The Comprehensive Guide to Insurance Coverage

Insurance premiums can take a big bite out of a monthly budget, but not having enough coverage can be even more costly.  Let’s take a look at the five primary insurance types and the most important information to know about each one.

1. Health insurance

What is it? 

Health insurance is coverage that typically pays for medical, surgical and prescription drug expenses in exchange for a monthly premium. Many states mandate health insurance coverage and will collect fees, along with state taxes, from taxpayers who do not have sufficient coverage.

Types of health insurance plans

Health insurance plans are divided into two primary categories: public and private.

Public health insurance is provided at low or no cost through the federal and/or state government. The most common public insurance plans are:

  • Medicaid – Public insurance plan for low-income families and individuals. Eligibility requirements vary by state.
  • The Children’s Health Insurance Program (CHIP) – A federal and state program designed to cover children below the age of 18 whose families have incomes above the qualifications for Medicaid, but are too low to afford private health insurance.
  • Medicare – A federal health insurance program for Americans age 65 and older.

Private health insurance may be provided through an employer or purchased privately from the insurance provider, or through a broker.

These are the most common private health insurance plans:

  • HMO: Health Maintenance Organization – The most restrictive plans that only work with a network of healthcare providers. The insured must choose a primary care physician (PCP) who is in the network to benefit from coverage. To see an out-of-network specialist, the insured will need a referral from their PCP. HMOs tend to have cheaper premiums than other health insurance plans.
  • PPO: Preferred Provider Organization – The most flexible health insurance plans, which allow the insured to choose an in-network doctor at a lower cost, or an out-of-network doctor at a higher cost. There is no referral necessary to see a specialist. Premiums are generally more expensive than other plans.
  • EPO: Exclusive Provider Organization – A blend of HMO and PPO plans, EPOs do not cover out-of-network physicians, but do not require referrals for specialists. Premiums on EPOs fall between HMOs and PPOs.
  • POS: Point of Service – Another blend of HMO and PPO plans, POS plans will require a PCP on an HMO-style network, while also allowing out-of-network options at a higher cost. A referral is required for specialists. Premiums are generally more expensive than HMO plans but less expensive PPOs.

2. Life insurance

What is it?

Life insurance is a contract between an insurance company and a policyholder that guarantees a sum of money to the policyholder’s designated beneficiaries when the policyholder dies, in exchange for monthly premiums paid during the insured’s lifetime.

Types of life insurance

These are the five most common kinds of life insurance plans:

  • Term insurance – The most basic form of life insurance, with a predetermined term, usually ranging from one to 10 years. Plans are renewable at the term’s end, but the premiums will increase with each renewal. Term policies generally have the cheapest premiums, but no cash value.
  • Whole life insurance – Offers policyholders a cash-value component coupled with increased protection. Premiums can be locked in throughout the term, and a portion of premiums goes toward the policy’s cash value. The insured can borrow up to 90% of the cash value, tax-free, but loans reduce the policy’s death benefit.
  • Universal life insurance – Offers increased flexibility for policyholders. Premiums can go up or down, or even be deferred within certain limits. Cash values can be accessed and withdrawn, though this directly decreases the death benefit. Face values can be modified as well.
  • Variable life insurance – Fixed premiums and investment options make this policy the choice for true risk-takers. The policyholder’s cash value will be invested in the insured’s choice of stock, bond or money market portfolio. Cash values and death benefits will fluctuate along with the investments’ performance. These policies usually have higher fees than universal life insurance, but all cash value accumulation grows tax-free.
  • Universal variable life insurance – A blend of universal and variable life insurance, these policies offer flexible premiums and the ability to modify face values, along with investment options.

3. Auto insurance

What is it? 

Auto insurance is a contract between a policyholder and insurance company, protecting the policyholder from financial loss in the event of an auto accident or theft. The coverage is provided in exchange for a monthly premium. Some form of auto insurance is required in all 50 states.

Types of auto insurance policies

These are the primary categories of auto insurance coverage:

  • Liability coverage – Includes coverage for bodily injuries, property damages or auto damages to another motorist if the policyholder is at fault.
  • Comprehensive coverage – Pays for damages and losses to the car that were not caused by another driver.
  • Personal injury protection – Covers medical bills for the policyholder and their passengers in the event of an accident.
  • Collision insurance – Covers damages to the policyholder’s car if it’s involved in an accident.
  • Uninsured/under-insured motorist protection – Pays for damages caused by another motorist who does not have sufficient (or any) coverage.
  • Gap insurance – Pays the difference between what the policyholder owes on a financed or leased vehicle and what it is valued at when there’s a total loss of the vehicle.

4. Long-term disability insurance

What is it?

Long-term disability insurance is an insurance policy that provides income replacement for workers if they are unable to work due to a debilitating illness or injury.

