Have you ever had a moment — while looking at your insurance policy or shopping for insurance — when you’ve thought, “What is insurance? And do I really need it?”
You’re not alone.
Insurance can be a mysterious and puzzling thing. How does insurance work? What are the benefits of insurance? And how do you find the best insurance for you? These are common questions, and fortunately, there are some easy-to-understand answers for them.
To help, here are a few simple insurance explanations:
What is insurance?
Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a fire, theft, lawsuit or car accident. When you purchase insurance, you’ll receive an insurance policy, which is a legal contract between you and your insurance provider. And when you suffer a loss that’s covered by your policy and file a claim, insurance pays you or a designated recipient, called a beneficiary, based on the terms of your policy.
The most difficult thing about insurance is that you’re paying for something you hope you never have to use. Nobody wants something bad to happen to them. But suffering a loss without insurance can put you in a difficult financial situation.
What are the benefits of insurance?
Insurance is an important financial tool. It can help you live life with fewer worries knowing you’ll receive financial assistance after a disaster or accident, helping you recover faster. When it comes to life insurance, this could mean your family doesn’t have to move out of the house or that your kids can afford to go to college. For auto insurance, it could mean you have extra cash in hand to help pay for repairs or a replacement vehicle after an accident. Insurance can help keep your life on track, as much as possible, after something bad derails it.
Your independent insurance agent is a great resource to learn more about the benefits of insurance, as well as the benefits in your specific insurance policy. For example, you may have access to perks such as free roadside assistance, risk control consulting for businesses or cash value in a life insurance policy, in addition to your insurance coverage.
And in some cases, like auto insurance and workers’ compensation, you may be required by law to have insurance in order to protect others.
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How does insurance work?
Insurance is essentially a gigantic rainy day fund shared by many people (called policyholders) and managed by an insurance carrier. The insurance company uses money collected (called premium) from its policyholders and other investments to pay for its operations and to fulfill its promise to policyholders when they file a claim.
Because of the unpredictable nature of natural disasters — like tornadoes, hail, wildfires and hurricanes, and everyday disasters such as fender benders and kitchen fires — an insurance company’s main goal is to remain financially strong enough to handle anything that comes its policyholders’ way.
How do I choose an insurance provider?
Here are a few things to consider when choosing an insurance company to work with:
What types of insurance does the company offer? Can you buy all of your insurance through the company and receive a discount?
Would the company be able to pay your claim? Look to U.S. credit rating agency AM Best to determine the company’s financial strength.
Would you prefer the help of a local insurance agent? Or would you prefer to manage your insurance on your own?
Do others recommend this company? What are people saying about it in online customer reviews?
When in doubt, contact your local independent insurance agent and ask them any questions you have about insurance. Your agent is an insurance expert with the knowledge to guide you through the insurance process and help you find the best insurance protection for you and the people and things you care about most.
This article is for informational and suggestion purposes only. If the policy coverage descriptions in this article conflict with the language in the policy, the language in the policy applies. For full details on Grange’s business, auto, home and life insurance coverage and discounts, contact your independent agent.