If you’ve ever looked at an insurance policy and thought, “Okay… I have no idea what any of this means,” you’re not alone.
Insurance has its own language—premium, deductible, coverage limits, exclusions, claims—and you’re somehow expected to understand it all before deciding what you’re buying.
The good news? You don’t have to become an insurance expert. You just need to understand a few basics.
Let’s make it a little easier.
So, What Is Insurance?
At its simplest, insurance is a way to help protect you from certain financial losses.
You pay an insurance company a premium for coverage. If something happens that’s covered by your policy, the company may help pay for the loss.
But there’s an important little catch: it has to be covered by your policy’s terms.
Your policy explains what is covered, what’s not covered, how much the company may pay, and what you may have to pay yourself.
A Few Insurance Words to Know
You don’t need to memorize every insurance term to get started. Here are a few of the big ones:
Premium: What you pay for your insurance coverage.
Deductible: The amount you generally pay toward a covered loss before certain insurance coverage pays its part.
Coverage: What your policy is designed to protect against.
Limit: The most your insurance company will pay for a particular covered loss or type of coverage.
Claim: A request you make to your insurance company for payment or coverage after something happens that may be covered by your policy.
There are plenty of other terms you’ll come across, but these five will give you a good starting point.
What Are the Big Types of Insurance?
Different types of insurance protect against different risks.
Auto insurance can help protect you from certain financial losses involving your vehicle and your responsibility to others.
Homeowners and renters insurance can help protect your home or personal belongings and may include liability coverage.
Health insurance helps with certain healthcare costs according to the terms of your plan.
Life insurance can provide a death benefit to your beneficiaries when you die, subject to the policy’s terms.
Disability insurance can help replace part of your income if a covered disability prevents you from working.
You don’t necessarily need every type of insurance. What makes sense for one person may not make sense for someone else.
What Should You Look At Before Buying?
When you’re comparing insurance, don’t look at the price alone.
Take a look at:
- What is covered?
- What isn’t covered?
- What are the deductibles?
- What are the coverage limits?
- Are there important exclusions?
- What would I have to pay myself if something happened?
Two policies can look pretty similar on the surface—and still have important differences.
That’s why the cheapest quote isn’t automatically the best fit—and the most expensive one isn’t automatically the best either.
If you’re comparing several quotes, our Insurance Checkup and Quote Comparison Worksheet gives you one place to put the premiums, deductibles, limits, and coverage side by side so you can see what you’re actually comparing.
How Much Insurance Do You Need?
This is one of the questions I hear most often.
Your answer may depend on your income, savings, property, debts, and whether other people depend on you.
It also depends on how much of a financial loss you could comfortably handle yourself.
There isn’t one magic number that works for everyone.
The goal isn’t necessarily to buy the most insurance you can afford.
It’s to understand what you’re trying to protect and what could happen financially if something went wrong.
That’s a good place to start.
You Don’t Have to Figure It All Out at Once
Insurance can feel complicated at first. That’s okay.
Start with the basics. Learn the language. Look at what you already have. Ask questions when something doesn’t make sense. And take your time comparing your options.
If you’re ready to go a little deeper, my ebook, Let’s Talk About Insurance: A Friendly Conversation to Make Sense of Insurance, takes you through the basics step by step—with worksheets you can use along the way.
And if you just need a quick reference while you’re getting started, grab the free TalkinWithEmma Insurance Terms Cheat Sheet.
You don’t have to know everything about insurance.
You just need to know enough to ask the right questions.
You’ve got this. ♡
— Emma
A quick note before you go
This article is for general educational information and isn’t personal insurance advice. Insurance rules, requirements, coverage, and policy terms can vary by state, company, and individual policy. Always review the actual policy and consider speaking with a licensed insurance professional about your situation.