Insurance: Talk To Your Child About Planning for The Unexpected

Assurance for Insurance

Updated April 27, 2023

Assurance For Insurance

For better or worse, life is full of all sorts of unexpected twists and turns...am I right?  Risks are inherent to living, and many are simply out of our control.  While we can’t predict our future, we do have choices in how we deal with the risks in our lives.  Insurance is one way to share the risk of financial loss, whether it is by property damage, car accident, health problem or even death.  

 Little kids can have big worries.  By teaching children about insurance, we can show them that there are ways to take steps today to prepare for unforeseen events in the future.  But first! Kids need to get a tighter grip on insurance beyond what they’ve gleaned from the Geico gecko.  As usual, that’s where we come in.   

W.K.S.K. (What Kids Should Know)

Insurance is a contract (or agreement) in which a person or company gets protection against future financial loss.  A good example for your littles? When you get your first car, it’s required that you buy car insurance.  This means that a driver pays about $168 each month to the car insurance company.  If the driver gets into a car accident and there is damage to the vehicle, insurance will typically cover most of the expense of getting the car fixed.  If the driver didn’t have car insurance, he might not have enough money to cover the repairs or buy a new car if needed. 

In general, insurance companies collect regular payments with the understanding that they are partially responsible for reimbursing or repaying their customers in the event of financial loss. 

By pooling client’s collective risks, insurance companies are able to offer affordable options to those they insure. 

Types of Insurance

Home Insurance 

Any homeowner knows, there is no end to the things that can go wrong in an apartment or house.  Even little kids could come up with a few examples: a cooking mishap results in a small house fire, a fallen tree from a big thunderstorm damages a roof, or a broken pipe floods a basement playroom.  When homeowners sign up for home insurance, they make monthly payments to the insurance company in the agreement that most damage (or even theft!) will be repaired at the insurance company’s expense.  (The same goes for renters insurance!)

Health Insurance

Something else little kids can understand? Getting sick and getting hurt.  (They tend to do both of those things on the reg.)  And boy, are hospital visits expensive!  Just one ill-fated fall from the monkey bars and surgery to repair a broken arm will set an uninsured family back $16,000.  Yikes.  From routine check-ups to major hospital stays, there’s no debating that healthcare is expensive. 

Having health insurance can help families manage the costs of these unexpected illnesses or injuries.  Most workers have access to health insurance through their employers, who usually help defray the monthly cost.  On average, families pay about $500 per month towards health insurance, which typically covers doctor’s visits, hospital care, prescription drugs, pregnancy and childbirth, mental health services and more.  This means that instead of paying outright for these medical services, people with health insurance typically pay a copay (or small fixed fee) for their healthcare needs, while the insurance company picks up the rest of the bill.  

Car Insurance

With an average of 6 million car crashes across the country each year, it’s little wonder that drivers are required to have car insurance before they sit behind the wheel.  Like home insurance and health insurance, drivers pay a monthly fee for car insurance that will help them cover damages from an accident, including both injury and property damage, theft, vandalism or even falling objects. 

Different car insurance plans have different levels of coverage.  The more expensive the monthly payments, the more insurance coverage drivers benefit in the case of a collision or other car-related accident.  Kids can get a grip on car insurance when dad has a fender-bender or mom gets rear-ended.  They can understand that their parents' monthly payments to the car insurance company can help offset the big bills to fix their beloved family car.  

Life Insurance

Life insurance is a minimal investment for maximum peace of mind.  Parents can take out life insurance policies to protect their beneficiaries (often a spouse and children) in the event of their death.  People who sign up for life insurance also pay monthly premiums and a sum of money, or death benefit, is given to their beneficiaries when they die.  The average cost of life insurance is just $26 per month (for a 40-year-old buying a 20-year term $500,000 life policy, the most common terms), and premiums are based on life expectancy (and therefore factors in things like age, gender, health conditions, smoking, etc.).

If this subject comes up with our kids, we can acknowledge the fear without dismissing it.  We can let our kids know how we prepare for the unexpected through our financial planning.  

What the Heck is a Deductible?

Home insurance, health insurance and car insurance (among others!) often include a deductible, so it's important kiddos have a basic understanding of the concept.  In kidspeak, a deductible is the amount a person must pay before the insurance plan covers the rest.  For example, if the insurance plan has a $1,500 deductible, the person is responsible for paying the first $1,500 of a bill before the insurance company takes care of the remainder that’s owed.  

Benji's Bottom Line

When parents give kids some basic knowledge of insurance, they are not only helping their children feel safer in an unpredictable world, but also modeling healthy financial behavior.  By using an everyday money moment, like paying the copay at a routine checkup, parents can give their littles an introduction to insurance in an easy, yet effective way.

How do you think insurance companies make money?