Quick Insurance Blog

What are the different types of homeowners insurance?  You might ask this question if you are getting ready to buy a home or thinking that you may need additional coverage.  There are a number of different policies that are written in the United States.  Below you will see a little information about each type.

The forms for homeowner’s insurance policies are standardized to insure consistency and ease of use.  These forms are provided by the Insurance Services Office or the ISO.  The various types of policies that are available are referred to in letter/number combinations, with HO being the letters and the numbers running from 1 thru 8.

HO-3 is the most common policy type and is sometimes referred to as “all risk” or “open perils”.  It and other policies of this nature cover damage to the property, the dwelling, the occupants and their possessions in case of certain events.  

The events that are covered and the amount of coverage must be outlined in the policy.  HO-5 is a similar policy, but covers a wider breadth of incidents.
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What is an insurance premium?  We know that we write checks to the insurer on a regular basis.  But, what is an insurance premium, exactly?

What are we actually paying for and where does that money go?

Insurance is actually a form of risk management.  Early societies learned that fire, theft and other incidents could cause massive losses of property and livelihood.  They were also aware that when someone died, those that were dependent on the person might be left without a means to support themselves.

The earliest form of insurance was simply to help other people, knowing that they would return the favor if a similar event happened to you at some point in the future.  For example, if a fire burned down your neighbor’s home, you would help rebuild it.  Members of the community that did not help could not count on others to help them.

The possibility existed that you might never need help.  In that case, you might consider the effort wasted.  In the same way, you might consider an insurance premium wasted, if you never need to file a claim.
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Life insurance policies differ from other types of insurance in that a human life is being insured as opposed to an item, such as a house, which has a repair or replacement value.  

A house can survive indefinitely without damage.  A person will, at some point, succumb to death.

When a company writes a policy to insure a car or a home, they hope that they will never have to pay a claim.  When a company writes a life insurance policy, they know that they will eventually pay a death benefit, as long as the person continues to pay their premiums.

Whole life insurance is a kind of “permanent” as opposed to “term” coverage option.  With a term life policy, the insurer and the insured agree on a specific premium rate for a specific number of years or term.

The insured usually has the option to renew the policy at the end of the term, but the rates will be higher as he or she advances in age.

Whole life insurance has no term.  Annual premiums are fixed.  They will not change throughout the life of an individual.  There are guaranteed cash values and death benefits.  The cash value can be borrowed against and payback is optional.  If not paid back, the loan amount simply reduces the death benefit.

Whole life premiums are higher initially than those paid for term life policies.  But, because the premiums do not change as the years go by, the cost of either type is relatively the same.
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How much life insurance do I need? In order to answer that question, you first need to answer several others. Here, you will see a number of questions, as well as a brief explanation of why those questions are relevant.

Do you have dependent children?  How old are they? For parents, the primary determinant for how much life insurance they need is the number of children that they have and the number of years before those children will be able to provide for themselves.  If you are the major earner in the family, you can calculate your expected annual earnings for the number of years that it would take for the kids to finish college.  That would give you a beginning figure.

Let’s say that you earn $100,000 per year.  You want your family to be able to live in the same manner after your death as they did before.  You have two children under the age of five and your wife’s earnings are limited.

That means that for 17 years, your kids will need support.  With just that simple calculation, you can easily see how a million dollar life insurance policy is not unreasonable.

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What is the average price of car insurance?  That’s a difficult question to answer.  It depends primarily on where you live, not the kind of car that you drive, as some people think.

Urban or city dwellers pay more than those who live in the country.  The more traffic there is on the road, the higher the likelihood of an accident.

Insurers determine premiums by considering many things, including a driver’s age, but their major concern is how likely it is that they will have to pay a claim.

According to a report compiled by the National Association of Insurance Commissioners, the average price for auto insurance declined, overall, by 1.7% in 2006.  They came up with a list of the ten most expensive states to live in, when it comes to the cost of car insurance, and the ten least expensive states to live in.  The difference between the low and the high is quite substantial.
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There have been many headlines in the last two weeks about the current financial and market crisis in the United States. The most important one, from an insurance point of view, was the bailout of AIG. This was probably good news if you were a customer with them since you don’t have to go scrambling to find a new insurer.

Nevertheless, many people rightly feel that we as taxpayers should not have to be on the hook for poor business choices made by financial institutions. However, I am not going to discuss who is to blame or even how to fix the problem (I will leave that to people more qualified than I am), but instead I will give you a few ideas on how you should look at your personal insurance options given the current climate of economic uncertainty.

To do this I will look at four different types of insurance that you may or may not have. These will be auto, health, life and home insurance. There are ways you can structure your insurance policies that can save you money while maintaining the coverage you need.
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