Insurance is often thought of as a difficult subject to understand, but luckily it no longer has to be. There are only two types of losses that you need to protect yourself against: aggravating and devastating. What do these words bring to mind? Dictionary.com defines aggravating as, "to annoy, irritate, and exasperate" and defines devastating as, "to lay waste, render desolate, destroy, ruin, level, and overwhelm." An example of each might help:
1) You are driving your car and you rear-end someone in a parking lot
- this is aggravating. It might ruin your day or you might have to pay a deductible for your car insurance, but the pain stops there.
2) Your spouse is walking your children to school when a driver drops his/her cell phone, reaches down to pick it up, doesn't see your family crossing the road and hits and kills them
- this is devastating.
So how do these two types of losses affect you and what types of insurance do you need to get to protect your family?
The three types of insurance I am going to discuss are:
1) Auto insurance
2) Homeowner's or renter's insurance
3) Life insurance
Auto insurance - usually aggravating, but can be devastating
You have two categories: Liability and Full coverage. Liability protects you from losing what you have. If you cause an accident, it will pay to fix the other person's car and will pay their medical bills - you pay nothing out of pocket. The more insurance you have here, the less you have to be worried about being sued. Full coverage (comprehensive and collision) covers your vehicle. Comprehensive pays to fix your car for incidents you can't necessarily control such as when your windshield cracks, you hit an animal such as a deer or your vehicle is stolen or vandalized. Collision pays for accidents you can or should control such as if you hit another car or physical object such as a fence. For comprehensive and collision you have a deductible, which means you pay the first $500 for example, and the insurance company pays the rest.
Homeowner's insurance - usually aggravating, but can be devastating
Homeowner's insurance protects your home, your personal belongings, and you. Renters insurance just protects your personal belongings and you. If you have an interior pipe that breaks and floods your home or a fire that burns your house down, you will pay your deductible and the insurance company will pay the rest of the bill up to your limit. You want to make sure to have enough insurance to rebuild your home. There is also coverage to replace your personal belongings (clothes, furniture, electronics). But how do homeowner's and renter's insurance protect you? If someone is injured at your house and blames you (i.e. you didn't shovel your walks, your child hit the neighbor friend in the head with a baseball bat, etc.), you may be responsible to pay for the medical bills. Homeowner's and renter's insurance have liability insurance to pay for exactly that so you don't have to.
Life insurance - devastating
When someone in your family passes away, you do not want to come up with money to pay for their funeral, their bills, and someone to take care of your children so you can work. Life insurance will give you the money you need to pay your bills so you can take time off work to spend with your family and to get your life back together. The recovery will still be tough, but being financially stable will make it easier.