A Better Way to Manage Your Everyday Money - Book - Page 270
Insurance products are the ultimate customized commercial product. When you go shopping for
insurance, your situation, health, finances, and history will be used to determine how much
insurance you are qualified to buy and the premiums you will pay. The policy that you purchase
could be very different both in policy provisions and cost for someone else.
Policy limit
When an event covered by an insurance policy happens, the purchaser of the policy submits a
formal claim to the insurance company for a payment based on the terms of the policy. The
insurance company reviews the claim for its validity and, once approved, pays the claim up to
the maximum amount stipulated in the policy. This maximum is the policy limit. If damages cost
more that the policy limit, the policyholder is responsible for paying the difference.
Deductible
A policy deductible is the amount the policyholder must pay out-of-pocket before the insurance
company will start paying on claims. Most insurance policies have a deductible, but the amount
varies. In general, the deductible affects the premium inversely: a higher deductible will lower
the premium while a lower deductible comes with a higher premium.
Types of insurance
There are many types of personal insurance, but there are five that are considered important for
everyone to have.
● Home or Property - Coverage that helps pay to
repair or replace your home and its contents in case of
damaging events such as fire or theft. Damage you do
to another person’s property may also be covered, as
well as injury suffered by someone on your property.
Homeowners insurance is typically required by a
mortgage lender until the mortgage is paid off.
● Life - In exchange for your premiums, the insurance company agrees to pay a lump sum
upon your death to a chosen person or party. There are two basic types of life
insurance...term and whole life. Term insurance is the least expensive and simplest. You
pay premiums until the coverage expires or you die. Whole life policies do not expire.
You pay higher premiums than for term insurance because your entire life expectancy is
included in the premium calculations. There are numerous ways to configure whole life
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