Frequently Asked Questions
Not exactly.
A deductible is the amount you are responsible for paying before your insurance company begins contributing toward a covered claim.
For example, if your policy has a $500 deductible and your vehicle sustains $1,500 in covered damage, you would pay the first $500 and your insurance company would typically pay the remaining $1,000.
Generally speaking:
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Higher deductibles result in lower insurance premiums.
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Lower deductibles result in higher insurance premiums.
Choosing the right deductible comes down to balancing your monthly insurance costs with your ability to handle unexpected expenses. If you have a strong emergency fund, a higher deductible may make sense. If unexpected expenses would create financial stress, a lower deductible may provide greater peace of mind.
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Insurance companies often use shorthand to describe liability coverage limits.
For example, a policy with limits of 100/300/100 means:
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$100,000 bodily injury liability per person
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$300,000 bodily injury liability per accident
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$100,000 property damage liability per accident
In this example, the policy would pay up to $100,000 for injuries to any one individual, up to $300,000 total for all injured parties in the same accident, and up to $100,000 for property damage caused by the insured driver.
These limits help define how much financial protection your policy provides if you are legally responsible for an accident.
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This is one of the most common insurance questions, and the answer depends on your personal financial situation.
In general, you should have enough coverage to protect assets you own today and future income you may earn. While it is impossible to predict every possible accident or loss, adequate coverage can help protect you from significant financial hardship.
For property insurance, coverage should generally reflect the cost to repair or replace the property being insured.
Liability coverage requires a broader perspective. Medical costs, vehicle repairs, legal settlements, and lawsuits can be expensive. If liability limits are exhausted, you may be responsible for excess costs out of pocket.
Because of this, many insurance professionals recommend purchasing as much liability coverage as is practical within your budget. When in doubt, it is usually safer to choose higher limits than lower ones.
If you rent your home, renters insurance helps protect your personal belongings and provides valuable liability protection.
Your policy should generally provide enough personal property coverage to replace items such as:
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Furniture
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Electronics
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Clothing
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Household goods
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Appliances you own
Creating a home inventory can help estimate the value of your belongings.
In addition to personal property coverage, most renters policies also provide:
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Personal liability protection
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Medical payments coverage
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Additional living expense coverage if a covered loss makes your residence temporarily uninhabitable
Since most people acquire additional belongings over time, it is a good idea to review your coverage annually and adjust it as needed.
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Homeowners insurance should provide enough coverage to rebuild your home after a covered loss.
Importantly, the amount needed to rebuild a home may differ from:
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The home's purchase price
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Its market value
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The remaining mortgage balance
Most policies also include coverage for personal belongings, liability protection, and additional living expenses.
Some high-value items may require additional coverage, including:
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Jewelry
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Fine art
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Collectibles
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Firearms
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Musical instruments
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High-end electronics
As construction costs, home values, and personal property values change over time, homeowners should review coverage annually to ensure it remains adequate.
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Possibly.
Many homeowners policies provide limited coverage for business-related property and activities. If you operate a business from your home, your standard homeowners policy may not adequately protect business equipment, inventory, or liability exposures.
Additional coverage may be necessary if you:
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Meet clients in your home
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Store inventory
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Own specialized equipment
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Generate significant business revenue from your residence
Depending on your situation, a home-business endorsement or separate business insurance policy may be appropriate.
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Although both relate to your health and well-being, they serve very different purposes.
Health Insurance
Health insurance helps pay for medical services and treatments, including:
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Doctor visits
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Hospital stays
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Prescription medications
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Preventive care
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Mental health treatment
Health insurance generally pays medical providers directly or reimburses covered healthcare costs.
Disability Insurance
Disability insurance protects your income if an illness or injury prevents you from working.
Rather than paying medical bills, disability insurance provides replacement income to help cover everyday expenses such as:
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Mortgage or rent
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Utilities
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Food
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Transportation
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Other household expenses
While health insurance protects your ability to afford medical care, disability insurance helps protect your ability to earn a living.
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The number of options and features when it comes to health insurance can be overwhelming. In many cases, people get their health insurance through their employer. In that instance, they will need to make decisions regarding their health coverage each year at open enrollment. Employers may have one health plan or many, but what the decision essentially comes down to is whether or not the plan covers what you need.
To start with, you should look at whether or not trips to see your main doctor (primary care physician) will be covered under the plan. If you get your annual physical at their office, would this be a covered expense? Second, if you have any regular prescriptions that you use, is this a covered expense? Third, think about mental health professionals, chiropractors, and other professionals that help you maintain your well-being. Are visits to them covered under the plan? The bottom line is that you need to think about all the professionals you see on a regular basis. If they are not covered, then how you will get this care? Would you be willing to go out of pocket? If so, we would need to incorporate this into your budget (see Step 1).
