As an insurance agent it is my goal to help people find the best insurance possible. But the term “best” is also very subjective. The best for you may not be the best for someone else. Because everyone is different, we all have different needs. Far too often people look at the best insurance only in relation to the cheapest insurance they can find. The cost of insurance should definitely be a large factor in determining what insurance someone gets. But without knowledge of the basics of insurance, someone who only looks at the price can be under-covered, or wind up with insurance that doesn’t fully help them. This could potentially lead to a situation in the future that could have been easily and cost effectively avoided.
The purpose of this post is to help you understand the basics of insurance. And when you have a basic understanding it will help you get the best coverage available, including getting the best insurance rates. We will cover some of these topics in more detail later in our blog. But for now this is a good place to start.
What is insurance?
The definition from Merriam-Webster is: “an agreement in which a person makes regular payments to a company and the company promises to pay money if the person is injured or dies, or to pay money equal to the value of something (such as a house or car) if it is damaged, lost, or stolen”. I’m an insurance agent and even I don’t think that definition explains things very well! So let me try to break it down a little better.
Life is full of risks. There is risk of getting injured, getting sick, and getting in a car accident. There is also risk that your house or personal property can be damaged, something can be stolen, and many other possibilities. The risk of something like this happening could cause a huge burden on you or your loved ones. It could even put you in financial ruin! Insurance does not completely get rid of the risk, but it is a contract where you pay money to someone else like an insurance company to transfer part of the financial risk to them. Depending on how the policy is set up, if you get in an accident, they may fix it. If something is damaged or stolen, they could replace it. And if someone gets injured, their family may be financially compensated. It can never replace a loved one who has passed away, or an item that has sentimental value. But insurance can do its best to financially put you back to where you were before.
Your basic responsibilities are pretty simple. Pay your policy premiums on time, give correct information, and report losses and information in a timely manner. If you don’t pay the insurance company, then why should they have to take the risks upon themselves? If you give them misleading or inaccurate information, then they might be making decisions that they would not have made otherwise. And if you don’t report a claim in a timely manner, this could make it difficult for them to verify accurate information or could affect the amount you get back.
Insurance company’s responsibilities
The basic responsibilities of the insurance company is to make a fair payment in the event of a qualified claim, be honest and fair in how they deal with you, and pay it in a timely manner. It’s amazing how similar everyone’s responsibilities are.
Coverage amounts, Limits, Riders, And Options
The amount of coverage can vary, and for the most part is up to you. In some cases, such as auto insurance, there are state minimums. The state minimum for auto insurance in Utah is 25/65/15 ($25,000/$65,000/$15,000).This means if you get in an accident that is your fault there is $25,000 per person to cover medical expenses of the other party. There is a $65,000 limit for medical expenses for the entire accident. And finally there is $15,000 to cover the cost of the other person’s vehicle and property. Each of these amounts can be increased, and we will discuss all your options with you to make sure that you are correctly covered. For a more detailed breakdown of this please refer to the auto insurance page.
For your home, the biggest factor in determining the coverage amount is the cost to replace your home and your personal belongings. If you have additional property such as expensive jewelry we can make sure it is scheduled onto the policy.
A deductible is simply how much of the financial responsibility you keep. There are a lot of benefits to having deductibles. If there were no such thing as a deductible then a lot more people would constantly make small claims for every little thing. If that were to happen, the cost of the insurance would skyrocket so high no one could afford it anymore. It also makes us take more responsibility. People are more likely to be careful with their property when they know that they are still responsible for a portion of it.
The higher the deductible is, the more financial responsibility we retain instead of passing to the insurance company. And if the insurance company has less financial responsibility, then they will charge lower rates. Deductibles really are a good and fair way to help keep claims and rates in check,
The amount of the deductible can vary depending on a number of factors. We usually quote you with different deductibles to give you a good idea of what your options are.
Replacement Cost vs Actual Cash Value (ACV)
One of the biggest things people get confused with is the difference between replacement cost and actual cash value. If you buy a couch and take it home it will eventually get dirty and worn. That couch is no longer worth the same amount compared to when it was new. But one day a thief breaks into your house and starts helping himself to your stuff. Suddenly he notices that sweet couch, and realizes he just can’t live without it! So off it goes along with your entertainment system, computers, and jewelry.
When you file a claim your insurance company has 2 possibilities. The first option is to reimburse you for the current actual cash value (the depreciated value of the couch). The second option is replacement cost (the cost to buy a brand new couch). A lot of times the choice is up to you. But you have to make that choice beforehand. A policy that covers your property at actual cash value will cost less than one that covers it at replacement cost. We can discuss both of these options with you to make sure you are properly covered.
Liability, Negligence, Libel, and Slander
Insurance can protect you and your stuff in case something happens to it. But what if someone else gets hurt or their stuff gets damaged because of you? Sometimes people unintentionally do things that have negative consequences. The types of things you can be liable for can vary from damaging someone’s car in an auto accident to damaging their reputation through libel or slander. Ultimately, if you cause someone to suffer financially because of your negligence you can be held responsible for it. Liability coverage protects you from lawsuits and financial liability of these type of situations. This coverage is built into most policies. There can be a wide variety of choices, and we can help you to select the best options to fit your needs.
Overall, insurance covers a very wide range of things. Between the coverage, options, and choices available it can seem overwhelming. We want to make sure that you are correctly covered. Give us a call today so we can discuss your personal situation with you, and tailor craft a policy that will cover you correctly