Insurance

Why Insurance Is A Great Way To Protect Your Personal Finances

Published

2 years ago

June 4, 2021

It is not uncommon to hear people referring to insurance services by using words like “scam” and “hustle” after pointing out that most people will not find the need to use it at any point as long as they are careful or if they save the money they would spend on coverage. That said, a good insurance strategy can help you protect your personal finances.

While it certainly might be true in some specific cases that most people won’t have a need to use their homeowner, liability, or other types of insurances, it is an undeniable fact that bad things happen and we can be victims of unforeseen circumstances at any moment, ruining not only your day but potentially ruining your personal finances.

Insurance coverage has gained a bad rap due to characters like Ned Ryerson in Groundhog day https://www.youtube.com/watch?v=XqSYC_vwhDg or that car rental insurance scene in Seinfeld. https://www.youtube.com/watch?v=vC4C_Ni2SVc However, as long as you make sure you understand what the insurance coverage offers and get it from a reliable company, you are sure to avoid such situations.

In this article, we will be telling you why choosing and acquiring good insurance coverage is one of the best ways to protect your personal finances in the long term while having peace of mind.

Contents

What is Insurance?

Aspects of Insurance You Need to Be Aware of

Premium

Policy Limit

Deductible

Is Insurance Important?

The Most Common Types of Insurance

Life Insurance

Auto Insurance

Health Insurance

Conclusion

Sources

What is Insurance?

Let’s start with the basics: What is insurance? It is an agreement represented by a contract between you and the provider, which ensures you receive financial protection in the event you find yourself in a situation defined in the contract.

Insurance companies pool client’s risks in order to make the coverage more affordable for all individuals, allowing them to hedge against the different risks covered by the policy. This means that you are effectively “dividing” the risk by sharing it with all of the other clients, paying a lower fee but ensuring that you won’t need to pay a large sum in case of a negative event.

There are many types of personal insurance, including auto, health, life, homeowner, liability, and many more, with each of them covering different scenarios that could have a negative impact on your personal finances.

It is important to note that every insurance plan’s coverage will differ from each other, so it is especially important for you to make sure it covers the specific scenarios you have in mind while also understanding its limitations and conditions.

Aspects of Insurance You Need to Be Aware of

While the idea behind insurance is well known by most people around the world, there tend to be certain aspects of it that people are not aware of. Let’s take a look at some of the most important aspects of insurance and how they might affect you.

Premium

This is one of the terms you will hear (or read) the most when looking at information about insurance policies. An insurance premium is the price you will pay to maintain your coverage depending on the type of insurance, risk factors, and other factors.

Premiums are usually charged on a monthly basis and will be higher the more risk there is the policy will be used. For example, older people tend to be charged higher premiums in the case of health and life insurance as their profile risk is higher.

In the case of health insurance for seniors, it is not unusual to find that some providers charge really high premiums or just make it impossible for seniors to acquire the policy due to the risk they imply for the provider. However, certain insurance companies like Health IQ offer insurance policies specially designed for seniors.

Just like in the previous example, it doesn’t matter what specific need you have when it comes to insurance coverage needs. You are sure to find a provider that fits your various needs.

Policy Limit

Every insurance policy comes with certain limitations. One of these limitations is the maximum amount the insurance company will pay you for a covered loss.

This limitation can be either in terms of a specific amount of money or how many incidents on a certain period. Think about a car insurance policy: It could cover a maximum of $25k per accident or $100 per year, as well as have a limitation of a maximum of 2 accidents per year.

Make sure to understand what your policy limits are as they will be directly associated with your premiums. While we are sure you are not looking forward to having to use your insurance policy, it is good to understand its limits and make sure you have peace of mind when it comes to your personal finances.

Deductible

Most insurance policies will require the payment of a “fee” at the moment of issuing a claim to your provider. This “fee” effectively acts as a deterrent to ensure that you, or other clients, don’t issue a large number of claims or spend the company’s resources with insignificant claims.

Remember that the company is pooling client’s risk, so insignificant claims not only affect the company but other customers as well.

Coverage with higher premiums will often have lower or no deductibles, so it is a good idea to consider the tradeoffs. As we said before, you might not be looking forward to using your policy but could be at a higher risk of requiring it depending on your specific situation. Be mindful of this!

Is Insurance Important?

Definitely! While some insurance policies will be more relevant than others for you, having insurance is not only a great way to protect your finances and peace of mind but also for those around you.

If 2020 taught something to people around the world is that we can never be sure of what the future holds. The Covid19 pandemic took the world by storm with most experts and non-experts having been unable to predict the impact the virus would have on our daily life.

In the case of the pandemic: Who do you think was more worried by the prospect of getting infected? Those who had insurance or those who were not covered? It doesn’t matter if we are talking about health, life, car, liability, or any other type of insurance, the stress the pandemic added to our daily life had a direct impact on all aspects.

