A Better Way to Manage Your Everyday Money - Book - Page 269
Chapter 17: Insurance
Being insured means that you have agreed to make scheduled payments to a company that has
agreed to reimburse you for an agreed-upon amount should an event take place that is covered,
such as auto insurance for a car accident or homeowners insurance in the case of weather
damage. This simple-sounding relationship is how you protect yourself from unexpected and
possibly expensive damages and financial losses.
While the basic insurance relationship is simple to define, insurance products, how to buy them,
and from whom to buy them are not. There is no federal regulatory agency for the insurance
industry like the Consumer Financial Protection Bureau in the financial marketplace. When
trying to navigate the insurance industry maze, you are on your own. My intent is to give you a
basic introduction to insurance so that you won’t start blind.
Common insurance terms
When you are shopping for insurance coverage for your life, home, vehicle, or health, there are
basic terms of which you should have at least a basic understanding. These terms apply to all
types of insurance.
Premium
An insurance premium is the amount of money that an insurance company charges you for the
policy that you buy. The insurance premium is the cost you pay for your insurance. Premiums are
typically paid monthly, but can be on any schedule stipulated by the insurance company such as
quarterly, semi-annually, annually, or in-full when a policy is purchased.
The amount of the premium for an insurance policy is determined using several factors related to
the person or business buying the insurance. For example, a person in their 20s will pay less for
the same life insurance policy than a person in their 40s because, statistically, the younger person
is expected to live longer. For vehicle insurance, a person that has been involved in several
accidents will pay a higher premium for the same policy than a person of the same age with a
clean driving record.
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