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Insurance

By Aniket Mittal


Overview:


If you’ve watched YouTube or Hulu in the last decade, you’ve probably come across the infamous State Farm ad. Various actors perform dangerous stunts & injure themselves with the promise of being covered by different agencies like StateFarm and Nationwide. This is known as insurance, a prevalent concept in finance that can ensure both you and your assets are covered in case of unforeseen and unfortunate circumstances while ensuring that you spend your money pragmatically.


First, what is insurance? Simply put, insurance is an arrangement in which a company offers to pay or compensate for a specified loss, damage, illness or death in exchange for a payment. The most common types of insurance include health, car, and homeowners insurance.


Out-of-Pocket Costs:


Before learning about insurance itself, it’s essential to understand the different terms you should know when making a decision and discussing different types of plans.


Premium: A premium is a fixed amount of money, paid monthly regardless of whether or not care was received. For example, when you pay for Hulu or Netflix, you are responsible for the month’s payment or premium regardless of whether or not you actually watch TV. In insurance, a similar concept is applied where you are not obligated to receive care.


Deductible: A deductible is a cost you will pay before the insurance begins to pay. For example, let’s say the costs of a hospital bill are $2000. If you have a $1000 deductible, that means that both you and your insurance company pay $1000 each.


Copayment: A copayment is the amount of money that is paid for certain services. For example, often, doctors charge patients a small copayment for a visit.


Co-Insurance: Co-insurance is your share of costs after the deductible is fulfilled. For example, coming back to the previous example, if you have a medical bill of $2000, a $1000 deductible, and a 40% co-insurance, you will pay $1400 while your insurance pays $600.


Insurance companies prioritize certain costs over others to yield maximum profit. It’s important to be cognizant of the plan you purchase and the costs associated with that plan.


Health Insurance:


Health insurance is a type of insurance in which an insurance company pays specifically for medical or surgical expenses. Mandatory in the state of California, health insurance covers both expected and unexpected expenses. There are often four different plans to consider when dealing with health insurance.


Bronze:


In a bronze plan, customers are offered a low monthly premium at the cost of a very high deductible. This leaves customers paying for most of the routine care but still protected from worst-case scenarios. This is best for patients who don’t frequently use hospital services but would like to be protected from unexpected scenarios.


Silver:


In a silver plan, patients pay a moderate monthly premium with a 30% deductible. Although this covers more of the frequent healthcare expenses, patients still end up paying for most of the routine care. This plan is best for patients who will pay a higher premium for a little bit more routine care.


Gold:


In a gold plan, patients pay a very high premium for a 20% deductible. In this case, the insurance companies pay for most routine care at the expense of a high monthly cost. This is best for frequent users of routine care.


Platinum:


Lastly, in a platinum plan, customers are offered an extremely high premium for a 10% deductible. This is best for patients who would like all services to be covered, use healthcare services frequently, and are willing to pay a high monthly premium.


In determining the best health insurance option for you and your family, it’s important to be cognizant of monthly expenses, coverage, and frequency of your healthcare visits. That’s why making and maintaining an optimal financial/budget plan is pragmatic when it comes to making a decision.


For example, let’s look at a popular streaming service: Netflix. Often times, most people purchase the subscription but hardly use it. Since healthcare and streaming services are quite difference (you are obligated to pay for insurance), customers similar to these Netflix users should consider bronze & silver plans with low monthly premiums. In contrast, users of Spotify Premium tend to be more active and customers similar to these users should opt for gold and platinum plans.


Car Insurance:


Car insurance is a type of insurance that covers cars, trucks, motorcycles, and almost all road vehicles. This insurance covers all physical damage, both to you and the vehicle, in case of a vehicular accident. Additionally, the insurance protects you from liability from circumstances that may have happened in your vehicle.


When considering car insurance options, make sure you look for exclusions. At various times, car insurance companies try to trick you into buying insurance that doesn’t cover certain services. When purchasing car insurance, make sure to read the fine print and understand the services covered. Also, always remember to consider the various out-of-pocket expenses associated with that insurance.


Homeowner’s Insurance:


Homeowner’s insurance is a type of insurance that covers property damage to private property. There are various types of common coverages included in homeowner’s insurance plans that are important to consider:


Dwelling Coverage: This covers all threats to the outside of the property and typically includes protection against natural disasters. Examples include fire & smoke, wind, lightning strikes & hail.


Other Structures Coverage: This covers structures that aren’t directly attached to the main property. Examples include sheds, detached garages, and fences.


Personal Property Coverage: This covers personal property located inside the building. Examples include furniture, electronics, jewelry, and clothing.


When considering homeowner’s insurance plans, determine which coverages are included. Similar to car insurance, homeowner’s insurance plans also tend to have various exclusions which may not cover you in case of an unforeseen event. Thus, evaluate the extent of your property as well as the insurance it may require (ex. Some areas may be more susceptible to floods/fires more than others) and make an informed decision when purchasing insurance.


Personal Finance:


When considering different insurance options, it’s important to be cognizant of different factors including the frequency of its usage, the out-of-pocket costs associated with those plans, and how it fits into your financial plan/ monthly budget. It’s important to follow a financial plan that best suits your needs, ensures you are protected, and helps you spend and manage your assets responsibly.


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