How Does Insurance Work?
What Is Insurance?
Insurance is a way to manage your financial risks.
Financial Protection
People buy insurance to protect themselves from unexpected costs.
Financial Impact
It can cost a lot of money to recover from disasters and medical emergencies.
Financial Support
Insurance helps you avoid paying the entire cost of treatment, services, repairs, and rebuilds on your own.
How Does Insurance Work?
Insurance starts with a contract called a policy.
- Under the policy, you agree to pay an insurance company a fee called a premium.
- When you need to use your insurance, you’ll usually have to pay another fee called a deductible.
- Then, the company agrees to pay its share of the cost for covered losses or events.
What Does Insurance Cover?
Insurance only covers the specific events listed in your policy.
- Some policies will also share what is not covered for your awareness.
- If you don’t know what’s covered, you can ask your insurer or contact the [department name] for help.
What Are the Most Common Types of Insurance?
Auto
Cell Phone
Dental
Disability
Health
Homeowners
Liability
Life
Pet
Travel
Vision
Insurance Terms
Benefit
The service or coverage the insurance policy provides.
Claim
A request asking your insurer to pay its share of the bill for a covered event or service.
Copayment
The fixed amount you pay for services (usually medical services) before your insurance company starts to pay its share (also called a copay).
Coverage
What the policy protects.
Deductible
The dollar amount or percent of a claim that you pay yourself before the insurance company pays its share.
Insurance Policy
The written contract between you and the insurance company.
Insured
The person the policy protects.
Insurer
The insurance company.
Premium
The regular payment you make to an insurance company to keep your coverage active, regardless of whether you file a claim. (Depending on your policy, premiums can be paid weekly, monthly, twice a year, or annually.)
Prior Authorization
Insurance company staff decide whether your insurance will cover a health care service or a drug.
Underwriting
The insurance company looks at the risk of insuring you and decides whether to give you a policy, how much to charge, and/or how much coverage you get.
Frequently Asked Questions
The price is set based on your individual risk. (This is called risk-based pricing.)
So, the cost of insurance depends on the insurer’s assessment of how likely you are to file a claim and how much coverage you choose.
For example, when assessing risk, things like your age affect the cost of life insurance, and the crime rate where you live affects the cost of homeowners insurance.
More risk and more coverage usually mean a higher premium.
You’ll use different types of insurance in different ways.
For health insurance:
Your medical provider usually submits the claim for you. Then, your insurance company will pay the provider directly.
Sometimes, you may have to pay the provider first. If this happens, the provider will repay you after your insurance pays them for the claim.
In both cases, you may owe a deductible or other out-of-pocket expenses. (This depends on your policy.)
For auto, homeowners, and renters insurance, you’ll most likely have to submit a claim yourself. To submit a claim:
You’ll document what happened with photos, videos, reports, and receipts.
You’ll report the event to your insurance company.
You’ll complete a claim form for the loss and send it to your insurance company, along with the proof you collected.
The insurance company will review your claim and pay its share of the claim if your policy covers the event.
You can buy insurance from:
Insurance companies that sell policies directly. Most insurance companies have websites or apps where you can learn about policies.
Licensed insurance agents or brokers. The [insert department name] has a list [insert hyperlink] of these providers.
Some agents and brokers only sell insurance products from one company.
Some agents and brokers sell only certain types of insurance.
Government programs and marketplaces, depending on where you live, may offer different types of insurance, including health, auto, and homeowners insurance. [Insert applicable information for your consumers.]
Your employer may offer different types of insurance, like health, disability, life, and pet insurance.
For health insurance, many people can buy a policy through their employer. The employer may even pay part of the premium for you.
Some people can be covered through their spouse’s or domestic partner’s plan.
People younger than 26 years old may be eligible for health insurance coverage through a parent’s or legal guardian’s plan.
For health insurance, depending on your income, age, and where you live, you may qualify for a government-sponsored plan such as Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP). Or you may qualify for help paying the costs of a plan you buy through the Health Insurance Marketplace.
For life insurance, some employers may offer plans with coverage up to a certain amount at no cost to the employee.
Every U.S. state, the District of Columbia, and the five U.S. territories have a Department of Insurance (DOI) dedicated to helping consumers like you. Each DOI offers tools and information to help people understand insurance and make informed choices about their policies.
For more information about how the [insert jurisdiction] DOI can help you, [insert contact information].