Aside from looking into whether or not these items are covered, you should also pay attention to deductibles and how much of the premium is covered by your employer. Deductibles can add up quickly in situations where you have regular expenses, like medications. Also, insurance premiums can take a large chunk out of your paycheck, if your employer only covers a minimal percentage of the cost. The key is reviewing these things before you receive your first paycheck, so it is not a surprise!
A Health Savings Account (HSA) is a tax-advantaged account designed to help individuals save and pay for qualified medical expenses.
To contribute to an HSA, you must generally be enrolled in a qualified high-deductible health plan (HDHP).
HSAs offer several potential advantages:
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Tax-deductible contributions
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Tax-deferred growth
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Tax-free withdrawals when used for qualified medical expenses
Funds generally remain yours even if you change jobs or retire.
Because HDHPs require higher out-of-pocket costs before coverage begins, it is often a good idea to maintain emergency savings in addition to your HSA balance.
For healthy individuals who do not expect frequent medical expenses, an HSA can be a valuable long-term savings and healthcare planning tool.
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For many people, the answer is yes.
Life insurance is designed to provide financial support to individuals who depend on you financially.
You may need life insurance if:
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You are married
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You have children
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You support aging parents
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You own a business
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You have significant debts shared with others
Life insurance can help beneficiaries:
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Replace lost income
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Pay off debts
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Cover education expenses
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Maintain their standard of living
Even individuals without dependents sometimes use life insurance for estate planning, charitable giving, business succession planning, or legacy goals.
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The amount of life insurance you need depends on your personal goals and financial responsibilities.
Factors to consider include:
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Income replacement needs
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Mortgage balances
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Other debts
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Education funding goals
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Childcare costs
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Final expenses
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Future financial obligations
A common rule of thumb is to carry life insurance equal to 10 to 15 times your annual income. However, individual needs vary significantly.
The goal is to provide enough financial support so your beneficiaries can continue meeting important financial obligations if you are no longer there to contribute income.
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Life insurance generally falls into two primary categories: term insurance and permanent insurance.
Term Life Insurance
Term insurance provides coverage for a specified period, such as:
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10 years
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20 years
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30 years
If the insured dies during the policy term, the death benefit is paid to beneficiaries.
Term insurance is often the most affordable way to purchase a large amount of coverage.
Permanent Life Insurance
Permanent insurance is designed to remain in force for the insured's lifetime, provided premiums are paid and policy requirements are met.
Permanent policies may offer:
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Lifetime coverage
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Cash value accumulation
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Loan provisions
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Estate planning opportunities
Because permanent insurance offers additional features and lifelong coverage, premiums are generally higher than those of term insurance.
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Two noteworthy permanent policies are universal life and variable policies. A universal life policy generally allows for flexible premium payments within certain parameters. As long as the owner of the policy pays the minimum amount, the policy will stay in force. The owner has the option of paying more into the policy in order to increase its cash value (more on this in a second). Variable life insurance policies have an investment component to them. In general, the death benefit may increase or decrease depending on how the markets perform during the period the policy is in force. A variable universal life policy combines the flexible premiums of a universal life policy with the investment component of a variable life policy.
Permanent policies generally have a cash value that is associated with them. The owner of the policy can borrow against the cash value of the policy, but if they do this the death benefit will decrease. For example, let’s say that you own a whole life policy with a $100,000 cash value. You take a loan of $20,000 against this policy. If you were to die, the amount that gets paid out to your beneficiaries would be $20,000 less (plus any interest that may have accumulated on the loan). In other words, the insurance company pays itself back for the loan plus interest before it pays your beneficiaries. Your beneficiaries receive less money if there is a loan taken against the policy.
One common myth about permanent insurance is that loans against the policy do not have to be paid back. As shown above, this is not true. In many instances, interest on the loan needs to be paid each year in addition to the normal premium amount. Additionally, unpaid principal on the loan DOES get paid back. The payment is made in the form of a reduced death benefit paid out to the beneficiaries. It should also be noted that only permanent policies have a cash value. Term policies do not. You can only take a loan against a permanent policy. No loans may be taken on a term policy.
If budget limitations prevent you from purchasing every insurance product at once, consider prioritizing coverage based on financial risk and necessity:
1. Health Insurance
Your ability to obtain medical care is essential. Unexpected medical expenses can create significant financial hardship.
2. Auto Insurance
Most states require drivers to carry auto insurance, and the financial consequences of an accident can be substantial.
3. Homeowners or Renters Insurance
Protecting your home and belongings is an important part of financial security. Mortgage lenders and landlords often require this coverage.
4. Disability Insurance
Your income is one of your greatest financial assets. Protecting it can be just as important as protecting physical property.
5. Life Insurance
Life insurance remains extremely important for many households, particularly those with dependents. However, if budget constraints exist, other core protections may need to be addressed first.
As your financial situation improves, review your coverage regularly and fill any gaps that may exist. Insurance needs change throughout life, and periodic reviews can help ensure your protection keeps pace with those changes.