Insurance is a necessary evil. It’s often required to get a loan, and you need it in the event of an emergency or unfortunate event. Other than in television commercials, you don’t hear too many people raving about how wonderful their insurance company is, or how much they love their policy limits and exclusions.
Insurance companies make money when you lose money, not when they reimburse you for your loss. So when something happens, and you call your insurance company for help, be prepared to have your claim scrutinized. They won’t pay you a cent more than they have to, and they will be quick to tell you your financial responsibility in the matter.
The best way to avoid financially upsetting surprises is to know what your insurance covers, what it doesn’t and what part you are responsible for paying. Know your potential out-of-pocket expenses, your copays and your deductibles so you will be prepared when it comes time to deal with your insurance company.
Of course, you need to be familiar with the specifics of your particular policy, but here are some terms you also need to know.
The bill you pay for your insurance coverage is called a “premium.” It could be a yearly or biannual amount, but is usually a monthly payment, often deducted from your paycheck each month. Your employer usually pays most of the premium cost, while you are responsible for the rest. For car or home insurance, you often pay a six-month premium in advance. However it is allocated, a premium is simply what you pay up front to be insured.
A “copay” is a nice way of saying you get to help the insurance company pay for something, usually a service or device. Medication often has a copay attached to it. Common antibiotics might be free or have a minimal copay, while expensive drugs like EpiPens or inhalers for allergy sufferers have such a high copay many people can’t afford them, even if they have insurance.
Copays are a way to force the consumer to defray the costs of the insurance and to limit the demands of the consumer. It can be a set fee, a graduated fee for different items or a percentage of your overall expense.
A deductible is an amount of money you’ll pay out of pocket before the insurance company pays a cent. Deductibles can be a yearly amount, or paid on a per-claim basis. If you damage your car, you might want to consider if it is worth it to file a claim with your insurance company, as you will likely have a $500 or higher deductible to pay upfront.
The same is true with homeowners’ insurance. If a tree crashes through your roof, you will want your insurance company to help you, but if your kid dents your aluminum siding, you might want to leave it alone or incur the cost yourself and save money.
If you break a tooth on a weekend, do you call the 24-hour emergency dentist, or can you wait until Monday? Dental insurance may stipulate a deductible payment for emergencies. You’ll want to discuss this with your dental office and with your insurance company before you are in extreme pain and unable to talk.
If you have a choice between a high and low deductible, what should you choose? That depends on your unique situation. Generally, higher deductibles save money on premiums. With homeowners’ insurance, a high deductible makes sense, as it’s rare for people to file a homeowners’ claim. The $1,000 you might have to pay in the event of a tragedy or emergency would be the least of your worries.
With health insurance, it’s a matter of how good your health is and how often you expect to need medical care. If you go to the doctor often, you want to have a lower deductible. If you have a special-needs child or a family member with a chronic medical condition, a lower deductible will keep your out-of-pocket costs down.
If you are in good health, you may opt for a higher deductible. You will have to pay more in the event of an emergency or unexpected illness, but you can save money on your premiums, since you will be using your insurance less frequently.
Insurance companies want you to pay for as much of their services as possible. But some policies will give you a break if you’ve had a bad year. It’s called an “out-of-pocket maximum.” With this practice, they identify a maximum dollar amount you must pay in any given year.
After you have paid that money, your insurance company will cover all approved claims at 100 percent. That’s sort of a good-news/bad-news scenario. If you are “fortunate” enough to reach your out-of-pocket maximum, it means you have been unfortunate enough to rack up multiple insurance claims and have incurred the maximum out-of-pocket payments that year.
Insurance is big business, and your policy can be confusing and hard to interpret. Choosing an insurance company or what coverage is best for you can be intimidating and overwhelming. Consult your health care provider or even someone who works in the billing department. They will eagerly tell you which insurance company is best or which ones to avoid, assuming it isn’t a violation of their employment.
Eventually, the choice is yours, as is the responsibility of navigating through your policy. You want to be as informed as possible, so when it comes time to pay, you know which part is your insurance company’s responsibility, and which part you will be stuck with.