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Everything You Need to Know About Buying Insurance

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How to Buy Insurance

Making sure you have the right insurance is essential to protecting yourself financially. Insurance allows you to transfer a risk to a company that pools your risk with many others. For example, with auto insurance, you transfer to the insurer the risk that you will damage your car or injure yourself or others in an accident. The insurance company sells a policy to you and to many other people, some but not all of whom may get into an accident and make a claim. The money collected from all policy holders is set aside, in part, to pay the claims.

Given the numerous types of insurance, it is important to understand how much coverage you need and how to buy the policies you require.

Five Steps to Buying Insurance

When buying insurance coverage, you should take each of these steps:

1.  Determine the type of coverage you need.The four kinds of insurance that most people require are:

  • Car Insurance : Auto insurance is legally required in every state in the United States. The minimum coverage for each state is generally reflected in a series of three numbers. For example, California requires 15/30/5. This means that California residents must have $15,000 in liability coverage for each individual person the claimant injures in a crash; $30,000 in total coverage for accident injuries; and $5,000 in coverage for property damage. Liability insurance pays out if someone else suffers injuries in an accident you cause. Some states also require you cover yourself with a personal injury protection policy to pay your bills if you sustain serious injuries.Other required or optional policies can include SR22 uninsured/ underinsured motorist coverage to pay your bills if you are in an accident with someone without coverage, and collision coverage to pay for your property damage if you cause a wreck.
  • Health Insurance: Health insurance is often provided through an employer, but can also be purchased on the individual market if your employer does not offer coverage. Health insurance policies can provide catastrophic coverage only, which means that insurance company pays out only after you suffer serious injuries or illness and spend a great deal of money on medical bills. Policies can also provide more comprehensive coverage such as paying for doctor visits and prescriptions. After 2014, the Patient Protection and Affordable Care Act (Obama Care) will require you to buy health insurance coverage or pay a penalty equal to $95 or a percentage of your income. Government subsidized medical insurance is available for low-income individuals in the form of Medicaid and for senior citizens in the form of Medicare.
  • Life Insurance: Life insurance pays money to your beneficiaries if you die. The purpose is to protect your family financially. There are different types of life insurance policies including term and whole life coverage. Term life insurance pays out if you die within a certain period of time, such as 30 years. Whole life insurance continues as long as you pay your premiums and will eventually pay out when you die. Whole life insurance also has an investment component – you pay more than the premiums and the money is invested.
  • Renters or Homeowner’s Insurance: These policies cover you from liability for accidents in your home and will pay for damage to your home or property caused by fire, storms or other disasters. Homeowner’s insurance also pays for the loss of your possessions if you are robbed or if they are destroyed in your home.

Most people need all of these types of coverage, so you should think carefully about which you need and how much coverage you want to buy. The more insurance you purchase, the more risk you are protected from and the higher your insurance premiums. A financial advisor or insurance agent can help you to decide what coverage you require.

2.  Shop around for policies. Once you have determined the types of coverage you need, it is time to shop for policies. You can purchase policies directly through an insurance company in some cases, such as by visiting the websites of insurance companies like Geico and Progressive. You can also buy insurance through an agent who can help you to determine what coverage you need and apply for it. Since insurance agents charge a commission to the insurance companies, so your policy might be more expensive if you use an agent.If you want to buy policies yourself, you can shop online using marketplaces such as:

1.  Bankrate: The leading aggregator of [insurance] financial rates information

2.  Netquote: The most visited insurance website

3.  Esurance: American auto insurance provider owned by Allstate

Be sure to compare apples-to-apples when shopping for coverage. This means making sure that the deductibles, policy limits and coverage exclusions are the same when examining the cost of different policies.

The cost of the policy will be determined by the deductible (the amount you pay before the insurer pays out) and the maximum policy limits (the total the insurer will pay). A higher deductible can save you money on monthly premiums but you’ll need to make sure you have the cash set aside to pay the deductible in case something goes wrong and you need to make a claim. Higher maximum policy limits provide protection for your assets in case something goes very wrong and you need to make a large claim, but you need to decide if paying extra for that peace-of-mind is worthwhile.

3.  Apply for a policy. You need to submit an application to buy your policy and the insurance company must approve you. The information you need to provide will vary depending upon the type of insurance you buy. For health insurance, for example, you’ll need to submit information on all of your pre-existing medical conditions and on whether you smoke or engage in other high-risk behaviors. For life insurance, you’ll also need to provide medical information and you may need to undergo a medical exam. For car insurance, your driving history is the most important factor. Applications can generally be completed online at the website of the insurance company you are applying for a policy from. Be sure to complete all of the information truthfully because lying on the application could result in the insurer refusing to pay a claim when the time comes.

4.  Pay for your coverage. Once you are approved, you must pay for your policy. You may be able to pay monthly or annually. You can typically set up auto pays to deduct from your checking account or to put the money that you owe onto a credit card. It is important to keep current on your premiums whatever you do, so your policy does not get canceled.You can typically save money on your payments by bundling your insurance coverage or buying multiple policies from the same insurer. Ask your agent or insurance company about any discounts that are available.

5.  Read and keep your insurance contract. When you have bought insurance, the company will send you a copy of your insurance policy. Be sure to read the policy carefully so you can understand the coverage and the exclusions. Keep the policy in a safe place so you will have it in case you need to make a claim.

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