Back in the 1970’s Dolly Parton took out an insurance policy for her breasts. Today, her insurance policy has $3.8 million of coverage.
There are insurance policies out there for almost anything you can imagine. However, if you don’t know how insurance policy operates, it’ll be difficult finding the coverage you need. Luckily, for you, we’ve created a short but complete guide that covers the in’s and out’s of different types of insurance policies.
Read on to find out how insurance works.
How Insurance Works
Insurance is a type of contract. The contract is between the policyholder and the insurer. For the majority of policies, you’ll need to learn about, the policyholder will be you and the insurer will be your insurance company.
The type of contract between you and your insurer is a financial one. It’s a financial agreement from the insurer saying they’ll pay you a certain amount of money if a certain loss occurs.
When it’s a loss the insurance company pays out for, it’s a covered loss. Examples of loss for a health insurance policy would be if you were sick and had to see a doctor.
Pay Your Premiums
For your insurance policy to work, you’ll have to keep up with premium payments. Failing to make your payments could cause your coverages to lapse. If you experience a loss and your coverage isn’t active, you won’t be able to get the help you need.
Depending on who your carrier is, you’ll either pay a monthly or annual premium. Some policies will last for half a year, and then give you the option to renew. A lot of companies will offer discounts if you’re willing to pay the entire premium upfront.
Types of Insurance Policies
To simplify things, you can split insurance policies up into 2 main categories. There are health and life insurance in the first category. While, the second category contains property and casualty insurance.
Health and Life Insurance
Health insurance policies could mean the policy you use to see your primary physician. Or health insurance can refer to policies that cover dental, vision, and more.
Property and Casualty Insurance
Property insurance is going to help cover things you own. For instance, a home insurance policy would be a type of property and casualty insurance.
Casualty insurance will cover the liability portion of things you own. For example, if you’re at fault in a car accident, you’ll be financially responsible for the other driver’s bodily injuries and property damage. Casualty insurance will help cover medical costs and property damages for the other driver.
Covered Losses and Insurance Payouts
To understand how insurance works, you’ll need to understand losses and payouts. To get any amount of money from your insurance provider, you’ll have to experience a covered loss.
Let’s say you have a property and casualty insurance policy for your home, and you start having problems with mold. Now, what happens?
Only File Claims for Covered Losses
Before you file a property or casualty claim, refer to your policy documents to see if your loss qualifies. If you’re still not sure after reviewing the documents, call your company and ask them to specify the covered losses.
Claim Filing Process
Once you’re positive your claim is for a covered loss, you can start the process of filing your claim. A lot of insurance companies will give you the option to file your claim online, on the phone, and in certain cases in person.
Your insurance company won’t be able to give you funds that exceed your coverage limits. That’s why it’s always a good idea to have high coverage limits that apply to a wide variety of losses. Once you file the claim, you’ll have to wait for the insurance company to offer you a payout.
If the payout is too low, your insurance company might have the bad habit of offering underpaid claims. If this happens to you you’ll want to wait to accept the payout, and instead, seek legal advice.
However, let’s say you’re happy with the payout amount. What happens next? Before you can receive any money, you’ll need to pay your deductible.
What Deductibles Do
You’ll pick your deductibles before you start any insurance policy. The deductibles are the amount you agree to pay before your coverages start working.
If you choose high deductibles, your policy rates are likely to be lower. If you choose low deductibles, your policy rates are likely to be higher.
We suggest that you get as low of a deductible as you can afford. That way, if the worst happens, you’ll easily be able to pay off the deductible so your coverages can work.
Health Insurance Deductibles
For health insurance policies, there’s usually a set deductible you have to pay before the policy starts working. You’ll also have a deductible that you pay whenever you visit a medical provider.
For some insurance policies, the doctor visit deductibles will be zero, depending on how your policy is set up.
Property and Casualty Deductibles
For property and casualty policies, like car insurance, the deductible works differently. When it comes to property and casualty insurance policies, the deductible is a set amount you pay before coverage kicks in.
For example, let’s say a horrible storm comes through and knocks a tree on top of your car. If you have comprehensive coverage on your auto insurance policy, you’ll have coverage for this loss. However, you’ll still have to pay the preset deductible before the insurance company will repair your car.
Feel Good About Your Insurance Policy
Now you know more about how insurance works. We hope that our article was able to give you the answers you need to feel confident about your insurance plans. For more articles like this one, explore the rest of this site!