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Even if you spend wisely, save regularly and
invest strategically, you are not managing your
finances well if you have not taken appropriate
steps to protect your assets, your earning potential,
yourself and your family from the possibility of
suffering loss. This protection is called risk management.
Effective financial risk management includes
obtaining adequate insurance for you, your family
and your possessions. It also includes reducing your
risk factors by purchasing vehicles equipped with
safety equipment, taking a defensive driving
course and installing smoke detectors and a
security system in your home. These actions
may also reduce your premiums.
An insurance policy is a legal agreement between
you and the company that provides the insurance.
Some of the losses insurance covers are fires,
medical expenses or bodily injury, auto accidents,
theft and death as well as vehicle and property damage.
You pay a premium to the insurer, and in return,
the insurer agrees to reimburse you for a portion
of the costs of your losses. The insurer assumes
the majority of the risk of loss to your home, auto,
health or whatever a policy might cover; you are
responsible for any applicable deductibles or co-payments.
Insurance can never repair the emotional damage
a loss brings, but it can minimize your financial
stress and help you preserve your personal financial
resources if the worst happens.
Before purchasing insurance, consider the following.
- Carefully assess what you need to protect.
- Determine the level of coverage you require.
- Compare several companies’ premiums, services and reputation.
- Ask friends and coworkers for recommendations.
- Consult consumer publications, A.M. Best insurance
company reports (available in most libraries) and
your state insurance department.
Note: Insurance descriptions are general in nature.
For precise information on coverages, limitations and
conditions, contact your insurance company.
Auto insurance comes in “packages” of different
types of coverage, each part protecting you
in specific circumstances:
Types of coverages are listed below.
Liability Coverage
- Pays others for accident-related medical
expenses, property damage, lost wages or
pain and suffering if you are held legally
liable for the auto accident.
- All states have minimum liability coverage limits set by state law.
- Higher coverage limits may be purchased at an additional cost.
Medical Expense Coverage
- This typically pays for accident-related medical
expenses for you and your passengers, regardless
of who is legally liable.
- In some states, this coverage is termed Medical Payments.
- In states having no-fault laws, which generally
restrict the right to sue, this coverage
may be called Personal Injury Protection (PIP).
In addition to medical expenses, PIP may pay for
lost wages, as well as personal services such as
housekeeping, if you or another covered individual
are incapacitated after an accident.
Uninsured (UM)/Underinsured (UIM) Motorist Coverage
- UM coverage pays what the other individual’s insurance
would have paid if the individual had liability
coverage. It covers you, your family and your passengers
for medical expenses, lost wages, pain and suffering
and other injury-related losses, but it pays only
up to the UM limits you purchase.
- UIM coverage pays up to the UIM limits you purchase
for bodily injury to you or your family resulting
from the negligence of someone whose liability coverage
limits are insufficient to cover your damages
resulting from the accident. The definition of
an underinsured motorist varies significantly
from state to state.
- Availability of UM/UIM coverage varies by state.
Comprehensive Coverage*
- This pays to repair non-moving damage to your
vehicle caused by events including vandalism,
glass breakage, fire, flood and may also include
collision with a bird or animal.
- It pays for your loss if your vehicle is stolen.
Collision Coverage*
- This pays for damages if your vehicle
collides with a vehicle or other object or rolls over.
*Comprehensive and collision coverages both pay to
repair the vehicle. If the vehicle is totaled, they
pay the actual cash value (ACV) of the vehicle
prior to the damage. Both coverages have a deductible,
which is a specific amount of money you pay before
your insurance company begins to pay on a claim.
Premiums. Auto insurance premiums vary
from state to state. Regardless of your state of
residence, your premiums will be based on how
likely you are to file a claim and how much
your claims will cost. To determine this,
insurance companies evaluate you according to
one or more of the following factors. Some states
do not allow insurers to consider certain factors.
- Gender: Premiums for males from 18 to
25 years of age will usually be higher than
for females of the same age group. Young males
as a group are involved in significantly
more accidents than other drivers.
- Age and marital status: Generally, premiums
decline as young drivers age. After age 65, rates
may begin rising again. Also, married drivers
usually pay lower premiums than single drivers.
- Where you live: Drivers living in metropolitan
areas typically pay more than drivers
living in rural areas.
- Type of vehicle you drive: Expensive and
high-performance vehicles tend to be more expensive to insure.
- Driving record: The better your driving record,
the lower your premiums.
To reduce your premiums:
- Give your insurer complete and accurate
information. Inaccurate or incomplete
information about your address, age,
vehicle, the use of your vehicle or other
information may affect your premiums and coverages.
- Drive more safely. Some insurers offer premium
deductions for individuals with no convictions
for moving traffic violations or at-fault accidents.
Taking a state-approved defensive-driving or drug
and alcohol awareness class may also lower your premiums.
- Look for safety features when purchasing a vehicle.
Insurers may offer discounts for vehicles
equipped with air bags, antitheft devices and
daytime running lights. Vehicle alarms and locator
devices may reduce comprehensive coverage costs.
- Comparison shop. Premiums vary from one insurer
to another, so get quotes from several insurers.
Do not consider price alone. Service, dependability
and the insurance company’s financial condition are
important factors as well.
Note: Auto insurance does not cover personal possessions
that may be stolen from your vehicle.
For that, you need property insurance —
either a renters or homeowners policy.
Renters insurance is the type of coverage
most overlooked by consumers. If you rent your home,
apartment or condominium and do not have renters
insurance, you have no coverage if you lose your
possessions in a burglary, windstorm or fire.
You would not be covered if you were held legally
liable for injury to someone else or for damage to their property.
You need renters insurance if:
- You are not covered on your parents’ policy.
- You do not own a home that is covered by a homeowners insurance policy.
Do not assume your landlord’s insurance will protect
your possessions. Landlords usually carry
insurance only on the building itself.
Types of coverages are listed below.
Personal Property Coverage
- May be purchased to cover “All Risks” or only “Named Perils.”
- All Risks policies pay for damages unless the
cause of the loss is specifically excluded.
- Named Perils policies cover property only if it is
stolen or damaged by a cause named in the policy.
Liability Coverage
- Pays for medical expenses or repairs if you
are held legally liable for someone else’s
injuries or property damage. If, for example,
a neighbor trips on your rug and breaks an arm,
liability coverage would pay the medical bills.
When purchasing a renters policy, you may choose how
the insurance company will assess the value of your property.
- Actual Cash Value (ACV) Policies: Replaces your
damaged or stolen property minus a deduction for depreciation.
- Replacement Cost Policies: Replaces your damaged or
stolen property at the price it costs to replace it
today. These policies are more expensive. (To claim
replacement costs, you must actually replace or
repair the item.)
To ensure sufficient coverage:
- Create a record of your personal possessions,
serial numbers, original prices, receipts and
dates purchased. If you have to file a claim,
this record will also ensure you do not overlook
anything lost to fire, theft or other covered loss.
Consider photographing your personal possessions.
Another option is to scan the information to
a disk and store it appropriately.
- Store a copy of the recorded inventory, the
receipts and photographs in a waterproof,
fireproof safe at home, and also in a safe deposit
box at your financial institution or other secure
location away from your residence, so they will be
available if a fire or other disaster destroys your home.
- Use the Inventory Work Sheet
to create your personal possessions inventory.
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Basic Money Management
Basic Money Management
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