Why It Pays to be Protected for the Unexpected

What is insurance?

Insurance is a financial product that’s there to protect you in case something bad happens to you or your property. It’s basically like a safety net to keep you from falling on hard times.

You set up a policy with an insurance company. You pay money to set up the policy. Then in the policy, the insurance company agrees to pay money when certain events occur or in certain situations.

The idea is that you have money to help you cover things that can cost a lot of money, like car accidents and medical issues.  

Types of insurance

These are the most common types of insurance that you will need to get by the time you become an adult:

Health insurance

Health insurance is one of the few types of insurance that covers you before something bad happens. You use health insurance to cover medical bills when you get sick or injured, but you use it to pay for regular checkups that you get.

Car insurance

One type of insurance that some teens end up paying for is car insurance. This type of insurance covers you if you get into an accident and your car needs to be repaired or replaced.

Renter’s insurance

When you move out on your own and rent an apartment, you will want to get renter’s insurance. It covers all the personal belongings you own in your apartment. If you get robbed or a natural disaster like a tornado or hurricane happens, you can make a claim and get money to replace your stuff.

Homeowner’s insurance

When you buy a home or condo instead of renting, you will move from renter’s insurance to homeowner’s insurance. This protects your personal belongings but also protects the home itself since you own it.

Life insurance

Life insurance is there in case the worst happens. It’s meant to protect your loved ones after you die. You typically only get life insurance when your family depends on your income to survive. That way, they have money to get by if you’re not there to support them.

Important vocabulary to know

• Policy: A written contract that outlines the terms of insurance you purchase.
• Coverage: Defines what specific things or events are covered by an insurance policy.
• Premium: A set amount of money that you pay each year to keep an insurance policy active.
• Deductible: An amount of money you may need to pay before an insurance policy kicks in and starts paying for things.
• Copay: Short for “copayment.” This is an amount you may need to pay for medical appointments. This only applies to health insurance.
• Claim: A request you make to your insurance company to pay for something that your insurance should cover.
• Insurance card: A card you get that provides information about your insurance policy.

How insurance works

1. You purchase an insurance policy through an insurance company.
2. The policy outlines your coverage, stating what insurance will pay in specific situations.
3. Each year, you pay a premium to keep the insurance policy active.
4. If something happens that your policy should cover, you make a claim.
5. The insurance company evaluates your claim and if it’s covered by your policy, they pay to cover that claim.
6. If your insurance policy has a deductible, then you cover costs up to the deductible amount and then your insurance covers the rest.