Frequently Asked Questions About Insurance
General Insurance Questions
What types of insurance do I really need?
At minimum, most people need:
- Health insurance – Covers medical expenses and protects against catastrophic costs
- Auto insurance – Required by law in most states if you drive
- Homeowners/Renters insurance – Protects your belongings and provides liability coverage
- Life insurance – Essential if others depend on your income
Business owners typically also need general liability, workers’ compensation (if you have employees), and professional liability insurance.
How do insurance companies decide what to charge me?
Insurers use UnderwritingThe process insurers use to evaluate risk and determine pricing. to assess your risk level. They consider factors like:
- Your claims history
- Credit score (in most states)
- Age, location, and demographics
- The amount of coverage you need
- Your DeductibleThe amount you pay out-of-pocket before insurance kicks in. choices
- For auto: driving record, vehicle type, annual mileage
- For home: property age, construction type, location risks
What’s the difference between an agent and a broker?
- Captive agents work for one insurance company and can only sell that company’s products
- Independent agents represent multiple insurers and can compare options for you
- Brokers work for you (not insurers) and shop the market on your behalf
Should I bundle my policies?
Often yes. Most insurers offer 5-25% discounts when you bundle multiple policies (auto + home, for example). But always compare: sometimes separate policies from different companies still cost less.
Coverage Questions
What does “liability coverage” mean?
Liability coverageLegal responsibility for damages to others. Liability insurance covers costs when you're at fault. pays for damages you cause to others:
- Auto liability: Pays for injuries/damage you cause in an accident
- Homeowners liability: Covers injuries on your property or damage you cause to others’ property
- Business liability: Protects against customer injuries, professional mistakes, and lawsuits
What’s the difference between replacement cost and actual cash value?
- Replacement costThe cost to replace damaged property with new items, without deducting depreciation.: Pays to replace damaged items with new ones of similar quality
- Actual cash value (ACV)The current value of property, calculated as replacement cost minus depreciation.: Pays replacement cost minus DepreciationThe decrease in value of property over time due to age and wear.
Example: Your 8-year-old TV is destroyed. Replacement cost pays $800 for a comparable new TV. ACV might pay only $200 (the depreciated value).
Do I need flood insurance?
Standard homeowners policies do not cover flood damage. If you’re in a flood zone, lenders require flood insurance. Even if you’re not in a high-risk zone, consider it—25% of flood claims come from low-to-moderate risk areas. Flood insurance is available through FEMA’s National Flood Insurance Program (NFIP) or private insurers.
What’s an umbrella policy and do I need one?
An umbrella policyExtra liability coverage that kicks in after your auto or home limits are exhausted. provides extra liability coverage (typically $1-5 million) beyond your auto and home policy limits. Consider one if you:
- Have significant assets to protect
- Own rental properties
- Have a pool, trampoline, or dog
- Are at higher risk of lawsuits
- Want peace of mind
Umbrella policies are surprisingly affordable—often $150-300/year for $1 million in coverage.
Claims Questions
How do I file an insurance claim?
- Document everything: Take photos, save receipts, get police reports if applicable
- Notify your insurer promptly: Most policies require timely notification
- Review your policy: Understand what’s covered and your deductible
- Work with the adjuster: Be honest and thorough
- Get repair estimates: Multiple estimates can help if you disagree with the insurer’s assessment
- Keep records: Document all communications
Will filing a claim raise my rates?
It depends on:
- Type of claim: At-fault auto accidents typically raise rates; not-at-fault claims may not
- Claim frequency: Multiple claims in a short period raise red flags
- Claim size: Small claims may not be worth filing if they’re close to your deductible
- Your history: First-time claims may be forgiven; patterns of claims will increase rates
Some insurers offer “accident forgiveness” that prevents your first at-fault accident from raising rates.
What if my claim is denied?
You have options:
- Ask why: Get the specific reason in writing
- Review your policy: Make sure the denial is justified
- Appeal: Most insurers have an internal appeals process
- File a complaint: Contact your state insurance department
- Seek legal help: For large claims, an attorney may be worthwhile
- Public adjuster: They can advocate for you (for a fee, usually 10-15% of settlement)
Cost-Saving Questions
How can I lower my insurance costs?
