by Jeffrey Lee

Insurance is an important part of life in the United States. It can protect people from financial ruin, in the event their home burns down, their car is damaged in an automobile accident – or they cause damage to someone else’s car – or if they are successfully sued and are told to pay money to someone else.

Most people do not have enough money or assets in the case of disaster to replace or significantly repair either their own property (like a car or house), or the property of others. However, if they have insurance, the companies cover the costs instead. Insurance payouts can include any injuries caused to others in an accident. This way, everyone is protected from accidents and events that would otherwise financially ruin people’s lives. Specific types of insurance are legally required to operate a car or business, and to secure a mortgage on a house.

To carry an insurance policy, the client pays a company a small amount of money, called a premium. This can be paid monthly, or in less frequent, larger installments if the policy holder prefers. The company collects premiums from many policyholders. Then, when one of the policyholders has an accident and needs to use the insurance, that person files what is called a claim. During the processing of the claim, the insurance company pays whatever money is needed, so the policyholder does not have to. There is sometimes a deductible on an insurance policy; this is an amount of money that the policyholder must pay during a claim.

For example: John carries an auto policy, for which he pays $70 per month. He crashes his car, and it is destroyed. The insurance company determines that it will cost $4,000 for John to replace his car with one of the same year, make, and model. John has a $500 deductible, so the company gives him $3,500 to replace his car. The company can afford to do this because thousands of other policyholders also paid the company their premiums that month, while only a small percentage of them need to file claims. So John can use the $3,500 from the insurance company, plus $500 of his own money, to get a replacement car, even though he only pays $70 per month in insurance.

Please follow this series of monthly articles to learn about topics such as:
• Car insurance for drivers with an international driver’s license
• Driving for Uber or Lyft and the impact on insurance premiums
• The importance of renters insurance, if you are renting a house or apartment
• How to get car insurance for those who haven’t had it before
• Young drivers and car insurance
• Insuring your new business
• Insuring your new home

Jeffrey Lee has over a decade of experience in the insurance industry, and is currently the Sales Director of the Amy Alward Agency, the largest Allstate agency in Maine. This article is available in translation.