Insurance Basics
This is the formal contract between you and an insurance company that spells out your coverage.
A Policy
This is the only type of auto insurance required by law in most states: Comprehensive, Liability, Collision
Liability insurance
You rent an apartment. A fire destroys your laptop and clothes. What type of insurance covers your belongings?
Renters insurance
What does HDHP stand for, and what is its main tradeoff?
High-Deductible Health Plan — you pay more out of pocket before insurance kicks in, but your monthly premium is lower.
Who is a beneficiary in a life insurance policy?
The person (or people) designated to receive the death benefit when the policyholder dies.
This is the amount you pay out of pocket before your insurance company starts paying.
The deductible
Your car is stolen from a parking lot. Which coverage pays for it — collision or comprehensive?
Comprehensive — it covers loss or damage from something other than a collision.
Your landlord has homeowners insurance. Does it cover your personal belongings inside the apartment?
No — your landlord's insurance only covers the building, not your stuff. You need renters insurance.
What is an HSA and who qualifies for one?
A Health Savings Account — a tax-exempt account for medical costs, available only to people on a high-deductible health plan.
What is the general rule of thumb for how much life insurance coverage you should have?
10 to 12 times your annual income
This is a formal request you make to your insurance company after a covered loss.
A claim
You rear-end another car. Which coverage pays to fix your own vehicle?
Collision
At approximately what net worth does Ramsey recommend adding an umbrella insurance policy?
$500,000
Until what age can you stay on a parent's health insurance plan under the ACA?
26
If someone earns $50,000 per year, what is their minimum recommended life insurance coverage?
$500,000 (10 × $50,000)
What is the core purpose of insurance — what does it actually transfer?
It transfers risk (potential financial loss) from your bank account to the insurance company.
If you have a full emergency fund, what should you do with your deductible?
Raise (increase) it — a higher deductible lowers your premium.
What does umbrella insurance actually do?
It provides extended liability coverage on top of your auto and homeowners policies.
Medical expenses are the number one cause of this major personal financial crisis in America.
Bankruptcy
What is the key difference between term and whole life insurance?
Term covers you for a set period and pays only a death benefit. Whole life lasts forever and mixes insurance with an investment — but costs much more.
After your deductible is met, you may still owe small per-visit payments for medical services. What are these called?
Copays (or copayments / coinsurance)
You're hit by a driver with no insurance. Which coverage protects you and your passengers?
Uninsured/underinsured motorist protection
True or False: Your homeowners insurance coverage amount automatically increases as your home's value rises.
False — you must update your policy manually if your home's value increases.
Define the out-of-pocket maximum on a health insurance plan
The most you have to spend on covered services in a single year — after that, insurance pays 100%.
Ramsey says you should never use life insurance as one of these.
An investment — buy term life only and invest the difference separately.