Finance 101: Insurance 101

Finance 101: Insurance 101

Do you recall the article Tools for the Savvy Saving Woman? In the article, one of the “tools” to becoming a financially savvy woman was insurance. Not only does insurance protect you if something was to happen, but it can also save you thousands of dollars.

This Finance 101 topic covers the most common types of insurance and the importance of insurance. As costly as it may seem, having insurance actually protects your money!

Health Insurance

Not only is health insurance a federal requirement (thanks to Obama), but it is necessary. Sure, you are young and active, but what happens if you get really sick and need to go to the emergency room?

Without insurance, medical care is extremely expensive. Is skipping out on health insurance worth the risk to your long-term savings plans?

If you don’t have savings and you needed medical attention, you risk taking on extreme amounts of debt. That is not a financially savvy move! If you have a job, most employers offer insurance plans at lower rates than if you purchased an individual plan.

There are three main plan types: HMOs, PPOs, or High Deductible Plans. Each plan differs based on your employer coverage. Here are some quick definitions of the plans:

1. HMOs (Health Maintenance Organizations) – You have a primary care physician who recommends you to “in-network” specialists for any matter they cannot handle.

HMOs typically have lower out-of-pocket expenses and don’t require claim forms. However, if you see an “out-of-network” doctor or specialist, you may pay out of pocket.

2. PPOs (Preferred Provider Organizations) – Similar to HMOs, you use doctors who are in-network. However, you can see doctors who are out-of-network and might still get reimbursed for the visit.

3. HDHPs (High Deductible Health Plans) – As the name suggests, HDHPs have high deductibles. This means that you front money out of your own pocket until you reach your deductible limit. Once the limit is reached, your insurance provider kicks in and starts paying.

HDHPs are used in conjunction with HSAs (Health Spending Accounts), which place pre-tax money in a HSA to help you pay for medical costs. These plans are usually the least expensive up front, but you pay more on the deductible.

Auto Insurance

Auto insurance is another requirement. You cannot purchase a car without insurance. Furthermore, if you get pulled over and do not have proof of insurance, you can look forward to a ticket. Since auto insurance is something that you truly can’t skip, shop around for the best coverage and plans.

Research is key! The most common (and least expensive) type of auto insurance is liability. Liability coverage provides property damage protection and bodily injury protection. If you are at fault, liability insurance covers you.

Adding collision and personal injury provides protection for you and your car. You can also include comprehensive coverage and uninsured motorist’s coverage.

Comprehensive coverage protects your car and anything in the car in the case of theft, fire, or any other random weird stuff. Uninsured motorist’s coverage protects you if someone hits your car without having insurance themselves.

Renters’/Homeowners’ Insurance

If you live in an apartment complex, or are a tenant of a rental home, renters’ insurance protects your belongings in the event of flood, fire, or theft. Depending on your specific coverage, you may have other protections as well.

If you a rental home tenant, renters’ insurance helps if the owner of the property does not pay the mortgage and you are forced to relocate. Some landlords require renters’ insurance. It is usually cheap and worth having.

Homeowners’ insurance is required to purchase a home. The most common types of homeowners’ insurance cover property damage (up to a certain amount) and hazards. If your house is vandalized, homeowners’ insurance reimburses you for damages or stolen items.

When purchasing a house, you must purchase Private Mortgage Insurance (PMI) if you put less than 20% down. PMI protects the bank or lender if you default. If you can wait a few extra months to save up for a 20% down payment, then you definitely should!

Life Insurance

Life insurance is completely optional. If you are young with no children or dependents, then life insurance may not be worth it right now.

If you have children or people who depend on your income, and would struggle care of themselves if you were not around, then consider life insurance. The older you get, the more expensive life insurance becomes.

Life insurance is less expensive if you start purchasing while you are young. There are different types of life insurance, including: whole life/cash value and universal.

We won’t get into more details at this time, but if you would like us to provide more information on life insurance and what to look for, leave a comment below!

Disability Insurance

The last type of insurance we are going to cover is disability. Disability insurance protects you if you are injured and can’t work. Disability plans usually pay up to 60% of your normal income.

Disability insurance is another type of insurance that is not required but may help. If you are injured on the job, then you would most likely get workers’ compensation. If you are injured and can’t work, disability insurance helps supplement your income.

Related: Why You Need Life Insurance Right Now

What are your experiences with insurance? Do you think you are getting the best coverage for what you are paying? Any insurance companies you recommend or stay away from? Leave comments below to share your feedback with the community!

-The CGS Team

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2 thoughts on “Finance 101: Insurance 101”

  1. Great read. Its funny – auto and home owners insurance are required of us yet life and disability insurance aren’t. It’s silly to me that we pay to protect our “things” yet often do little in the way of protecting ourselves. I have to disagree that disability insurance is optional. In my eyes it is buying insurance to protect our earning potential from today until we retire.

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