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Insurance > Health Insurance
Learning about insurance: a life lesson for your child
NEALE S. GODFREY. Associated Press.
Copyright Associated Press
Why should you bother teaching your children about insurance? It's boring, and they're young and healthy, right?
But remember that your new driver may bump into a tree someday. Or that sniffle could turn into something serious. We need to teach our children about insurance so they can be financially prepared for all the accidents and problems that may occur in life.
To start, give your children a simple explanation of insurance. Insurance helps people to share the cost if something bad happens, such as an accident, sickness, fire or theft. Insurance helps protect us financially from these problems.
Here's a simple way to help your child understand insurance. Suppose you live in a neighborhood of 100 families. Each family has a television set that costs $300. History or past experience has shown that one television set will be stolen each year. Of course, no one knows which television that will be, but we do know that you and your neighbors are at risk.
Now, let's suppose that each of your neighbors puts $3 into a common fund. The fund would have $300 in it. Then when a television is stolen, the fund could be used to buy a new television set for the family who lost theirs.
Insurance is based on these principles. Insurance companies calculate the odds of a particular event occurring, then compute how much money will be needed to pay those who have suffered losses. Then they add on a bit more to cover administrative expenses and profits. The total cost is divided among a particular group in accordance with how much risk each party faces. The charge, or premium, is the price paid to be covered by insurance. Forms of insurance
Almost everyone in the United States is covered by some form of insurance. The most common kinds of insurance are life, health, property and liability insurance.
Life insurance is the most common type of insurance, but your child will not have to think about such coverage until he is married and perhaps has a family. The principal purpose of life insurance is to provide money for a family or spouse when the other spouse dies.
There are three basic types of insurance that you should begin to talk to your children about: health, car and renter's insurance. As your child grows older, you can begin to discuss life and disability insurance.
Health insurance is sort of a safety net covering your child for everything from a simple doctor's visit to an incredibly expensive major illness. Car insurance provides a financial buffer against damages or lawsuits due to accidents or theft. Renter's insurance covers your child's personal property against destruction and theft. Policies - confusing but important to know about
Insurance policies can be confusing. The terms can be baffling. But when your child is old enough, you need to sit down and pore through the policies to make sure he is an informed consumer. In this way, when the time comes, he can shop for insurance policies that best suit his needs and means.
First, make sure your child has adequate minimum coverage in the areas he needs. As he grows older and earns more or owns more, his insurance needs will grow.
With your help, your child should carefully evaluate each policy so that he gets the type and extent of coverage he wants. Beware, policies vary significantly in these areas. Here are some tips for getting the best insurance for your child:
- Value-shop. The most expensive policy may not always be the best. Your child doesn't need to purchase the most comprehensive policy that the agent is selling. Also, make sure that he is fully aware of the policy limits - the clauses that state under what circumstances the coverage will not apply.
- Comparison shop. Sometimes competition can work in your child's favor. The insurance industry, like other sales-oriented industries, is fiercely competitive. Because of this, insurance agents may try to "beat" their competitors' premiums and your child could get a discount. Shopping for a bargain is always a good idea - unless you end up buying something you really don't want.
- Raise deductibles. A deductible is the amount your child must pay out of his own pocket before the insurance company begins to pay. For example, if your son has a $100 deductible on a $1,000 claim, he'd have to pay $100 and the insurance company would pay $900. If your child raises his deductible, he'll save a lot on his monthly premiums. He should, however, set up an emergency bank or money market account to cover the deductible amount.
- Don't overdo it. Or underdo it for that matter. Underinsuring can lead to huge cash payments on your child's part. Overinsuring means your child is paying more for something he doesn't need.
Buying insurance certainly isn't as much fun as buying a new toy. But if an accident or illness befalls your child, he'll be mighty glad he became a smart insurance shopper from a young age.
End Adv
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Text Word Count 870
The tips on this website should be considered food for thought only. Lendingtips.com is a clearinghouse of ideas, not a professional adviser. Before any important decision, please consult the appropriate professionals (lawyer, accountant, real estate agency, broker etc.).
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• Insurance > Health Insurance Archive
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