The Graduate's Independent Guide to
Insurance
Graduating is an exciting rite of passage and you are to be
congratulated for your achievements. Life offers many other exciting
opportunities; however, these opportunities are accompanied by
certain risks. Insurance is your major protection against financial
risks, and knowledge about basic insurance facts can make you
a better consumer.
This guide was designed by the Independent Insurance Agents
of America to introduce you to the different types of insurance,
which ones you need and which ones you don't. While this guide
addresses the most common questions about insurance, your insurance
agent can answer your specific questions, and make sure you have
the coverages you need.
Index
What is insurance and what kinds
are there?
Insurance is a means of guaranteeing your financial protection
against various risks. There are different kinds of insurance
to cover different circumstances. Policies are available for
business purposes and for personal needs. Personal insurance
is further divided into:
Property/Casualty Insurance - Provides protection
for property like homes, cars and household possessions, in addition
to protection from liability as a result of their use.
Life Insurance - Provides funds to a designated
beneficiary or beneficiaries in the event of an insured's death.
Health Insurance - Pays for costs related
to your health (e.g., doctor visits, hospital stays and diagnostic
tests). Disability Insurance, a form of insurance that combines
elements of life and health insurance, pays you for income lost
due to a disabling injury or illness.
Life, health and disability insurance are
often provided through employers. Ask your employer about these
coverages and check with your agent to make sure they meet your
needs.
Government Benefits - As a working citizen,
you pay for insurance programs run by the government. Social
Security is a retirement and disability program in which almost
all workers in the United States are required to participate.
Medicare is the federally-sponsored health program for persons
over 65 and individuals with disabilities. Medicaid is jointly
funded by the states and the federal government to extend health
coverage to poorer Americans. In addition, laws in most states
require employers to carry workers compensation insurance so
that workers injured or exposed to an illness on the job can
receive compensation. Many states also require employers to pay
into unemployment insurance, so if a worker is laid off, he or
she will receive some money while seeking a new job.
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How do I decide which kinds
of insurance I should buy?
Upon graduation, you probably should consider five basic lines
to see if they apply to your situation:
1. Auto Insurance -- If you own or lease
a car or are planning to in the near future, you will want to
protect that investment with auto insurance. This coverage helps
you cope with the expense of accidents, vandalism or theft. In
addition, if you are financing the vehicle, the lending institution
probably will require that you carry auto insurance. Another
area that needs protection is your liability. If you are sued
because of damage your vehicle caused, auto insurance will help
with legal expenses and any damages you have to pay.
2. Health Insurance -- To cope with today's
high medical costs, virtually everyone needs health insurance.
Following graduation, you may no longer be covered by your parents'
policy, so you may need one of your own.
3. Homeowners or Renters Insurance --Whether
you own a home or rent an apartment, you want to make sure your
possessions are protected. Both homeowners and renters insurance
offer comprehensive coverage at home and when you travel. They
also offer liability protection should you be sued.
4. Life Insurance -- If you have dependents
or are interested in purchasing life insurance that builds value
as you pay the premiums, talk with your agent about the plans
available.
5. Disability Insurance -- This is designed
to provide required income should you be injured or disabled.
The extent of coverage should be enough so that, when combined
with your other assets, you would have enough to live on.
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Am I still covered by my parents'
policies?
It depends on the policy and its terms. For example, most
health insurance policies cover insured's children up to age
18 - or to age 22 if the child continues as a full-time student.
If you are over 18 and not a full-time student, you will need
your own health insurance policy. Check with your insurance agent
about specific insurance policies and any age restrictions involved.
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What kinds of insurance do I
not need?
Air travel insurance. It costs too much
and is not comprehensive.
Life insurance if you are single with no
dependents and do not have your own business.
Very specific policies like contact lens
insurance or cancer insurance. It is usually better to have comprehensive
policies like renters or health.
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What does auto insurance cover?
Auto insurance is divided into several different types of
coverage:
Liability covers damage to other people's
property and injuries you may cause while operating an automobile.
Collision covers damage to your own vehicle
in an accident.
Other-than-Collision covers fire damage
to your vehicle, break-ins, vandalism or theft, as well as natural
disasters (earthquake, hail, hurricane, flood, etc. - unless
the vehicle is overturned, then it is considered a collision).
Medical payments insurance guarantees emergency
and related medical payments, usually in the range of $5,000
to $10,000, for you, your passengers and other parties, regardless
of who is at fault. It also covers you and members of your household
in any accident involving an automobile, whether you are on foot,
in a friend's car, riding a bicycle, etc.
Uninsured motorist (UM) and underinsured
motorist (UIM) coverage protects you and your passengers if injured
in an accident with drivers carrying insufficient liability coverage.
