Insurance basics: premiums, deductibles and claims
In short: insurance lets you pay a regular premium so that, if something covered goes wrong, the insurer pays some or all of the cost. You usually pay a deductible first, and the insurer pays up to the coverage limit. What is covered, and what is not (the exclusions), is set out in the policy, so read it before you need it.
Key words
- Premium: what you pay for the insurance, monthly or yearly, whether or not you claim.
- Deductible: the amount you pay towards a covered loss before the insurer pays. A higher deductible usually means a lower premium, but more to pay when something happens.
- Coverage limit: the most the insurer will pay, per claim or per year.
- Exclusions: things the policy does not cover. Floods and earthquakes, for example, are often excluded from home and renters policies.
- Claim: your request to the insurer to pay for a loss.
- Policyholder and beneficiary: the person who owns the policy, and (in life insurance) the person who receives the money.
Health insurance has some extra terms, such as copay, coinsurance and out-of-pocket maximum: see Health insurance basics.
A simple example
Your renters policy has a $500 deductible and a $20,000 limit for your belongings. A burst pipe ruins $2,300 of your things. You pay the first $500 and the insurer pays $1,800, if the damage is covered. Figures are for illustration only.
Types you will hear about
- Health insurance: doctor and hospital bills.
- Car insurance: required in nearly every state if you drive.
- Renters insurance: your belongings and liability in a rented home.
- Life insurance: money for the people who depend on you if you die.
- Disability insurance: replaces part of your income if you can't work because of illness or injury. Some employers offer it.
Shopping and comparing
- Compare quotes for the same coverage, limits and deductible, or you are not comparing like with like.
- Check that the insurer and any agent are licensed in your state. Your state insurance department can tell you, and the NAIC website links to every state department.
- Ask what discounts apply, and what could make the premium go up at renewal.
- Be honest on applications. Wrong information can lead to a claim being refused.
Making a claim
- Make sure everyone is safe, and stop further damage if you can.
- Contact your insurer as soon as possible and note the claim number.
- Take photos, keep receipts and write down what happened.
- If you disagree with a decision, ask the insurer to explain it in writing. You can complain to your state insurance department.
Handy tools
- Monthly budget planner: see what is left each month and how your spending splits up.
General information, not financial or insurance advice. Coverage, prices and rules vary by state, insurer and policy. Read your policy and check with the insurer, a licensed agent or your state insurance department before you decide.
Sources
- NAIC (state insurance regulators): Consumer information
- NAIC: How can insurance help protect your financial future?
- HealthCare.gov: Glossary of health coverage terms
- FEMA: FloodSmart (National Flood Insurance Program)