When you purchase an insurance policy, you are entering into a financial contract. To structure that contract in a way that fits your budget, you need to understand the 'Big Three' variables: Premiums, Deductibles, and Limits.
Your premium is the amount you pay the insurance company to keep your policy active. Think of it like a subscription fee. You can pay this monthly, semi-annually, or annually.
The deductible is the amount of money you must pay out of your own pocket before the insurance company steps in to pay a claim.
If you have a $1,000 deductible and a storm causes $5,000 in damage to your roof, you will pay the first $1,000, and the insurance company will write you a check for the remaining $4,000.
A policy limit is the absolute maximum amount of money the insurance company will pay out for a covered claim. If your auto liability limit is $100,000, but you cause an accident resulting in $150,000 of medical bills for the other driver, you are personally responsible for the remaining $50,000.
State minimum limits are dangerously low and almost guarantee financial ruin in a major lawsuit. This is why we focus heavily on analyzing your net worth to recommend the correct limits.
Now that you understand Limits, are yours high enough? Take our interactive assessment to find out.
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