Most of us don't think about it often, but life is filled with uncertainty. In fact, life can seem downright predictable - until something unpredictable happens.
Insurance exists to help people deal with certain financial risks, from car accidents to unexpected medical bills. For a relatively small amount of money, insurance companies allow you to pool your risks with the risks of thousands of other people. In the event of a negative financial event, your insurance policy is there to cover your losses - losses that may be too great to bear otherwise.
Determining what insurance coverage is right for you is part of any comprehensive financial plan, keeping in mind that your financial needs change over time. For example, a young adult with no spouse or kids would have a very limited need for life insurance. But if that situation changes, his or her financial responsibility could include making a house payment, providing for a child, and maintaining a certain standard of living for an entire family. So as responsibilities change, financial risks change as well.
Some types of insurance, like health insurance, is required by law. But most insurance policies are optional, and even required policies have options that can be confusing. The material in this section will help you understand the major types of insurance policies used by many adults.
How to Buy Insurance
There are three ways to purchase an insurance policy – through an employer, through an individual insurance agent, or through a policy comparison service.
The types of insurance provided through employers can vary greatly. Larger employers are required to provide health insurance to full-time employees, while smaller employers do not. Employers may also offer other types of insurance, which could be subsidized by the employer (meaning they pay part of the cost) or the employer may have negotiated a lower rate with an insurance company than you could get on the open market. So, once you're out of school, checking insurance benefits offered by your employer is often a great place to start.
Individual insurance agents offer a wide variety of policies. Agents are typically based in or around your neighborhood and they may be able to provide personal assistance in navigating the options, particularly for more complex or unusual policy situations (life insurance for a smoker who skydives would be one example). The downside of an individual agent is that they may offer a limited selection of insurers. Agents are also salespeople, so you’ll need to make sure your needs are being met by comparison shopping with other agents.
Insurance comparison services such as Select Quote or Insure.com are another popular way to buy insurance. Comparison services will be able to offer you the widest range of companies to choose from and will help you compare prices easily across companies - just make sure you are comparing similar policies, with similar costs and benefits, from similar companies. That said, these companies are online and telephone-based, so you may not receive the same level of service when compared with a local insurance agent.
For health insurance not offered through an employer, many states offer online comparison websites or refer residents to HealthCare.gov to compare costs and options.
No matter from whom you buy your policy, you should research the insurance company’s rating before deciding to buy. Companies such as Standard & Poor's and A.M. Best rate the financial stability of insurance companies. We suggest buying only from companies with a top ranking.
Finally, it’s best to shop for a policy as soon as you determine you need it. Procrastinating simply increases the risk of financial loss - whether it's the risk of property damage or the risk of uncovered medical bills.
Thinking about accidents, theft, death and disability is never a lot of fun, but it is the responsible thing to do.