Hang onto insurance paperwork for six to seven years, in some cases.
Insurance helps protect you from financial liability in the event of something bad happening, whether it's a car crash, medical emergency or natural disaster that damages your home. Insurance policies can be very complex and sometimes confusing, leading consumers to look for insurance explanations to help make their investment make sense. Taking the time to understand insurance terms and concepts will help you view policies, financial statements and coverage changes more critically so that you're fully aware of the benefits and limitations of your insurance choices.
Terms
Insurance vocabulary can be specialized, making it difficult for policyholders to understand explanations accompanying their policy handbook. Your policy is the written contract outlining your relationship with an insurance company, including what's covered, what isn't covered and limitations of financial liability. Policyholders pay premiums on predetermined basis (for example, monthly or quarterly) to purchase insurance coverage during that specified time period. You may be expected to meet an annual deductible, or agreed-upon amount of personal financial liability, before the insurance kicks in during that time period. When damage occurs, you file a claim with your insurance company requesting that they step in and cover financial obligations as described in your particular policy.
Types
Explanations of different insurance types focus on what's being insured under the purchased policy. Depending on the coverage level, auto insurance pays for damage incurred when you hit another car, have your car stolen or vandalized, or medical bills related to injuring another driver. Health insurance may cover only medical care for catastrophic events, or may cover smaller costs like annual check-ups, teeth cleaning and prescription drugs. Homeowner's insurance may protect your home from financial damage occurring because of a natural disaster, theft or fire. Life insurance helps create an inheritance for dependents, replacing your income upon death. It's possible to purchase insurance for smaller purposes; travel insurance covers the financial risk involved should your suitcase get lost while traveling, for example. Personal liability insurance can protect fitness instructors from risk involved with working with clients.
Applying
The application process for insurance can seem daunting without an explanation. Insurers require prospective customers to complete an application in order to evaluate the risk of insuring them. You may be required to submit photos of the sailboat you'd like to insure, or copies of your medical records indicating previous surgeries, conditions or serious illnesses. Insurance companies calculate your premium based on factors including age, health level, smoking habits, or whether your car is parked on the street or in a garage at night. Reducing your perceived risk by avoiding smoking, maintaining a good driving record or keeping current electrical systems and smoke detectors in your home can lower your premiums.
Paperwork
Insurance is notorious for having mountains of paperwork involved with coverage, claims and policy changes. But there's an explanation of what to keep and what to shred. Keep paperwork related to your insurance for as long as you hold the policy, including documentation for unresolved claims, according to the New York Times. Keep invoices and receipts for ongoing health treatments until payment has been resolved. If your insurance-related costs are tax-deductible (for example, if you're self-employed) hang onto these documents for six to seven years in case of IRS audit.
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