Insurance… it’s the financial product you don’t need until you do. Let’s be honest, nobody likes to discuss the possibility (or probability) of bad things happening, but we all know they do. We also know that nobody likes to deal with insurance companies. However, they are legally and contractually bound to the provisions outlined in the contract as long as you (the policyholder) hold up your end of the bargain which generally just entails paying your premiums on time.
If you’re like me, you want to focus on the things in life that you enjoy or that you’re compensated for (HINT: your job), and you don’t want to spend valuable time learning the “ins and outs” of complex insurance policies.
There are a few things that everyone should be familiar with so let’s look at a few insurance basics. To simplify as much as possible, we whittled it down to these three:
- Premium – What you pay for the insurance coverage.
- Deductible – What you are on the hook for should a loss occur (before the insurance company will step in and pay).
- Coverage Amounts – What the insurance company is on the hook for after your deductible has been satisfied.
In general, their relationship to one another is as follows:
- The higher the deductible, the lower the premium and vice versa.
- The higher the coverage amount, the higher the premium and vice versa.
In the event of a covered loss (car accident, a tree falling on your house, disability preventing you from earning income, etc.) you will be on the hook for the deductible amount and the insurance company will pay the difference up to the limit specified in the policy.
So where do we go from here? How do we prioritize where we devote our protection dollars and how do we decide what needs to be insured?
Considering that you can insure almost anything, there won’t be a lack of insurance policies to buy. Therefore, we believe it’s important to consult an independent insurance broker who is licensed with different insurance carriers and is able to present and explain the different intricacies of each contract. But finding this individual can be tough!
We wanted to provide a list of what to look for when searching for an insurance broker.
- This is the most important aspect to look for. Maybe you know them personally or are introduced by a mutual friend whom you trust. You want someone who will shoot you straight, explain the pros and cons of various policies and present you with options from which you can choose.
- Can they sell you policies from more than one insurance company? Many brokers work for one insurance company but there may be a better policy out there for your situation and you want your broker to be able to shop the market for you.
- How is your broker paid? Most insurance companies pay their brokers’ commissions for selling their policies. Inherently there is nothing wrong with this but this compensation structure often drives brokers to be “pushy” or perhaps “oversell” the consumer which creates a frustrating and negative experience. The important thing is to understand and feel comfortable with how your broker is paid.
- This one may go without saying, but it’s worth noting that insurance brokers must be licensed to sell policies. Be sure the prospective broker you’re talking to has the appropriate license.
By no means is this list comprehensive, but we wanted to provide a place to start. We feel it’s important to have a trustworthy insurance broker on your financial dream team.