Types of long-term disability insurance

There are two primary types of long-term disability insurance policies:

  • Own-occupation disability insurance defines a disability as an inability to work at your regular occupation. Benefits are paid even if the policyholder can work at another job.
  • Any-occupation disability insurance defines a disability as an inability to work at any occupation. These plans are generally cheaper, but claiming benefits can be more difficult.

5. Homeowners/renter’s insurance

What is it?

Homeowners insurance is a policy designed to protect homeowners and their families from liability and financial loss in case of damage to their home and belongings in exchange for monthly premiums. Renters insurance is purchased by tenants and only covers damage or theft of their personal property.

Types of homeowners insurance policies

  • HO-2 – A policy that only protects against 16 specified perils.
  • HO-3 – A broad policy protecting against all perils other than those excluded in the policy.
  • HO-5 – A premium policy that usually protects newer homes and covers all perils, except the few excluded in the policy.
  • HO-6 – Insurance for co-ops/condominiums, which includes personal property coverage and liability coverage.

Each plan type will also include some extent of liability coverage. Most policies will only cover events if they are sudden and accidental. Some natural disasters, like earthquakes and floods, require a separate policy for coverage.

Types of renters insurance policies

Renters insurance policies will generally fall within either:

  • Replacement-cost plans – Will pay for the full cost of replacing your damaged or stolen belongings up to a predetermined cap. This plan offers more robust coverage, but premiums are generally higher.
  • Cash-value plans – Will only offer payouts to cover what the damaged item was worth at the time of the disaster.

Insurance is a big part of financial responsibility. Use our guide to help you make the right choices in all major types of insurance coverage.

Your turn: What are your best tips for buying insurance?

Learn More:
policygenius.com
smartasset.com
iii.org
allstate.com
nerdwallet.com
investopedia.com

What Does Your Car Insurance Really Cover?

Deciphering car insurance coverageCar Insurance registration form
Car ownership involves purchasing auto insurance. But what circumstances does it protect you against? What does car insurance not cover? Discover the ins and outs of car insurance to make sure you have the coverage you need.

Collision coverage
According to Barbara Marquand, contributor at Nerdwallet.com, this type of insurance protects you during a car accident with either another car or an object. It also covers you if your car flips over and suffers damage.

Comprehensive coverage
This type of insurance is usually sold together with collision coverage, as a package. Comprehensive coverage protects you from harmful incidents not related to car accidents. Per Esurance.com, it covers damages incurred from storms, falling objects, vandalism and collisions with animals like deer.

Liability coverage
In the case of an accident with another car, this type of coverage goes towards paying for the person’s injuries and any car damage incurred.

Liability coverage is usually expressed in three numbers, as Marquand states. For example, a 100/300/500 liability coverage means it will pay a maximum of $100,000 bodily injury per person, $300,000 bodily injury per accident and $50,000 property damage per accident.

Each state varies in the minimum liability insurance that they require; check your state’s requirements before purchasing car insurance to make sure you comply with this standard.

Personal injury coverage
Even if you have health insurance, it’s wise to opt for a car insurance policy that includes personal injury coverage. It covers the medical bills for you or passengers in your car in the case of an accident. If the accident proves fatal, this insurance covers funeral expenses.

Personal injury coverage can be broken down into two subcategories: medical payment coverage or personal injury protection. Some states require one or the other policy, so check your state’s requirements before purchasing this type of insurance.

Uninsured motorist coverage
This insurance protects you if you have an accident with someone who is uninsured or underinsured. It covers your medical expenses if the other driver doesn’t have insurance. If the other driver’s insurance covers only some of your medical bills, then uninsured motorist coverage will pay the difference.

According to Christina Couch, contributor for Bankrate.com, some states have more uninsured drivers than others. In Mississippi, for example, one in three drivers is not insured. If you’re on the fence about whether or not to purchase this insurance option, find out what the statistic is for your state.

Circumstances not typically covered
Although collision and comprehensive car insurance policies can shield you from a wide variety of circumstances, there are some situations that they will not cover.

As Couch notes, car insurance usually won’t cover you for items that are damaged or stolen from your car. For instance, it would cover features that came with your car when you first bought it, such as the radio or CD player. However, it would not cover any gadgets or personal items that were in your car.

Car insurance usually will not cover drivers who are living with you, unless they are specifically listed on your car insurance policy. So this insurance would not cover an out-of-the-house friend or relative who borrowed your car.

Towing and roadside maintenance are two other services that car insurance typically will not cover. However, many insurance companies offer these services as available add-ons to your overall insurance package.

Equipped with this knowledge, you can have peace of mind knowing what each type of car insurance coverage means and exactly what circumstances your policy protects you from.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.