Purpose of Insurance
Insurance is an important type of financial service offered in the US and many
other countries that can be used to protect you against financial loss in the case of an emergency.
Insurance - Insurance is a contract, represented by a policy, in which an
individual or entity receives financial protection or reimbursement against
losses from an insurance company.
The definition of insurance may sound confusing, but all this means is that if you buy insurance for something you will pay an insurance company (a type of financial institution) a monthly fee (called a premium), and in return if you have an accident or emergency they will help you pay the costs of the emergency (called a payout).
Hopefully, you will never have an accident or emergency and will never need the insurance company to give you a payout. The idea behind insurance is that IF you do need help paying for an emergency, the cost of paying for the emergency will be greater than the amount you have paid the insurance company in premiums. Working with an insurance company is a way of protecting yourself against risks.
Let’s explain in further detail by looking at a scenario Flores Garcia might face:
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Flores Garcia has an apartment. She also has renters insurance, which costs $20 each month. Renter’s insurance protects Flores against damages to her apartment that she did not cause.
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After five months of having her apartment and insurance, a flood damages some of her belongings and the structure of the apartment. The cost of repairing the damage and replacing her items is $1000.
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Cost of insurance for five months: $20 x 5 =$100
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Cost of repairing and replacing after the flood: $1000
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The insurance company pays for the damages done to Flores’s apartment and replaces her damaged items.
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Because the insurance company paid for all $1000 of the repairs and replacements in return for $20 a month ($100 total over five months) from Flores, paying for insurance actually saved Flores $1000-$100=$900.
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In this case, the cost of paying for the flood was more than Flores had paid in premiums to the insurance company, so she saved money by having insurance.
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Of course, it would have been better if the flood had not happened at all. In that case she would technically lose money to the insurance company because she paid them premiums and they never had to pay for any emergencies. It is almost always worth it to get insurance because the cost of a payout is almost always more than the cost of premiums.
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We looked at one example of insurance (renters insurance), but there are many other types of insurance to help protect you financially against different types of accidents and emergencies. The ones we will talk about in this lesson are:
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Health insurance
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Disability insurance
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Unemployment insurance
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Car insurance
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Renters insurance
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Homeowners insurance​
​​Health insurance
In the United States, health insurance is very important. With health insurance, you pay a little each month so that you are covered when you need medical attention. It is especially helpful because if an emergency were to occur, such as breaking your arm and having to go to the emergency room, most of the care received would be covered by the health insurance provider. Without it, medical treatments can cost an extraordinarily high amount of money - so much so that hospitals know they would not be paid for treatment in most cases if the person does not have insurance.
Health insurance is also used to help with the cost of preventative healthcare such as a regular exam or blood work. The cost of getting a yearly check up could be $200 without insurance, or it could be free with insurance. Depending on how many people are in your family, this could really help you save money. Again, the really high medical costs come from emergencies and specialty treatments (for example, chemotherapy treatment for cancer can cost between $1,000-$12,000 without insurance), and if you ever need emergency or specialty treatment you will be really glad you have health insurance.
Finding quality and affordable health insurance can be tricky. Sometimes,
insurance may be available through a person’s employer. An employer should tell you if benefits are available to you and what they may include, but you should be sure to ask if you have not been given this information. When health insurance is provided by an employer, the employer usually pays some or all of the premiums(the amount paid to the company to be insured, usually charged monthly). If health insurance is offered by your employer, you still may be required to enroll in a certain type of plan or confirm that you wish to have the insurance.
If you lose your job that provided you with insurance, you may be able to keep your coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA) program. COBRA gives the option to have the same coverage, but you would pay for it without any contributions from your former employer. This can make coverage expensive under COBRA.
It also may be possible to get insurance that is subsidized by the government - this means that it generally costs less than getting a plan directly from the marketplace. The federal government offers Medicaid and Medicare, and they both have specific criteria that you must meet to qualify. Medicare is generally available for persons aged 65 and older. Details regarding Medicaid can be found in the chart below.
Many state governments also offer similar plans to Medicaid, as do some local governments. For example, in California, the state government offers insurance to many residents through its Covered California program. The 2010 Affordable Care Act allowed states to expand Medicaid coverage so that more people were eligible.
The chart here shows some options available for health insurance.
1 Blue California was randomly chosen as an example of a private insurer
provider. You can, and should, search among many different options to determine what provider is right for you when seeking private health insurance.
2 Some states have chosen not to extend Medicaid to low-income adults that
would not otherwise qualify.See the chart here for what each state offers.
