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.
The following resources can help you explore more about insurance and types of insurance that are available:
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 after you pass away. 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 after an unfortunate, unexpected event.
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. Check out the U.S. Small Business Administration (SBA) for more details about required business insurance. This Forbes article can help you pinpoint the minimum car insurance required in your state.
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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:
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Insurance coverage
What types of insurance does the company offer? Can you buy all of your insurance through the company and receive a discount?
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Financial strength
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.
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Agency model
Would you prefer the help of a local insurance agent? Or would you prefer to manage your insurance on your own?
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Customer service
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.
How do you buy insurance?
There are two ways to approach buying insurance, “either directly through an insurer or through independent agents or commercial brokers” says the Insurance Information Institute (III). Some insurance companies use captive agents, also known as exclusive agents, who solely represent their company. Other insurance providers use independent agents. These agents represent multiple insurance companies at one time.
If you work with a captive agent:
- Your agent can offer detailed knowledge of the insurance products they sell from their carrier. They likely know the products inside and out and can answer questions about “what if” scenarios.
- Your agent can make recommendations for insurance products based on your insurance coverage and budget goals.
- You will not be able to stick with your agent if you switch to a new insurance provider.
- You may receive personalized customer service in the event you need assistance or file a claim.
If you work with an independent agent:
- Your agent can offer detailed knowledge of different insurance products from multiple carriers.
- Your agent can make recommendations for the best insurance policies based on your insurance coverage and budget goals. To get the most out of your insurance, this may look like choosing one carrier for auto coverage and another for home insurance.
- You may be able to stay with your agent if you switch from one insurance product that they sell to another.
- Your agent, who often owns their agency, may feel more inclined to personalize your customer service as they are motivated to keep your business.
To find an independent agent near you, use our Find an Agency tool.
References
Insurance Information Institute (III) on insurance basics
Insurance Information Institute (III) on buying insurance
Forbes Advisor
U.S. Small Business Administration (SBA)
Forbes Advisory Car Insurance
Coverages described herein may not be available in all states. Please contact a local independent Grange agent for complete details on coverages and discounts. If the policy coverage descriptions herein conflict with the language in the policy, the language in the policy applies. The material provided above is for informational, educational, or suggestion purposes and does not imply coverage. WE RESERVE THE RIGHT TO REFUSE TO QUOTE ANY INDIVIDUAL PREMIUM RATE FOR THE INSURANCE HEREIN ADVERTISED. Grange Insurance policies are underwritten by Grange Insurance Company, Trustgard Insurance Company, Grange Indemnity Insurance Company, Grange Insurance Company of Michigan and Grange Property & Casualty Insurance Company*. Not all companies are licensed in all states. *Not licensed in Pennsylvania.