What is Auto Insurance

An auto insurance is a policy purchased by vehicle owners to mitigate costs associated with getting into an auto accident. Instead of paying out of pocket for auto accidents, people pay annual premiums to an auto insurance company; the company then pays all or most of the costs associated with an auto accident or other vehicle damage.

BREAKING DOWN Auto Insurance
Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history and other factors. Most states mandate that all vehicle owners purchase a minimum amount of auto insurance, but many people purchase additional insurance to further protect themselves.

A poor driving record or the desire for more complete coverage will lead to higher premiums. However, you can reduce your premiums by agreeing to take on more risk, which means increasing your deductible.

In exchange for paying a premium, the insurance company agrees to pay your losses as outlined in your policy. Coverages include:

Property – damage to or theft of your car
Liability – legal responsibility to others for bodily injury or property damage
Medical – costs of treating injuries, rehabilitation and sometimes lost wages and funeral expenses
Basic personal auto insurance is required by most U.S. states, and laws vary. Policies are priced individually to let you customize coverage amounts to suit your exact needs and budget.

Policy terms are usually six- or 12-month timeframes and are renewable. An insurer will notify a customer when it’s time to renew the policy and pay another premium.

Auto insurance requirements vary from state to state. If someone is financing a car, the lender may stipulate requirements. Nearly every state requires car owners to carry:

Bodily injury liability – covers costs associated with injuries or death that you or another driver causes while driving your car.
Property damage liability – reimburses others for damage that you or another driver operating your car causes to another vehicle or other property.
Many states also require:

Medical payments or personal injury protection (PIP) – Provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
Uninsured motorist coverage – Reimburses you when an accident is caused by a driver who does not have auto insurance.
Who Does Auto Insurance Coverage Protect?
An auto insurance policy will cover you and other family members on the policy, whether driving your car or someone else’s car (with their permission). Your policy also provides coverage to someone who is not on your policy and is driving your car with your consent.

Personal auto insurance only covers personal driving. It will not provide coverage if you use your car for commercial purposes—such as making deliveries. Neither will it provide coverage if you use your car to work for ride-sharing services such as Uber or Lyft. Some auto insurers now offer supplemental insurance products (at additional cost) that extend coverage for vehicle owners that provide ride-sharing services.

DEFINITION of Disability Insurance

Disability insurance is a type of insurance that will provide income in the event a worker is unable to perform their work and earn money due to a disability. There are many types of organizations that provide different types of disability insurance. Each organization and disability insurance type have specific rules as to what constitutes a disability and how a person might qualify to receive the disability benefit. Short term disability insurance policies offer a worker a portion of their salary if they are unable to work for a short period- typically three to six months. Long term disability insurance offers a worker a portion of their salary if they are unable to work for a longer period- typically a period of over six months. Both short term and long term disability policies have a period that a person must be disabled for before that individual is able to start receiving disability benefits. That period of time is called an elimination period. If a person becomes disabled, they must wait until the elimination period is over before they start receiving benefits.

If they are able to work before the elimination period is over, the person will not receive a benefit. The Social Security Administration also provides disability insurance. Employees who’ve paid the Federal Insurance Contributions Act (FICA) tax for a certain amount of time, are eligible to receive the Social Security disability income insurance if they meet the strict requirements of disability under the OASDI program.

Disability insurance is also referred to as disability-income insurance.

BREAKING DOWN Disability Insurance
Disability insurance comes in many forms and can be obtained through a wide range of providers for a wide range of prices. The price of a disability insurance policy will be dependent upon the length of the elimination period, the benefit period (how long a person is able to receive the disability benefit), and how strict the definition of disability is under the policy. Each policy can have its own definition of what qualifies as “disabled,” so it is important to understand these rules before buying a policy. The two most common definitions are “own occupation,” where a person is considered disabled if they are no longer able to perform the occupation they had prior to becoming disabled, and “any occupation,” where a person is considered disabled if they are unable to perform any job at all. Obviously, the “any occupation” definition is more strict. All else equal, the policy with the more strict definition of disability will be the cheaper policy because there is less of a chance of an insurer having to pay benefits under a stricter policy.