Buying insurance is buying a promise that you will get assistance in case of a certain catastrophe, which is especially important for the average person. While millionaires might not need to worry if they are required to pay $50k in medical expenses next week, this certainly would be a disaster for most of our personal finances.

Having insurance is not a decision that only concerns yourself as an individual but also those around you. There are multiple scenarios in which you might not be the direct beneficiary of the insurance policy, such as in the case of life insurance, but your family will be financially protected.

The Most Common Types of Insurance

There are many types of insurance you can choose from depending on your profession, activities you participate in, the purpose of acquiring the insurance, etc.

Choosing what insurance you really need is not always an easy task but doing your research and understanding how they work is fundamental to protect yourself, your family, and your personal finances.

You are probably aware of the insurance policies you require due to your professional activity, so we will limit ourselves to other common forms – like: Life, Health, Long-Term Disability, and Auto insurance.

Many experts believe that everyone should have insurance coverage for these 3 areas, which is one of the reasons for them being the most popular. Let’s talk about them!

Life Insurance

This is probably the most difficult insurance type to consider acquiring due to the events they cover. Life insurance policies will cover not only your funeral expenses, which tend to be high, but also provide those you leave behind with sufficient financial needs to adapt to such changes.

Life insurance has been dramatized by TV shows and movies as a means for someone to become rich in case of ts partner or parent’s death but this is far from being the objective of the policy. Life insurance ensures that you have the peace of mind of knowing those you leave behind will be taken care of.

When considering which life insurance policy is the right one for you, it is important that you consider factors like mortgage payments, outstanding loans and debt, taxes, college costs, and any other daily expense that might need to be considered, as it is not only about funeral expenses.

Considering all these expenses can be a hard job, especially at a time when there is so much competition among life insurance providers. However, providers like HavenLife have been becoming increasingly popular due to their use of new technologies to facilitate and accelerate the process while offering a policy for your needs.

While HavenLife is one of our favorite options available in the market due to their vision and the quality of their service, if their policies don’t fulfill your needs (which is unlikely), there are hundreds of providers to choose from.

What is important is for you to carefully consider the impact that premiums will have on your monthly finances, any deductibles you could incur, and the policy limits. Make sure to consider the expenses you would need to be covered if it comes to worst and the insurance is needed.

We know thinking about what might go wrong in the future is not fun or enjoyable in any way, but it is important to be prepared.

Auto Insurance

Let’s talk about driving. With over 231,652,000 licensed drivers, the United States is one of the countries with the most cars per 1000 inhabitants and the biggest car fleets in the world. While in other parts of the world, having a car is reserved for the upper and middle-upper classes, in the US it is not a privilege but a necessity in most cases.

This is reflected in the number of car accidents the US experiences each year, with more than 42k deaths in 2020 being caused by vehicle crashes and more than 6.7 million car accidents taking place.

This is one of the reasons why most states require drivers to have auto insurance to be able to drive legally. However, not all states require auto insurance but enforce financial responsibility in case of accidents, which means auto insurance is a must if you are a driver.

Premiums for auto insurance policies will vary depending on your driving record, coverage you are looking for, mileage, age, and area. Make sure to look at all the factors we included before, as well as coverage in terms of theft, natural disasters, vandalism, etc.

Health Insurance

The United States is known for having the most expensive healthcare system of any country. It doesn’t matter who you think is at fault for this fact, it is something that is sure to have an impact on anyone living in the United States at some point in our lives.

According to statistics, most families are only one illness away from having to file for bankruptcy, which is one of the reasons why health insurance policies are in high demand. Just so you have an idea of how important health insurance is, the average price of one day in a hospital was $2.6k in 2019.

Not all employers offer insurance coverage and even when they do, it is not always great. While having a minimal policy is better than none, ensuring that you are covered in case of a health condition or an accident is fundamental to protect your personal finances and health in such a case.

Finding insurance that ensures you are covered in case of chronic illness or disability is fundamental, as well as making sure you will not see your premiums increased dramatically as you age, which is one of the biggest inconveniences when it comes to health insurance.

Insurance providers like Health IQ have taken a different approach when it comes to rewarding healthy lifestyles, as you will not only have lower rates but also receive a myriad of benefits designed to help maintain your healthy lifestyle.

Conclusion

Thinking about getting an insurance policy can seem like a downer but it is fundamental to protect your personal finances in the long term, as well as offering your family and yourself peace of mind.

While it is easy to think about insurance like a bet you might be able to get away by not acquiring a policy, it is all about investing in the long term as saving the money for a rainy day might not be enough for the costs that could arise from an unexpected situation.

Being ready for the unexpected, ensuring you can focus your energy and efforts on what matters without being worried, and having the insight that looking at your current situation in different aspects of your life, is also a great way to gain awareness about the status of your personal finances.