Insurance 101: Understanding the Basics

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Whether you’re just striking out on your own as a young adult or taking responsibility for financial decisions at any age, acquiring a basic understanding of insurance is important. Here are three essential types of insurance you should know something about.

Auto Insurance

If you own a vehicle, you’ve probably already gotten this type of insurance, as it’s required to operate a vehicle in nearly every state. For automobile policies, insurance providers put together a package based on your budget and your state’s requirements for minimum coverage. Premiums can vary depending on the type and amount of coverage you need. At a minimum, an auto policy will provide liability coverage, which protects you when you’re legally responsible for injuries or property damage in an accident.

If your vehicle is financed, your lender will likely also require you to carry comprehensive and collision coverage. Comprehensive insurance protects your vehicle from damage that occurs due to events out of your control, such as a fire, theft, or acts of nature. Collision coverage comes into play when you collide with another object such as a tree, signpost, or another vehicle.

Rental Insurance

A rental insurance policy covers the replacement cost of your belongings inside or outside your rented dwelling. While the structure itself should be insured by the owner, many renters choose to get this type of policy in the event their belongings are stolen, vandalized, or damaged by certain occurrences, since buying everything all over again can get expensive.

Rental insurance also usually protects you in the event that someone is injured while visiting your home. Additionally, you can get a policy that covers your relocation expenses if you are forced to move because your rental becomes unsafe to occupy. Rental insurance is sometimes required as part of your lease agreement, so be sure to check carefully to be sure you aren’t in violation of your rental terms by not having a policy.

Life Insurance

While some people think life insurance is only necessary when you have a mortgage and a family, it’s an option that should be considered by anyone with financial obligations. Remember that any debt you hold may pass on to your loved ones when you’re gone; burdens like student loans and credit card balances often become the responsibility of your spouse, children, or parents. A life insurance policy helps cover those expenses, so your family has less to worry about.

It’s also worth noting that life insurance premiums are lower when you’re young and healthy, so it may not cost much to buy a policy. You can also add coverage to your policy to help financially in the event that you survive but are seriously injured in certain types of accidents.

Although no one ever wants to use insurance, most people are grateful to have it in place when the unexpected occurs. Whether mandatory or not, automobile, rental, and life insurance are all important to consider acquiring, for your own protection as well as for the relief of your loved ones.