The U.S. Social Security System has a very strict definition of disability and it can be difficult to qualify for disability payments under the program. Employees who have become disabled can receive this income insurance for at least one year. Income insurance payments begin on the sixth month of disability.

What is Health Insurance

Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees. The cost of health insurance premiums is deductible to the payer, and benefits received are tax-free.

BREAKING DOWN Health Insurance
Health insurance can be tricky to navigate. Managed care insurance plans require policyholders to receive care from a network of designated health care providers for the highest level of coverage. If patients seek care outside the network, they must pay a higher percentage of the cost. In some cases, the insurance company may even refuse payment outright for services obtained out of network. Many managed care plans require patients to choose a primary care physician who oversees the patient’s care and makes recommendations about treatment. Insurance companies may also deny coverage for services that were obtained without preauthorization. In addition, insurers may refuse payment for name brand drugs if a generic version or comparable medication is available at a lower cost.

Insurance plans with higher out-of-pocket costs generally have smaller monthly premiums than plans with low deductibles. When shopping for plans, individuals must weigh the benefits of lower monthly costs against the potential risk of large out-of-pocket expenses in the case of a major illness or accident. Health insurance has many cousins, such as disability insurance, critical (catastrophic) illness insurance and long-term care (LTC) insurance.

Affordable Care Act
In 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. It prohibits insurance companies from denying coverage to patients with pre-existing conditions and allows children to remain on their parents’ insurance plan until they reach the age of 26. In participating states, the act also expanded Medicaid, a government program that provides medical care for individuals with very low incomes. In addition to these changes, the ACA established the federal Healthcare Marketplace. The marketplace helps individuals and businesses shop for quality insurance plans at affordable rates. Low-income individuals who sign up for insurance through the marketplace may qualify for subsidies to help bring down costs.

Americans are required to carry medical insurance that meets federally designated minimum standards or face a tax penalty. In certain cases, taxpayers may qualify for an exemption from the penalty if they were unable to obtain insurance due to financial hardship or other situations. Two public health insurance plans, Medicare and the Children’s Health Insurance Program, target older individuals and children, respectively. Medicare also serves people with certain disabilities. The program is available to anyone age 65 or older. The CHIP plan has income limits and covers babies and children up to the age of 18.

Types Of Insurance

Life throws many unexpected things at all of us. While we usually can’t stop these things from occurring, we can opt to give our lives a bit of protection. Insurance is meant to give us some measure of protection, at least financially, should a disaster happen. There are numerous insurance options available and many financial experts tell us that we need to have these insurance policies in place. Yet, with so many options, it can be difficult to determine what insurance you really need. Purchasing the right insurance is always determined by your specific situation. Factors such as children, age, lifestyle and employment benefits are all points to consider when planning your insurance portfolio. (For related reading, see How Much Life Insurance Should You Carry?)

There are however, four insurances that most financial experts recommend that all of us have: life, health, auto and long-term disability. Each one of these covers a specific aspect of your life and each one is very important to your financial future.

Life Insurance

The greatest factor in having life insurance is providing for those you leave behind. This is extremely important if you have a family that is dependent on your salary to pay the bills. Industry experts suggest a life insurance policy should cover “ten times your yearly income.” This sum would provide enough money to cover existing expenses, funeral expenses and give your family a financial cushion. That cushion will help them re-group after your death.

When estimating the amount of life insurance coverage you need, remember to factor in not only funeral expenses, but also mortgage payments and living expenses such as loans, credit cards and taxes, but also child care and future college costs.

LIMRA, formerly known as the Life Insurance Marketing & Research Association, says that if the primary wage earner dies in a family with dependent children that family will only be able to cover their living expenses for a few months and four in ten would have difficulty immediately.

