Your Money_ The Missing Manual - J. D. Roth [111]
Insurance is a bit like gambling: You're betting a little money now because you think odds are good that you'll need a larger payout in the future. But there's one huge difference between gambling and insurance: Gamblers seek risk in an attempt to get more money; when you buy insurance, your goal is to reduce risk so you don't lose money.
In fact, gambling casinos and insurance companies make use of the same statistical laws, especially the Law of Large Numbers, which says that the more you have of something, the more likely the characteristics of that something will tend toward average. The more people who roll the dice, for instance, the better the casino can predict its earnings. And the more people in an insurance fund, the more accurately the insurance company can predict its losses.
Most of the time, using insurance to spread risk is a good thing. That's why most states require car insurance, and why smart folks keep homeowners insurance even after their mortgage is paid off. But insurance can be expensive, especially if you have too much or the wrong kinds. Let's look at some ways to keep your insurance costs down.
Note
Wikipedia has a great article about insurance and how it works: http://tinyurl.com/ins-wiki. The history section is especially interesting.
General Insurance Tips
All insurance works pretty much the same way: You pay a premium (a set amount of money) to the insurance company, usually on some sort of schedule (monthly or yearly, for instance). In return, they issue you a policy, which is a contract that gives you certain coverage, or financial protection. When you suffer an insured loss, you file a claim and the company pays you a benefit.
Insurance is meant to protect against catastrophes, not day-to-day annoyances. You use insurance to protect yourself from things that aren't likely, but which would cause financial hardship if they did happen.
Your goal should be to have just the right amount of insurance. If you have too much, you're wasting money. For example, if you have a $50 deductible on your car insurance, you'll probably end up paying the insurance company more in monthly premiums than they'll ever pay you in benefits. (The following list explains deductibles.) Or if you're young, unmarried, and have tons of credit-card debt, life insurance usually isn't a good place to put your money.
On the other hand, if you're a 40-year-old small-business owner and father of three, life insurance could be an excellent way to hedge against the risk that you'll die tomorrow. Or if you're a millionaire who likes to drive fast, increasing the limits on your automobile liability coverage could save your fortune if you get sued for damage you cause.
The number one thing you can do to save on insurance is to self-insure as much as you can afford (see box on General Insurance Tips). You can also save by reviewing your coverage from time to time, and following these suggestions:
Shop around. To find better rates, harness the power of the Web. Visit the National Association of Insurance Commissioners (www.naic.org) and click the "states and jurisdictions" link to find your state's insurance department. From there, you can find info about your state's insurance laws and, in some cases, get quotes. You can also get quotes from multiple insurance carriers at sites like Insweb.com, Insurance.com, and Insure.com.
Buy only what you need. Insurance agents are happy to sell you more coverage than your situation calls for. So do some research before you buy. Figure out how much and what kind of insurance you need, and don't let the agent talk you into more.
Raise your deductible. The deductible is the amount you pay on a loss before the insurance