Insurance Basics

First, insurance is meant to help overcome large, expensive occurrences, not every little bump and scratch. Too many claims, even small ones, might cause the insurance company to raise your rates. Or drop you for being high risk.

Second, choose the right deductible. The deductible is the amount you're responsible for if damage occurs, kind of like a co-pay. The lower it is, the less you'll pay out of pocket if something happens — but more for the policy. The higher it is, the more you'll save on the policy — but the more you'll pay if something does go wrong.

So what else do you need to know?

Don't shop by price. That's actually least important. Instead, ask yourself these questions:

Do I need it?
Is the maximum coverage enough for my situation?
Does this policy cover me for all likely events, or are there gaps?
Are there reasonable ways to save extra money on my bill?
Will I get good service?
Will the company still be in business if/when I make a claim?

While you can answer most of these questions yourself or through a quick call with an agent, the last two require outside help. To judge the service, ask people who use them - or select an insurer with the endorsement of a group you trust. To determine the financial strength of the company, check here:

What the Ratings Mean:

Standard & Poor's rating system is commonly used to indicate relative financial strength of various companies, including those in the insurance industry. Here's how it works:

AAA	Extremely strong financial security. Companies with this rating can be trusted to meet financial obligations.
AA	Very strong. Although not quite as desirable as AAA, companies with this rating are in very good financial shape.
A	Strong, but more likely to be impacted by adversity than companies with higher ratings.
BBB	Good financial security. But not as trustworthy as an A rating. Any company rated below this level is considered vulnerable.
BB	Marginal. Adversity may lead to inability of company to meet its commitments.
B	Weak. Adversity is likely to cause it to fail to meet commitments.
CCC	Very weak. Failure to meet commitments is a very real possibility.
CC	Extremely weak. Likely to not meet commitments.
NR	Not rated.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.