Friends With Benefits: Insurance

Insurance is a weird thing.  You spend lots of money on it and then hope you’ll never have to use it.  You pretend to know how it works while also freaking out that you’re spending too much money on it.   Insurance is confusing even for expert adults.  It’s got crazy rules, lots of legal and scary sounding language, and a whole bunch of words and terms that either only apply to insurance or mean something completely different than what they mean in normal conversation.  There are also about a zillion different types of insurance.  Maybe you read that article about Taylor Swift insuring her legs.  What is that about?  It doesn’t help that insurance is often sold by reminding people of all the worst things that could possibly happen to them and their loved ones.  

But I have, for you, the scoop on insurance. I’m going to save health insurance for next time, because that one is a whole frackus, Let’s start with the question you were too embarrassed to ask:

How does insurance actually work?  The official answer here is that it spreads risk across a large group of people.  I’ll use the example of car insurance to illustrate, because I think it’s the most helpful one. You pay your insurance company premiums (think of them like a membership fee) every month or week or whatever.  So maybe 100 people are paying their premiums, driving around all legal and la de da, and say one totals their car.  That person is going to get a whole bunch of money to replace it and the company can afford it because of all the people who pay premiums, only some total their car.  If they think you are likely to do whatever it is they’re gonna have to shell out for you pay higher premiums because you’re a bigger risk. Maybe you’re thinking “wait, so in order for insurance to work, most people have to pay more than they ever get!”  to which I say, yes that is exactly true you got it!

Some types of insurance you might get:

Car Insurance- Ugh. In most states you need car insurance to have your vehicle legally registered.  This is because if you cause an accident you are responsible not only for the damage to your car, but also damage to the other person’s car, medical costs due to injuries from the accident and any property damaged in the accident (think fences.)  If you have insurance, they become responsible for these costs (up to a certain amount, which you will select when you purchase coverage.) The other driver’s insurance company is not liable for anything.  If you don’t have insurance they can come after you personally, and if you don’t have the money the other person is SOL.  That’s why the state makes you buy a certain amount of coverage.  They use your history as well as statistics to determine how much of a risk you are, which is why car insurance costs more for people under 25, especially men, and in certain zip codes.  They may also take into account how much you drive, and the safety equipment in your vehicle.  It’s illegal in most states to charge people more for car insurance for being bad drivers, but it’s fine to give discounts to good drivers, which is why they will often lower your rate if you haven’t had an accident or violation in a certain number of years.

Renters Insurance:  What renter’s does is cover all of the stuff you own that lives in your habitat that you don’t own.  Say there was fire in your building, your landlord is responsible for repairing the actual building, but if your mattress and TV and furniture are destroyed that’s on you.  Likewise, it's not your landlord’s problem if someone breaks into your place and steals your laptop. It can obviously be really expensive to replace all your stuff.  If you have renter’s insurance, you’ll get some help with replacing all of your expensive stuff.  They still assess your risk, so if you live in a neighborhood where these things are more likely to happen, you’ll be paying more.  Often they will bundle it up with your car insurance to give you a discount, this is for the same reason you can pay less if you do automatic payments or pay for 6 months at a time, it reduces their administrative costs.

Homeowners Insurance- Literally why are you even reading this blog if you own a home?  You should be giving me advice.

Some types of insurance you might get at work:

Vision/Dental- These guys are pretty cheap, and will cover part of the cost of, you guessed it, vision and dental.  Unlike a medical policy where you would typically pay a set amount in copays these policies usually cover a percentage of the total.  So if you get a $1,300 crown you’ll pay $260 if you have 80% coverage (which is pretty good) $650 if you have 50% coverage (a meh amount) and the whole shebang if you don’t have dental at all.  Both will also usually cover routine things like an annual eye exam and your cleanings more fully.  If you don’t wear glasses or contacts you don’t need vision insurance.  If you need to get them later on you can just add that coverage during open enrollment.  If dental is affordable where you work, you should take it.  Everyone has teeth and you gotta take care of them.  Plus, unexpected and expensive issues can come up as with anything and I was not kidding about crowns costing $1,300.  If you don’t have dental available you should still get your teeth cleaned regularly so you can avoid the big ticket stuff.  Look into new patient specials and discounted care at dental schools.  These types of insurance almost always have an annual maximum, so once your insurance company has shelled out, say, $2,000, you’re left hanging until the next year.

Life Insurance-  Life insurance allows you to ensure that your beneficiaries will be taken care of if you die.  If you don’t have dependants of a mortgage, you probably don’t need life insurance.  Many employers give you a certain amount for free so you’ll still have to designate a beneficiary (aka write down who would get the money. Don’t put your significant other unless you’re married or have some sort of alternative marriage-level commitment going on.) Certain private student loans aren’t forgiven after death (I know, it’s insane) so check with your lender for any death discharge protections. If you find your loans wouldn’t be forgiven  you might  consider getting enough life insurance to cover them and naming whoever cosigned with you as beneficiary, because a lender can and will come after grieving parents for the balance. Nobody wants to think about life insurance because it's horrible, but I promise you’ll only have to deal with it for a few minutes and then you can just lounge around and bask in how responsible you are.

Disability Insurance- This will usually allow you to be paid a certain percentage of your salary if you are disabled and can’t work.  Short term disability will kick in if you are out of work for a little while, while long term disability kicks in when you’ve been out for a long time, like 90 days.  It can also include other benefits, like being allowed to stay on the company heath plan.  It’s another one of those things that are usually more for people with families that they support.