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Money and Finance

Insurance

What is insurance?

Insurance is something people buy to protect them from loss. They pay a fee to a company in order to protect something that is important to them. You can buy insurance for most anything, but most people have insurance that protects big items like their house or their car.

Why do people get insurance?

People get insurance to protect them from taking a big loss that they can't afford. For example, a person may pay $500 every year on insurance to protect their home. While $500 is a lot of money to pay each year, if their home burned down, they would be out hundreds of thousands of dollars if they didn't have insurance.

Insurance Spreads the Risk

Insurance helps to spread the risk among a number of people. Take the example of insurance on a home. The insurance company collects fees from thousands of home owners each year. The insurance company then uses that money to pay to rebuild any of those homes that were damaged or robbed. Each person pays a little, so no one person has to pay a lot.

Types of Insurance

There are all types of insurance available. You can get insurance on just about anything. Below are some of the most common types of insurance.

Auto - Auto insurance protects your car as well as other cars if you have an accident. It also protects the car from theft. Anyone driving a car needs to make sure they have liability auto insurance (read about liability below).

Disability - Disability insurance helps to pay the bills if a person gets injured and can't work.

Health - Health insurance helps to pay medical bills if you get sick.

Homeowners - Homeowners insurance protects your house in case of theft or damage.

Life - Life insurance pays in the case someone dies. One type of life insurance, called "term" life insurance, pays a lump sum to the beneficiary when the person dies. Parents often get term life insurance to help their children in the case of their death.

Liability - We mentioned liability insurance in the auto section above. Liability insurance helps to pay if you get sued and are found negligent. For example, auto liability insurance helps pay for the other person's car or their medical bills if you cause an accident.

Unemployment - Unemployment insurance is paid by businesses to the government to help pay for people who are out of work. It helps people pay the bills while they are in between jobs.

Each Policy Is Different

Each insurance policy is different. Two different homeowners insurance policies may cover different things. For example, most homeowners insurance policies don't cover floods, but some do. It is important to read over your insurance policies (no matter how boring) and understand what they cover. After all, you need to know what you are paying for.

Do I need insurance?

If you are an adult you probably need a list of insurance policies such as auto, life, home, disability, and health insurance. You should talk to an insurance agent to get their advice on your situation. If you are a kid you probably just need health insurance, which you hopefully have through your parents. Once you get your driver's license, you will need auto insurance. Talk to your parents to find out what insurance you have and what you need.

Interesting Facts About Insurance

Learn More about Money and Finance:

Personal Finance

Budgeting
Filling out a Check
Managing a Checkbook
How to Save
Credit Cards
How a Mortgage Works
Investing
How Interest Works
Insurance Basics
Identity Theft

About Money

History of Money
How Coins are Made
How Paper Money is Made
Counterfeit Money
United States Currency
World Currencies 		Money Math

Counting Money
Making Change
Basic Money Math
Money Word Problems: Addition and Subtraction
Money Word Problems: Multiplication and Addition
Money Word Problems: Interest and Percent

Economics

Economics
How Banks Work
How the Stock Market Works
Supply and Demand
Supply and Demand Examples
Economic Cycle
Capitalism
Communism
Adam Smith
How Taxes Work
Glossary and Terms

Note: This information is not to be used for individual legal, tax, or investment advice. You should always contact a professional financial or tax advisor before making financial decisions.

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