For all insurance types:
- Shop around annually
- Bundle policies
- Raise deductibles
- Ask about all discounts
- Pay annually instead of monthly
- Maintain good credit
For auto insurance:
- Drive safely (no tickets or accidents)
- Take defensive driving courses
- Choose vehicles that are cheaper to insure
- Reduce coverage on older vehicles
For home insurance:
- Install security systems and smoke detectors
- Upgrade your roof and electrical systems
- Stay claims-free
- Increase your deductible
Is cheap insurance worth it?
Not always. Consider:
- Financial stability: Can the company pay claims?
- Claims service: Read reviews about claim experiences
- Coverage gaps: Cheap policies may exclude important protections
- Customer service: Can you reach them when you need help?
A policy that costs $100 less but denies your $50,000 claim isn’t a good deal.
Life Insurance Questions
Term vs. whole life insurance: which is better?
Term lifeLife insurance covering you for a specific period (10-30 years) with no cash value. is better for most people because:
- It’s much cheaper (often 5-10x less)
- It covers you when you need it most (while raising children, paying mortgage)
- You can invest the premium savings elsewhere
Whole lifePermanent life insurance with a cash value component that grows over time. may make sense if:
- You need permanent coverage (special needs dependent, estate planning)
- You’ve maxed out all other tax-advantaged accounts
- You want guaranteed cash value growth
How much life insurance do I need?
A common rule of thumb is 10-12x your annual income, but consider:
- Outstanding debts (mortgage, loans)
- Future expenses (college for kids)
- Income replacement years needed
- Existing savings and assets
- Your spouse’s earning potential
Health Insurance Questions
What’s the difference between an HMO, PPO, and HDHP?
| Plan Type | Characteristics | Best For |
|---|---|---|
| HMOHealth Maintenance Organization - requires in-network providers and referrals for specialists. | Lower costs, need referrals, must use network | People who want lower premiums and don’t mind less flexibility |
| PPOPreferred Provider Organization - flexible plan allowing any provider with no referrals needed. | Higher costs, no referrals needed, can use any doctor | People who want flexibility and choice |
| HDHP | High deductibles, lower premiums, HSA-eligible | Healthy people who want to save via HSA |
What’s an HSA and should I have one?
A Health Savings Account (HSA)Health Savings Account - tax-advantaged account paired with high-deductible health plans. is available if you have a high-deductible health plan. Benefits:
- Triple tax advantage: Contributions are pre-tax, growth is tax-free, withdrawals for medical expenses are tax-free
- Rolls over forever: Unlike FSAs, HSA funds never expire
- Retirement benefit: After 65, you can use funds for any purpose (taxed as income) or keep them for healthcare
Official Resources
Need official information or help with a specific issue? These government and industry resources are authoritative and free:
- NAIC Consumer Resources (opens in new tab) - National Association of Insurance Commissioners consumer tools
- HealthCare.gov (opens in new tab) - Official health insurance marketplace
- Medicare.gov (opens in new tab) - Medicare information and enrollment
- USA.gov Insurance (opens in new tab) - Federal consumer insurance information
- Find Your State Insurance Department (opens in new tab) - File complaints, verify agents, get local help
Have a question we didn’t answer? Contact a licensed insurance professional in your state.
Frequently Asked Questions
What types of insurance do I really need?
At minimum, most people need health insurance (covers medical expenses), auto insurance (required by law in most states), homeowners or renters insurance (protects belongings and provides liability coverage), and life insurance (essential if others depend on your income). Business owners typically also need general liability, workers’ compensation, and professional liability insurance.
How do insurance companies decide what to charge me?
Insurers use underwriting to assess your risk level. They consider your claims history, credit score (in most states), age, location, demographics, coverage amount, deductible choices, and specific factors like driving record for auto or property age for home insurance.
What's the difference between an agent and a broker?
Captive agents work for one insurance company and can only sell that company’s products. Independent agents represent multiple insurers and can compare options for you. Brokers work for you (not insurers) and shop the market on your behalf.
Should I bundle my policies?
