What Are the 5 Parts of an Insurance Policy?
Your insurance is an important part of your personal finances. While some insurance policies contain a plethora of information, they don't have to be confusing or complicated. When you understand an insurance policy's components, you are in the best position to shop around and choose the optimal plan for your needs.
Here's a look at five important parts of an insurance policy that everyone should know about. Full infographic.
1. PremiumAn insurance premium is one of the most important places to look when choosing your insurance. The premium is what you have to pay on an ongoing basis to have an insurance policy. You may pay monthly, pay your entire premium upfront or choose another schedule within your policy's guidelines. When shopping for a home, auto, business or other insurance policy, you'll have to pay the premium to have insurance whether or not you ever have to file a claim. If cost is the most important factor to you when choosing insurance, this is where you want to focus most.
2. DeductibleIn the unfortunate event that you do have to file a claim with your insurance company, you'll have to pay the deductible before your insurance benefits kick in. For example, if you have a $500 auto insurance deductible and accidentally cause $2,500 in damage to your car, you would have to pay the first $500, and your insurance would pay for the remaining $2,000 in repairs. With many insurance policies, you can choose between a range of deductibles. A lower deductible means you'll pay less if you file a claim, but typically leads to a higher policy premium. Based on your finances, pick the deductible level that makes the most sense for your needs.
3. Policy LimitsYour insurance policy limits are the most you could get in coverage from your insurance policy. For example, if you own a home and it is lost in a fire, you would likely get the maximum coverage provided by your policy. If your rebuilding costs would be more than your limit, you are considered underinsured and should look into increasing your policy limits. Like a change in deductibles, changing your policy limits leads to a change in your premium rates, as well. For higher limits, you can expect to pay higher premiums. But increasing your limits may be less costly than you think, so it's worth discussing with your agent if you have any doubts about your coverage.
Depending on the type of insurance you choose, you will likely encounter various exclusions, which are types of damage that are not covered by your insurance. Most homeowner's policies don't include earthquake or flood insurance, for example. If you live in an area prone to either of those events, you may want to find additional coverage.
When signing up for a new policy, read through your exclusions carefully. While it may seem like legal mumbo jumbo is hiding in the fine print, exclusions can have serious consequences in the future. It's always important to understand your insurance coverage limits and exclusions, so you aren't surprised by an expensive, uncovered event.
5. Riders - Additional coverage and options
Riders are an optional add-on that can increase the coverage or features of your insurance policy. With home insurance, for example, you may want to add a rider that specifically covers valuable jewelry. There are many types of riders that can enhance your insurance.
When you tack new features onto an insurance policy, the costs will likely go up. But in many cases, the added cost is worthwhile for the features they bring. Work with your insurance agent to learn more about what riders could add value to your insurance policy and customize them to meet your needs better.
Does Your Insurance Meet Your Needs?
It's easy to set your insurance and forget about it, but it's a good idea to check in with an annual review of all of your coverage to make sure what you have is still right for your needs. Changes in lifestyle, income or goals may shift your needs in a way that leads to increased coverage or cost savings.
If you are not sure, you can contact a Westfield agent to assist you. When you line up these five parts of an insurance policy in your favor, you'll find the right balance between cost and coverage to protect your finances, while giving you peace of mind that you and your loved ones are protected. That's a win for your family and your finances.