3 LPR status eligibility (for federal funds) varies by states. Many states provide
coverage to lawful residents using only their state funds. In addition, a 2009 law gave states the option to provide Medicaid coverage to “lawfully residing” children and pregnant women immediately, instead of requiring a mandatory five year waiting period. The law applies to children and pregnant women with a broad range of qualifying immigration statuses. For more information on the statuses accepted, see https://www.medicaid.gov/federal-policy-guidance/downloads/SHO10006.pdf at pages 3-4.
California has extended Medicaid coverage to pregnant women and children under this law. For a full list of states providing extended coverage, click here.
For more information on the different types of health insurance plans available through the marketplace, visit: https://www.investopedia.com/articles/pf/08/
private-health-insurance.asp
Disability Insurance
Another type of insurance is disability insurance. This insurance protects you if you suffer from a short-term or long-term illness or injury, which prevents you from working as you normally would. Disability insurance makes it so that you will still receive a portion of your income when you can’t work.
You can obtain disability insurance as an individual by going directly to an insurance provider. You will benefit from the policy as long as you continue to pay the premiums. Group Disability Insurance is sometimes offered directly through employers. In that case, the employers often pay a portion of the premium costs. Also, in these five states, California, Hawaii, New Jersey, New York, and Rhode Island, employers are required to offer disability insurance coverage to workers. The cost of disability insurance depends upon the risk that you will suffer from a debilitating injury or illness. Factors considered when assessing risk include your age, your health and personal history, and the work that you do.
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Unemployment Insurance
Unemployment insurance is different from other insurance types. It is not something that you enroll in and pay for regularly until an emergency occurs. Rather, unemployment insurance maybe available to you if you lose your job through no fault of your own. The unemployment insurance will, if you qualify, provide you with money while you look for another job. It is important to note here that if you leave a job voluntarily, you will not be able to get unemployment benefits.
States are tasked with the management of unemployment insurance. Thus, eligibility requirements vary from state to state. If you are approved for unemployment, the duration (how long you will receive benefits) depends on the requirements of your state and on the circumstances of your prior employment,6though most states cap the duration at 26 weeks, The amount of money that you will receive also varies based on state requirements and personal circumstances.
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Car insurance
Car insurance doesn't only protect your car in the event that you get into an accident. It also protects you — from financial liability, medical expenses, and also from legal consequences. ................All but two states require you to have auto insurance so that you can pay for the damages you're liable for after a car accident.
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Without car insurance you would be stuck paying out of pocket for any car accidents you are liable for, which could cost you thousands of dollars
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All but two states require a minimum amount of car insurance coverage and if you are caught driving uninsured it could result in a license suspension or thousands of dollars in fines
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Car insurance can also cover damage to your vehicle or any medical expenses you or your passengers incur after a collision
Watch this video and take the quiz to learn about the 4 different types of car insurance:
1. Liability Coverage
2. Collision and Comprehensive Coverage
3. Personal Injury Protection
4. Uninsured Motorist Coverage You will also learn what a deductible and a limit are in this video: https://edpuzzle.com/media/5bb7a1d9bf809140baf3ecc
After watching the video, answer the following questions:
1. Mario has car insurance with a $1000 deductible and $20,000 limit. He gets into a car accident that costs $11,000 total. How much money will Mario have to pay for the accident?
2. If Mario gets into a second accident in the same year that costs$12,000, how much will Mario have to pay?
7Renters and Homeowners insurance Renters and homeowners insurance are types of insurance that protect your dwelling (home, apartment, condo, mobile home, etc.) against:
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Weather-related damage (floods, earthquakes, natural fires, etc.)
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Liability (medical costs of someone injured on your property)
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Theft of your personal belongings Homeowners insurance can also cover maintenance costs due to normal wear and tear, like replacing a water heater, depending on whether or not you choose to pay higher premiums to have that coverage.
Watch the following videos on renters and homeowners insurance and answer the questions: https://edpuzzle.com/media/60196cf50eedca4236ae4c1f https://edpuzzle.com/media/60196c1f6ca7e54239d2ad71
Answers:
1. $1000. Your deductible is the amount of money you have to pay. Your
insurance paysthe rest (up to the amount of your limit).
2. $1000. Even though Mario has already paid the deductible for that year, he
must pay it per accident. And even though he has already claimed $11,000
on the previous accident, he is completely covered for this accident because
it is less than $20,000, -- However, his monthly premiums will probably be
higher because of the second accident and his insurance company may drop
him if he has a third accident. Please drive carefully!
https://www.policygenius.com/auto-insurance/why-is-auto-insurance-important/