The Basics of Insurance

Insurance is one of the first things you learn about in the adult world, and while it might make sense as a concept, sometimes the details of it get lost and brushed over. Today’s topic is here to help you figure out some of those things that you never really understood “why” it exists, or works, or anything in between.
When you buy insurance, you make payments to the company. These payments are called premiums. In exchange, you are covered from certain risks. The company agrees to pay you for losses if they occur. Insurance is based on the idea that spreading the risk of a loss, such as a fire or theft, among many people makes the risk lower for all. Sometimes, there are purchases that are so big and can have such large risks that they become mandatory to have, either by the government or the industry.

Although there are many different types of insurance, there are three basic ones that people will commonly encounter in their lifetime: residential (or home) insurance, car (or auto) insurance, and health. Some companies are able to offer multiple types of insurance in one location (like TransGlobal does), and others only specialize in one type or another.

When you have a loss such as a car crash or house fire, you call the insurance company right away and let them know; they record this down and do work on their end to find out exactly what happened. After they come to the conclusion that you do qualify for their insurance payout (also known as a “covered loss”), they can send you a check with the necessary amount of money, or may refer you to a shop for the repairs that need to be fixed, taking care of the payment directly with the shop. In exchange, any type of insurance you have (also known as a “insurance policy”) will require you to pay a monthly amount to have access to this plan (a “premium”). Think of it as a subscription fee to get the financial help from your insurance company; while you may never end up needing it because nothing bad happens, it’s better to be safe than sorry.

There are a few key questions you can ask yourself that might help you decide what kind of coverage you need.

• How much risk or loss of money can you assume on your own?
• Do you have the money to cover your costs or debts if you have an accident? What about if your home or car is ruined?
• Do you have the savings to cover you if you can’t work due to an accident or illness?
• Can you afford higher deductibles in order to reduce your costs?
• Do you have special needs in your life that require extra coverage?
• What concerns you most? Policies can be tailored to your needs and identify what you are most worried about protecting. This may help you narrow down the kind of policy you need and reduce your costs.