The two basic types of life insurance are Traditional Whole Life and Term Life. Simply explained, Whole Life is a policy you pay on until you die and Term Life is a policy for a set amount of time. You should seek the advice of a financial expert when planning your life insurance needs. There are considerable differences between the two policies. In deciding between these two, consumers should consider their age, occupation, number of dependent children and other factors to ensure they have the coverage necessary to protect their families. (For additional reading, see What To Expect When Applying For Life Insurance.)

Health Insurance

A recent Harvard study noted that statistically, “your family is just one serious illness away from bankruptcy.” They also concluded that, “62% of all personal bankruptcies in the U.S. in 2007 were caused by health problems and 78% of those filers had medical insurance at the start of their illness.”

Those numbers alone should urge you to obtain health insurance, or increase your current coverage. The key to finding adequate coverage is shopping around. While the best option and the least expensive is participating in your employer’s insurance program, many smaller businesses do not offer this benefit.

Finding affordable health insurance is difficult, particularly without an employer-sponsored program or if you have a pre-existing condition. According to the Kaiser/HRET survey, the average premium cost to the employee in an employer sponsored health care program was around $4,100. With rising co-payments, yearly deductibles and dropped coverage’s, health insurance has become a luxury less and less can afford, yet even a minimal policy is better than having no coverage. The cost for a day in the hospital can range from $985 to $2,696. Even if you have minimal coverage, it can provide some monetary benefit for your hospital stay.

As the health care debate continues in Washington, approximately 48 million Americans are without insurance coverage. Check with your employer regarding health care benefits, inquire of any occupational organizations that you belong to regarding possible group health coverage. If you are over age 50, AARP has some health insurance offers available. (To learn more, check out Buying Private Health Insurance.)

Long-Term Disability Coverage

This is the one insurance most us think we will never need, as none of us assumes we will become disabled. Yet, statistics from the Social Security Administration show that three in 10 workers entering the workforce will become disabled and will be unable to work before they reach the age of retirement. Of the population, 12% are currently disabled in some form and nearly 50% of those workers are in their working years.

Even those workers that have great health insurance, a nice nest egg and a good life insurance policy never prepare for the day when they might not be able to work for weeks, months or may not ever be able to return to the job. While health insurance pays for your hospitalization and medical bills, where is money coming from to pay those daily expenses that your paycheck covers? Here are a few very sobering statistics regarding disability:

Disability Causes Nearly 50% of all Mortgage Foreclosures, 2% are Caused by Death
Close to 90% of Disabling Accidents and Illnesses Are not Work Related
In the Last 10 Minutes, 498 Americans Became Disabled
If you are injured and off work for even three months, would you have enough in savings to cover your living expenses? Consider what you might face financially if you suffer a major medical condition such as cancer and were unable to work for over a year.

Many employers offer both short-term and long-term disability coverage as part of their benefits package. This would be the best option for securing affordable disability coverage. If they don’t, seek out a private insurer. If you aren’t sure how much coverage you need, AARP offers a very good disability insurance calculator to help you.

A policy that guarantees income replacement is the optimal policy; more usual terms are replacement of 50 to 60% of your income. The cost of disability insurance is based on many factors including age, lifestyle and health. For group or employer coverage, the average rate in 2009 was about $238 per year or approximately $5 per week. A small price to pay if you are faced with a devastating illness or injury. Disability insurance will guarantee that you will have some income when you can’t work.

Auto Insurance

There were over ten million traffic accidents in the U.S. in 2009 (latest available data) and 33,808 people died in motor vehicle crashes in those accidents, according to data released by the Fatality Analysis Reporting System (FARS). The number one cause of death for American’s between the ages of five and 34 were auto accidents. Over two million drivers and passengers received treatment in emergency rooms in 2009 and the costs of those accidents including deaths and disabling injuries was around $70 billion.

While all states do not require drivers to have auto insurance, most do have requirements regarding financial responsibility in the event of an accident. Many states do periodic random checks of drivers for proof of insurance. If you do not have coverage, the fines can vary by state and can range from the suspension of your license, to points on your driving record, to fines from $500 to $1,000.

