Insurance 101

While you may have heard of insurance, you may not know a lot about it, or whether or not you should consider purchasing some. The first thing you should know is that insurance is a financial product which provides protection to an individual, business or other entity in case on an unexpected loss. We’ll focus on individual insurance in this post. When you purchase insurance, there is a promise of compensation for a future loss (if your car gets totaled or your house gets robbed, for example) in exchange for money, usually a periodic payment.

The most common type of insurance that comes into play for college students is health insurance. If you don’t have health insurance through you parents or on your own, colleges usually contract with an outside company to provide a policy that you purchase for premium (cost) every year. Keep in mind that most schools include this payment in your tuition and fee bill and you often have to provide evidence of other insurance in order for this fee to be waived.

Similarly, all states require you to have auto insurance on your car.

How Does Insurance Work?

When you buy an insurance policy, you are sharing your financial risk of loss (also called a liability) with the insurance company. When the insurance company agrees to accept this risk, they enter into a written agreement or contract with you, and you become what is commonly referred to as the “insured.” In exchange, you pay the insurance company a “premium” or payment. Some premiums may be monthly (such as health or life insurance), quarterly or every six months (such as car insurance), or even once a year. If you have more than one type of insurance and/or payment type, it is important to put payment due dates in your calendar or set up automatic bill payments through your bank so you do not forget to pay them on time.


What Is A Deductible?

Another important insurance concept is what is known as a “deductible.” A deductible is the amount you have to pay before your insurance kicks in. Insurance would be much more expensive if insurance companies had to pay the full cost of every loss or claim. For this reason, they usually offer a wide range of policies with varying levels of deductibles. An example of how a deductible works is as follows:

  • Your homeowners insurance policy has a deductible of $500
  • Your roof is damaged in a storm and it will cost $2,000 to repair
  • Your will be responsible for paying the $500 and the insurance company will pay the remaining $1,500
  • Your neighbor has similar damage but has a deductible of $800, so they will only receive $1,200 from the insurance company



Generally, the higher the deductible, the lower the cost of the insurance premium. However, it is important to figure out what you are comfortable with, what you can reasonably afford to pay for the premium and if you have money set aside to cover the deductible if you have to submit a claim at some point. Planning for such an unexpected expense is another good reason to be sure you are building an emergency fund.


How Do I Choose An Insurance Company?

There are hundreds of insurance companies out there, with some offering a wide variety of insurance policies and some focused on a more narrow set of insurance (such a car insurance). The first thing you want to do is make sure the company you are considering is licensed to operate in your state. You can check with your state’s insurance department to make sure. You also want to make sure you shop around to get a good sense of available benefit choices, coverage options and price. There are a lot of new online tools to where you can get almost instantaneous quotes, but you should take extra care to make sure sites are legitimate, that you are not sharing any personally identifiable information and that you understand that these quotes are most often not guaranteed.

It’s also a good idea to do some research on the company to see if there have been any major complaints or legal actions against the company. As with any financial product or service, don’t be afraid to ask questions. Also, be sure to ask a trusted family member or friend for recommendations, and ask them to share their own experiences with customer service and the claims process.


What Are The Common Types of Insurance?

In addition to health and auto insurance, other common types of insurance include life, homeowners, renters, disability and long-term care. Renters insurance is particularly important for students living in an off‑campus apartment or other rental property. It protects personal property such as your laptop, television, and furniture in the event of loss or damage. Many parents mistakenly think that their homeowners’ policy provides protection, but it does not.

Typically, these policies cover loss and/or damage from:

  • Fire and smoke
  • Ice, snow, sleet
  • Water damage from plumbing leaks or overflows
  • Theft
  • Vandalism
  • Liability for someone who may be insured in the rental unit


Some colleges and universities may have worked out special deals with insurance company for their students, particularly if a large segment of their population lives in off-campus housing. It is really important for you to keep their receipts for valuable items you have purchased and take pictures of your belongings so that you have proof to show the insurance company in the event that have to submit a claim. Renters’ insurance is usually pretty affordable, too – a few hundred dollars per year.


What Should I know about Auto Insurance?

Auto insurance provides protection again car accidents, both those that you may cause as well as those that are not your fault depending on the circumstances. These policies provide property, liability and medical coverage.

There are many factors that determine what you may end up paying for car insurance, including:

  • Demographic factors such as gender, age and place of residence
  • Your credit score – which is an indication how risky you may be to the insurer
  • Profession – whether you have travel long distances for your job, for example
  • Driving record – the more accidents/claims you have made, the higher your premiums are likely to be
  • Car’s age, safety rating and likelihood of theft – popular car colors tend to be stolen more often


Most auto insurance policies are comprised of six different types of coverage, and most states require that your purchase, but maybe not all, of these types of coverage. In addition, your car lender (if you have a car loan), may require certain types of coverage. These include:

 

  • Bodily injury liability – This covers injuries to other people (not your passengers) involved in the accident.
  • Medical payments or personal injury protection coverage – This covers injures to yourself and your passengers. (In some cases, lost wages and funeral costs are paid by this type of insurance coverage.)
  • Property damage liability – This covers damages to other people’s property.
  • Collision – This covers the damage to your car from hitting another vehicle or an object, or from a roll-over accident.
  • Comprehensive – This is catch-all coverage for damage from things like hailstones, earthquakes, vandalism, theft or anything that is not covered under the collision coverage.
  • Uninsured and underinsured motorist coverage – This coverage reimburses you if the other driver doesn’t have auto insurance or doesn’t have sufficient coverage to cover your expenses.


Here are some tips to keep in mind if you are even in a car accident:

  • Call 911 – Be sure to report any known or visible injuries.
  • Protect the accident scene – If possible and safe, take pictures with your cell phone and try to protect your car from further damage by getting it to the side of the road. Again, only if it is safe to do so.
  • Write down and keep notes – Be sure to write down license plate numbers; names and addresses of those involved; drivers license numbers; insurance information; names and addresses of witnesses; names and badges numbers of the police officers that responded to the accident scene.
  • If vehicle is unattended – If you hit an unoccupied car, try to find the owner and/or leave a note with your name, address and phone number. Take pictures before you leave if you are unable to find the owner. File a police report.
  • Contact your insurance company – Call your insurance company or agent and let them know that you were in an accident. They will walk you through what other information they may require and how to file a claim.


Please keep in mind that this information is meant to provide you with a basic introduction to the different types of insurance you may encounter for the first time. Make sure you fully understand you needs and choose a policy wisely. A great resource for more information about insurance can be found at cicmoney101.org

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