Often yes. Most insurers offer 5-25% discounts when you bundle multiple policies (auto + home, for example). But always compare - sometimes separate policies from different companies still cost less.
What does liability coverage mean?
Liability coverage pays for damages you cause to others. Auto liability pays for injuries and damage you cause in an accident. Homeowners liability covers injuries on your property or damage you cause to others’ property. Business liability protects against customer injuries, professional mistakes, and lawsuits.
What's the difference between replacement cost and actual cash value?
Replacement cost pays to replace damaged items with new ones of similar quality. Actual cash value (ACV) pays replacement cost minus depreciation. For example, if your 8-year-old TV is destroyed, replacement cost pays $800 for a comparable new TV, while ACV might pay only $200 (the depreciated value).
Do I need flood insurance?
Standard homeowners policies do not cover flood damage. If you’re in a flood zone, lenders require flood insurance. Even if you’re not in a high-risk zone, consider it - 25% of flood claims come from low-to-moderate risk areas. Flood insurance is available through FEMA’s National Flood Insurance Program (NFIP) or private insurers.
What's an umbrella policy and do I need one?
An umbrella policy provides extra liability coverage (typically $1-5 million) beyond your auto and home policy limits. Consider one if you have significant assets to protect, own rental properties, have a pool, trampoline, or dog, are at higher risk of lawsuits, or want peace of mind. They’re surprisingly affordable - often $150-300 per year for $1 million in coverage.
How do I file an insurance claim?
First, document everything with photos, receipts, and police reports if applicable. Notify your insurer promptly as most policies require timely notification. Review your policy to understand coverage and deductibles. Work honestly with the adjuster, get multiple repair estimates, and keep records of all communications.
Will filing a claim raise my rates?
It depends on the type of claim (at-fault auto accidents typically raise rates while not-at-fault may not), claim frequency (multiple claims raise red flags), claim size (small claims near your deductible may not be worth filing), and your history (first-time claims may be forgiven). Some insurers offer accident forgiveness for your first at-fault accident.
What if my claim is denied?
You have options: Ask why and get the reason in writing, review your policy to verify the denial is justified, appeal through the insurer’s internal process, file a complaint with your state insurance department, seek legal help for large claims, or hire a public adjuster to advocate for you (typically 10-15% of settlement).
How can I lower my insurance costs?
For all insurance types: shop around annually, bundle policies, raise deductibles, ask about all discounts, pay annually instead of monthly, and maintain good credit. For auto: drive safely, take defensive driving courses, choose cheaper-to-insure vehicles. For home: install security systems, upgrade your roof and electrical, stay claims-free.
Is cheap insurance worth it?
Not always. Consider the company’s financial stability (can they pay claims?), claims service (read reviews), coverage gaps (cheap policies may exclude important protections), and customer service quality. A policy that costs $100 less but denies your $50,000 claim isn’t a good deal.
Term vs. whole life insurance: which is better?
Term life is better for most people because it’s much cheaper (often 5-10x less), covers you when you need it most (while raising children, paying mortgage), and you can invest the premium savings elsewhere. Whole life may make sense if you need permanent coverage for a special needs dependent or estate planning, have maxed out other tax-advantaged accounts, or want guaranteed cash value growth.
How much life insurance do I need?
A common rule of thumb is 10-12x your annual income, but consider outstanding debts (mortgage, loans), future expenses (college for kids), income replacement years needed, existing savings and assets, and your spouse’s earning potential.
What's the difference between an HMO, PPO, and HDHP?
HMO plans have lower costs but require referrals and you must use network providers - best for those wanting lower premiums with less flexibility. PPO plans have higher costs but no referrals needed and you can use any doctor - best for those wanting flexibility. HDHP plans have high deductibles, lower premiums, and are HSA-eligible - best for healthy people who want to save via HSA.
What's an HSA and should I have one?
A Health Savings Account (HSA) is available if you have a high-deductible health plan. Benefits include triple tax advantage (contributions are pre-tax, growth is tax-free, withdrawals for medical expenses are tax-free), funds roll over forever (unlike FSAs), and retirement benefit (after 65, use funds for any purpose taxed as income, or keep for healthcare tax-free).
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