If you drive without auto insurance and have an accident, the fines will probably be the least of your financial burden. Your car, like your home is a valuable asset you use every day. If your car is damaged in an accident and you have no auto insurance, you will have no way to replace that vehicle unless you have a large savings account and you don’t really want to tap into that savings when auto insurance could cover the cost.

If you, a passenger or the other driver is injured in the accident, your auto insurance will pay those expenses and help guard you against any litigation that might result from the accident. Auto insurance also protects your vehicle against theft, vandalism or a natural disaster such as a tornado or other weather related incidents.

Again, as with all insurances, your individual circumstances will determine the price of your auto insurance. The best advice is to seek out several rate quotes, read the coverage provided carefully and check periodically to see if you qualify for lower rates based on age, driving record or the area where you live.

The Bottom Line

While insurance is expensive and certainly takes a chunk out of your budget, being without it could lead to financial ruin. Always check with your employer first for available coverage, as this will probably be where you will find the most economical way to of securing coverage. If your employer doesn’t offer it, obtain multiple quotes from several insurance providers. Schedule times with agents who offer coverage in multiple areas as they may have some discounts available if you purchase more than one type of coverage. (For additional reading, see Understanding Your Insurance Contract.)

The expense of not having insurance is nothing compared to the expense of living without it.

What is Life Insurance

Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The insurance company promises a death benefit in consideration of the payment of premium by the insured.

BREAKING DOWN Life Insurance
The purpose of life insurance is to provide financial protection to surviving dependents after the death of an insured. It is essential for applicants to analyze their financial situation and determine the standard of living needed for their surviving dependents before purchasing a life insurance policy. Life insurance agents or brokers are instrumental in assessing needs and establishing the type of life insurance most suitable to address those needs. Several life insurance channels are available including whole life, term life, universal life and variable universal life (VUL) policies. It is prudent to re-evaluate life insurance needs annually, or after significant life events like marriage, divorce, the birth or adoption of a child and major purchases, like a house.

How Life Insurance Works
There are three major components of a life insurance policy.

Death benefit is the amount of money the insurance company guarantees to the beneficiaries identified in the policy upon the death of the insured. The insured will choose their desired death benefit amount based on estimated future needs of surviving heirs. The insurance company will determine whether there is an insurable interest and if the insured qualifies for the coverage based on the company’s underwriting requirements.
Premium payments are set using actuarially based statistics. The insurer will determine the cost of insurance (COI), or the amount required to cover mortality costs, administrative fees and other policy maintenance fees. Other factors that influence the premium are the insured’s age, medical history, occupational hazards and personal risk propensity. The insurer will remain obligated to pay the death benefit if premiums are submitted as required. With term policies, the premium amount includes the cost of insurance (COI). For permanent or universal policies, the premium amount consists of the COI and a cash value amount.
Cash value of permanent or universal life insurance is a component which serves two purposes. It is a savings account, which can be used by the policyholder, during the life of the insured, with cash accumulated on a tax-deferred basis. Some policies may have restrictions on withdrawals depending on the use of the money withdrawn. The second purpose of the cash value is to offset the rising cost or to provide insurance as the insured ages.
Life Insurance Riders
Many insurance companies offer policyholders the option to customize their policies to accommodate their personal needs. Riders are the most common way a policyholder may modify their plan. There are many riders, but availability depends on the provider.

The accidental death benefit rider provides additional life insurance coverage in the event the insured’s death is accidental.
The waiver of premium rider ensures the waiving of premiums if the policyholder becomes disabled and unable to work.
The disability income rider pays a monthly income in the event the policyholder becomes disabled.
Upon diagnosis of terminal illness, the accelerated death benefit rider (ADB) allows the insured to collect a portion or all of the death benefit.
Each policy is unique to the insured and insurer. Reviewing the policy document is necessary to understand coverage in force and if additional coverage is needed.

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