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 underwriting 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 deductible 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 coverage 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 cost: Pays to replace damaged items with new ones of similar quality
• Actual cash value (ACV): Pays replacement cost minus depreciation

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 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
• 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?

1. Document everything: Take photos, save receipts, get police reports if applicable
2. Notify your insurer promptly: Most policies require timely notification
3. Review your policy: Understand what’s covered and your deductible
4. Work with the adjuster: Be honest and thorough
5. Get repair estimates: Multiple estimates can help if you disagree with the insurer’s assessment
6. 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:

1. Ask why: Get the specific reason in writing
2. Review your policy: Make sure the denial is justified
3. Appeal: Most insurers have an internal appeals process
4. File a complaint: Contact your state insurance department
5. Seek legal help: For large claims, an attorney may be worthwhile
6. 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 life 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 life 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?

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:

• 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

Have a question we didn’t answer? Contact a licensed insurance professional in your state.