Extra coverages include expenses for towing,
labor, temporary replacement vehicles, etc. These are generally
defined as add-ons or endorsements to your policy.
Your agent can offer you more information on the
limits and types of coverage that will best suit your situation.
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Should I look into auto insurance
before I buy my first car?
Yes. Factors such as safety and frequency of theft of specific
makes and models can play an important role in determining your
insurance rate. Some cars are safer than others to drive and
some are less apt to be stolen. Choosing one of these will help
lower your insurance rate. Your insurance agent can help you
estimate your insurance needs and premiums.
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Can I get insurance through
my employer?
Probably. Check to see if you can receive health, disability
and life insurance through your place of employment. If there
are several different plans available, be sure to examine each
thoroughly to find the one that best fits your needs. Ask your
company's program administrator to explain the employee benefits
thoroughly.
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If I receive no benefits through
my employment, what do I do?
Check with your parents to see if you are still covered under
their policies. If not, your insurance agent can explain the
plans available and the best match for your needs.
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Does it matter that I'll be
moving around a lot in the next few years?
Yes. Your policies usually can follow you, though some adjustments
may be necessary. To keep your coverage intact, it's best to
keep your insurance agent posted on address changes.
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I'll soon be renting my own
apartment. Is there insurance for that?
Yes. Renters insurance is a property/casualty policy to protect
your property and to protect you against liability. For example,
if someone slips and falls in your apartment, you may be held
liable for the injury. Renters insurance would cover that accident.
All your possessions up to the monetary limits listed in your
policy also would be covered for specified damages (both at home
and when you travel).
Liability coverage means that if somebody sued for damages
caused by you or your possessions (other than a vehicle covered
by your auto insurance policy), the cost of the suit --both defending
it and settling it if necessary--would be covered by your renters
insurance up to the limit of coverage chosen.
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Isn't my apartment covered under
my landlord's policy?
No, the landlord's insurance covers damage to the building
and the landlord's property - not your personal property or liability.
Plus, you may be liable for damage to the building if it is your
fault. If you go out and leave the stove on and an ensuing fire
causes extensive damage to the entire building, you may be held
liable to the landlord.
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How are prices determined for
renters insurance?
Renters insurance is surprisingly inexpensive. That's because
you are not insuring a building. Like all property/casualty policies,
the value of your property to be insured and other risk factors
are weighed by the insurance company to determine your premium.
Your insurance agent can help you find the best combination of
coverage and cost.
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I live in an apartment with
three roommates. Do we each need a policy?
Check with your agent. Usually, it is best if all roommates
are on the same policy although it is possible for each to purchase
his or her own coverage. If you do need to "go it alone,"
you alone receive the security of renters coverage.
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Do I need insurance if I go
into business for myself?
Yes. Commercial or business insurance, like the personal insurance
described thus far in this guide, offers property and liability
coverage.
If you are self-employed, in effect you own your own business
and are responsible not only for your own equipment and supplies
but also for any damage to your clients and their property.
If you are looking at seasonal employment with another young
person or an informal group of young people who have started
their own business, be sure to check to see if they have the
necessary insurance and that you are not personally liable. Speak
with your insurance agent for more details.
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Will getting married change
my insurance needs?
Yes. It may increase your needs in some areas (more property
insurance if you are combining households) and decrease them
in other areas (one of you may be able to receive coverage under
the other's health plan; two vehicles can be covered under one
policy, which is usually less expensive). If you receive health
and life insurance at work, consult with your program administrator
to make adjustments. For other policies, such as automobile insurance,
talk with your insurance agent.
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How will becoming a parent affect
my insurance needs?
Check your life insurance terms. You may want to increase
the amount, change the beneficiary, or, if you have no life insurance,
purchase a policy. Also, because your child will need health
insurance, you should see if dependents can be added to your
current plan.
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What factors affect the cost
of insurance?
The likelihood of a loss occurring. The greater the probability
a loss will occur can mean a higher rate (e.g., earthquake insurance
in California).
The potential size of the claim. If you purchase a large amount
of coverage (that is, if the item you are insuring is quite valuable),
the chances are there could be a large claim and the premium
will need to cover that possibility.
The percentage of loss the insurance company will be required
to pay. If you have no deductible, the company will pay 100 percent
on a covered loss. This increases their risk and your premium.
To understand how a deductible works, consider the following:
If the deductible on your auto insurance is $100, it means you
agree to pay this amount first, and your insurance company will
pay for damages exceeding this deductible. By increasing your
deductible from $100 to $250, or even $500, this decreases the
insurance company's risk, which may mean a savings in your premium.
Other factors can influence premiums such as the number of lawsuits
and the average amount awarded in a given state. In short, your
insurance company tries to ascertain how much it needs to accumulate
to cover all the claims it will receive.
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