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Money and Marriage
Issue 9. Insurance: Life, Auto, Health, Property

$ Why Insurance? • $ Insurance Terms • $ Types of Insurance • $ Helpful Information • $ Tips on How to Save Money on Insurance

What would you do if you or your spouse became sick or injured on the job? How would your property be replaced if it was damaged or stolen? How would you take care of your family financially if one spouse died? Most individuals obtain insurance to protect themselves, their family, and the things of value that they own. Insurance is a contract an individual receives from an insurance company to gain reimbursement for personal or financial loss in return for the payment of premiums. Not having the right insurance at the right time is "risky business."

Premiums. The amount you pay over a period of time for the cost of insurance coverage is called a premium.

Deductible. Most insurance policies, except life insurance, generally include a deductible amount. The deductible is the amount that you must pay before the insurance company begins to pay for the loss. It makes sense to choose a deductible that is large enough to reduce premiums but small enough to prevent financial hardship when a loss occurs.

Test your knowledge of insurance terms. Match the following words with their definitions. Answers are given at the end of the article.

1. ______________ the person whose life is covered by the insurance

2. ______________ the amount paid for the insurance

3. ______________ the person who received payment when insured dies

4. ______________ the amount of money to be paid when the insured dies

5. ______________ dangers your property may be protected against

6. ______________ the amount of time to pay your insurance if you are late with a payment

7. ______________ the amount the insured must pay before the insurance company will begin to pay

8. ______________ the expiration of an insurance policy

There are five main types (categories) of insurance:

1. Automobile
2. Property
3. Life
4. Health
5. Liability

Automobile Insurance

Most states require car owners to carry automobile insurance. Auto insurance includes different coverage for different losses. The main coverages include liability (bodily injury and property damage), medical payments, collision, comprehensive, and uninsured motorists.

Insurance firms use the following factors to help determine the rate or premium to charge – your driving record, credit report, age, sex, marital status, cost of repairs, type of car, use of car, and location.

Property Insurance

Protecting your property is an important part of risk management. This could be real property, such as your house and other structures such as fences or tool sheds within 100 feet of your house. Or, it could be, personal property, such as furniture, clothing, and appliances.

You protect your real and personal property with homeowners or renters insurance.

Perils are the dangers your property may be protected against in your homeowner's policy. Examples include: (1) fire and lightning, (2) windstorm and hail, (3) explosion, (4) riots, (5) damage by aircraft, (6) damage by vehicles (not your own), (7) damage from smoke, (8) vandalism and malicious mischief, (9) theft, (10) window breakage, (11) falling objects, (12) weight of ice, snow, sleet, (13) collapse of part or all of building, (14) damage from steam heating or water heating appliances, (15) leakage or overflow of water or steam, (16) freezing of plumbing, heating air-conditioning systems, home appliances, and (17) short circuit damage to electrical appliances.

A basic policy usually protects you against personal liability and property that is destroyed.

A broad policy covers everything the basic policy does plus seven other perils.

A comprehensive policy protects you against the perils covered in the broad policy plus all perils not specifically excluded.

Renters insurance is similar to homeowners insurance. It covers personal property (furniture, clothing, appliances you own) when you rent an apartment or a house. You need renter’s insurance because the landlord's insurance coverage does not reimburse renters for loss of their personal property.

Some policies may not cover the total value of all your personal possessions. Limits are often placed on cash, jewelry, electronic equipment (including computers), china and silver, furs, and guns. Ask your insurance agent about a "floater" policy to provide additional coverage.

Life Insurance

There are several main types of life insurance choices. One is term insurance. Term insurance does not have a cash value or investment component and is written for a certain period of time, usually five or ten years. Other main types are whole life, universal, variable, and variable/universal. These all have an investment component.

The primary reason for buying life insurance for yourself is to protect others. Life insurance provides a way to protect families and others from losses associated with death. A life insurance policy specifies an amount of money or face value to be paid to beneficiaries when the insured dies.

Credit Life Insurance

Credit life insurance pays the unpaid balance of a loan or the credit card balance in the event of a borrower's death. Rates for this type of insurance are high and most financial experts feel it is unnecessary if the borrower has adequate life insurance coverage.

Health Insurance

There are two types of health insurance: medical and disability.

Medical. Many individuals have all or part of their medical insurance provided by their employer. However, some people need to seek out their own group or individual medical insurance.

Basic medical insurance takes care of the initial hospital surgery and supply costs. It usually covers from the first dollar of expense incurred. But there are limits on how much the policy will pay. And there are often limits on how long it will pay.

There are also restrictions on coverage. An example is a pre-existing condition, such as diabetes or cancer. Often these illnesses are not covered for the first months you hold the policy. Or in some cases, no coverage will be provided for specified illnesses. They may be covered only after a specified period of time if there is no recurrence of the disease.

A major difference among the various medical insurance policies is how much they pay per day for a hospital room.

If you recently graduated, you were most likely covered by your parents' medical insurance. Once you are on your own, you will need to get your own coverage. This is a very important employee benefit to look for when you are considering different job opportunities.

Disability. One of your greatest assets is your earning power. It is important to protect your earning power and income. You do this with disability income insurance.

Disability income insurance pays an income to you if you cannot work because of an injury or illness. Disability insurance can pay you a benefit if you are unable to work at your own occupation or if you are unable to work at any occupation. Be sure you know which kind of insurance you have. Regardless, the amount of coverage usually is limited to one-half to two-thirds of your gross income. This limited amount of coverage is designed to encourage you to return to work as soon as possible.

Insurance Information Institute - The web site provides a variety of insurance tools to help you choose the kinds of insurance you need

Arkansas Department of Insurance - Has brochures that describe various insurance policies and what to consider before buying the product.

• Practice the Rule of 3: Shop at least three places; compare rates and policies; ask about discounts or special rates.
• Read sources of information such as Consumer Reports, Kiplinger’s Personal Finance, or Money magazines.
• Buy more than one type of insurance from the same company; for example, insure all your cars with the same company or your car and homeowner’s insurance with the same agency.
• Don't smoke; take care of your health.
• Select a higher deductible.
• Carefully consider before adding riders or floaters.
• Maintain a good driving record.
• Discount allowed for smoke detectors and burglar alarm.
• Periodically review policies and coverage.

Answers to Insurance Terms Quiz:

1. insured 2. premium 3. beneficiary 4. face value 5. perils 6. grace period 7. deductible 8. lapse

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