line? You can move. Don’t want to pay extra for a cancer plan? Quit smoking (most companies consider you a non-smoker after 1-3 years). Think auto insurance is expensive at 16? Teach your daughter to drive well and get good grades, and her premium will drop quickly as she gets older.

If you’ve made it this far, let me buy you a drink. While insurance isn’t very exciting, there’s a reason it’s everywhere – it works, and it’s important to have. 

So what’s next?

  1. Review your lifestyle and understand your unique situation
  2. Try and educate yourself by asking questions, watching videos, and reading (websites, articles, and blogs)
  3. Find a professional you can trust
  4. Explore your options (hopefully with said professional)
  5. Get the best coverage for you and your family
  6. Take a sigh of relief 

Finally, always be sure to read your policies once you get them – or find someone, like the professional from above, who already knows them and can explain. Ask to review your policies whenever you feel like it. And keep asking questions until you’re satisfied. 

Ask me. For real. 

I’m here and happy to help.