Insurance Basics

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Page 1

You don't often hear somebody say that they want insurance. “Boy, I wish I could double up on my homeowner's insurance,” is a phrase that certainly would cause you to look twice at the person speaking. Insurance, unfortunately, is something we buy because we need it—not because we want it.

Money Morsel

An insurance deductible is an amount you'll be required to pay in the event that you file a claim. Your insurance company will pay the remaining expenses, after your deductible. The higher the deductible you have, the lower your premium should be.

We need insurance to protect ourselves from the environment, from others, and from ourselves. Insurance is a way to reduce risk by sharing financial losses within a group of people. There are many types of risks, both financial and nonfinancial. These risks include the following:

  • Disability or death
  • Property loss
  • Personal liability
  • Risk from failure of others, such as a breach of contract
  • Speculative risks, such as the stock market

When considering these risks, you must decide if the protection you receive is worth the cost of the insurance you buy.

Many types of insurance are required. If you have a mortgage, your lender requires you to have homeowner's insurance. Most states require auto insurance.

In addition to these required insurances, you must decide what type of coverage you need for your family, and what you're able to spend on them. Riders, options, and basic insurance all come at a cost so you need to review the price and the coverage as part of your total financial picture.

You may need to provide your own insurance for some risks by putting aside funds on your own. You might want to set aside money for dental bills or a nursing home stay, for instance.

Let's look at some of the kinds of insurance that are important to you and your family.

Next: Page 2 >>

More on: Family Finances

Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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