I prepared this consumer insurance guide to help you understand insurance and to get the best coverage to suit your needs. When I wrote this article, I learnt many new things about insurance that I had never heard before. The guide explains the basic types of insurance and covers the things that you need to know. This guide is the first in a two part series which focuses on planning ahead.
Why Do I Need Insurance?
Insurance is one of the ways that you can protect yourself and your assets in the event of an accident or unforeseen event. In a nutshell, insurance can help you to avoid paying an expense when you least expect it.
I’ve heard the age old rumour that insurance is a scam. Maybe you believe it. Do me one favour. Ask someone who purchased health insurance and encountered a medical emergency, if they regretted having insurance. Then talk to someone who had a similar emergency and did not have insurance.
This is where the Consumer Insurance Guide comes in.
What’s in the Consumer Insurance Guide
The Consumer Insurance Guide looks at why you should get insurance, the types of insurance available and looks at some common insurance terms. Find out all you need to know about car insurance, home insurance, life insurance and medical insurance. There is even a glossary on the insurance terms that you should be familiar with.
People purchase car insurance for three main reasons – it is required by law, it protects assets and it is one of the requirements for a car loan. The risk of not having car insurance is great, and some people are determined to court it!
Car insurance at its minimum provides coverage for damage and injury. In Barbados for example, there are two main levels of car insurance which are third party insurance and comprehensive insurance. In many cases, third party insurance may be cheaper that comprehensive insurance, but there are some key considerations involved.
Thirty Party Insurance
Third party insurance is the basic level of protection which is a legal requirement in Barbados. It includes coverage for damages you may cause if your vehicle is involved in an accident. This includes damage to property and injury or death resulting from an accident for which you are at fault. It does not cover the loss of or any damage to your vehicle.
Comprehensive insurance is a step up from third party insurance. In addition to the basic level of coverage offered under third party insurance, comprehensive insurance also provides you and the other party with cover. It also insures you against miscellaneous incidents such as fire, theft and accidental damage.
Many people purchase home insurance because they want to protect their home in the event of a disaster and because it’s a requirement of their loan or mortgage. Home insurance which can be extended to include contents insurance, is one of those expenses that home owners should not forego.
When insuring a home and its contents, there is always a bit of indecisiveness of what value you should insure at. An insurance advisor will explain that the coverage you require is directly related to the value of your property and its contents. Your home can be insured for either the replacement cost or actual cash value.
There are home insurance policies for everyone. If you own a home, there is a policy for you. If you are building a home, there is a policy for you. Even if your home is unfinished, there is a policy for you. As long as you have a property and you want to insure it, there is a policy for you.
These policies provide coverage for your home and contents in the event of a fire, lightning strike or explosion.
Fire and Perils
Fire and perils policies provide the basic coverage for your home and include burglary, theft, water damage due to burst pipes, and malicious damage.
The comprehensive home insurance policy can be thought of a policy that insures everything pertaining to your home. In addition to coverage provided in the fire and perils policy, this policy includes damage due to hurricanes, storms and earthquakes. This also includes coverage for rental properties.
Another important topic in this consumer insurance guide is life insurance. As with the other types of insurance, when purchasing life insurance, you should seek the coverage that fits your needs. Life insurance is often described as an integral part of personal planning because it can provide a financial lifeline for your dependents.
Determining what you need, the length of time and what you can afford with have a large impact on the type of policy that you qualify for. Your requirements for life insurance can depend on a number of factors. These include the number of dependents, your outstanding debt and expenses and your wishes to provide for your family after your death.
The process to acquire life insurance requires a thorough assessment of the individual looking to purchase a policy. Insurers will ask about several factors including your occupation, health conditions, family illnesses, habits, and driving record.
There are several types of life insurance products on the market, each with specific characteristics. Some policies include cash values, offer coverage for a lifetime or offer coverage for a specific time period. Most life insurance policies fall under the following categories and may include a variety of options which vary from company to company.
Whole Life Insurance
Whole Life Insurance provides coverage for your lifetime. Premiums tend to be lower when you purchase the insurance at a young age. Cash values in this type of insurance are determined by the interest rate set by the insurance policy. Some whole life insurance policies allow for borrowing against the cash value or using the cash for personal purposes.
Term Life Insurance
Term Life Insurance provides coverage for a specific amount of years. Generally, premiums increase as you get older based on the premise that your risk of dying increases as you age. There are no cash values associated with this type of policy which means that you cannot cash it in at the end of the period.
Even though most countries have capable medical care systems, sometimes there is need for care that is outside the limits of the state’s purview. Private medical insurance is a benefit that provides coverage for medical treatment that is sought outside of the boundaries of state provided institutions.
Also known as health insurance, medical insurance consists of the insured paying a monthly premium to the insurance company. The insurance company then pays for any medical treatments as determined by the type of policy that you have selected. Medical plans usually include coverage for maternity expenses, emergency care, vision care, dental care, mental health and general medical expenses.
The type of policy selected will determine what the deductible will be for your treatments. This is where much confusion about health insurance occurs. When you are shopping around for medical plans, remember to find out what the deductibles for each care option are. Cheaper plans may require a larger deductible, which means that you will have to pay more for before you receive any benefits.
There are some considerations that you should be aware of when looking for health insurance. One of these is that pre-existing conditions may not be covered if you sign up for a new plan. Another is that your premiums may increase as you get older and your deductibles may change. Additionally, some medical insurance plans have coverage limits and you may only be covered for a certain amount in the event of an emergency.
Insurance Terms Glossary
Here are a few terms that are frequently used in insurance. Bookmark this Consumer Insurance Guide to see which terms have been added!
Accident – An unexpected incident which results in some form of damage to a human being, animal or asset.
Actual Cash Value – The value of the asset minus the cost of depreciation.
Deductible – The amount of the claim that you have to pay before the insurance benefits are applied
Premium – The amount of money paid by the insured for insurance coverage
Replacement Cost – The amount of money it would take to rebuild your home.
How to Shop for Insurance
The last and probably the most important tip in this Consumer Insurance Guide is to shop around. The best way to shop for insurance is to call as many insurance companies as you can and request quotations. When you are requesting the quotations, you have to be clear about what you want to protect. Present as much information as possible to the insurance agents and they should be able to advise you.
Most insurance companies provide policies that are renewable annually. If paying your premium in one lump sum is stressful, ask about premium payment plans. For example, some companies allow customers to pay their premium over a three month period without interest or penalty.
When comparing insurance policies, consider the companies that are offering them. Take a look at their performance history, reputation, customer service reputation and their claims handling practices. Ask people that you know about their experiences with these companies.
Always shop around because you never know where you might find a good deal. Insurance companies may offer special rates depending on your occupation. A few years ago, a company was offering reduced motor vehicle insurance plans to teachers!
Did you find this Consumer Insurance Guide interesting? Take a look at the Better Shopping Guide, another feature in the Planning Ahead series.
Follow Odd Cents on Instagram to join the discussion on hot topics.