Along with the most notable of essential life skills we’d like for our kids to possess, having the fundamental knowledge of managing risk, and preparing for the unexpected is critical.
The potential for car accidents, house fires, property damage, death, and theft is ever-present, and let’s face it – kids need to know about the possibility of these unwanted and unforeseen perils taking place that can occur at any given time in anyone’s life.
We also know how complicated insurance looks and sounds. From the varying types of insurance and their coverage plans, to knowing the legality of one’s own policy – it can get real ugly having to explain what we as parents haven’t fully gotten a grasp of.
That’s why making the effort to start your kid off with the simple nuts and bolts of insurance today will turn them into experts on safeguarding their future tomorrow.
Think you’re ready to get started teaching your kids about insurance?
In this article, we will cover…
- How to explain the importance of insurance to your kids
- How to explain how insurance works
- Important types of insurance coverages and how to explain them
- How to set a good example and teach insurance in everyday life
- Insurance definitions
- Books and resources on teaching insurance to your kids
How to Explain the Importance of Insurance to Your Kids
Do you remember when your child responded “why” to every statement you’d make, further solidifying their innate desire to learn even the most unpleasant of things that just so happened to cause discomfort for you to try and explain?
Maybe it was because of their age at the time, and/or the fact that there is indeed a time for everything.
Ironically though, parents tend to shelve such conversations as a way to protect their kid, but it turns out doing more harm than good. The things that we know are harmless, yet uncomfortable for us to talk about, are more than likely to be worthy of their note and embrace.
That’s why teaching your kids about insurance now, especially while in their primary to secondary school level, is advantageous, and will serve as protection from inconveniences that have the potential of resulting in a financial setback.
And though the thought of insurance may mean nothing to your kid right now, taking the initiative as a parent to explain its importance in an effective, and easy-to-digest way can negate that unnecessary financial burden that being uninsured can cause.
Mentioned below are three steps you can take in explaining the importance of insurance to your kids:
- Start by asking them basic questions to find out their current understanding, and to also help peak their interest.
- Give 2 or 3 memorable reasons as to why you, as a parent, have it.
- Tell them how it can also benefit them.
How to Explain How Insurance Works to Your Kids
“When life throws you lemons, get insured”
Remember, tough conversations need to be watered down and livened up for a kid. Your child’s wondrous, blossoming brain will take in that nutritious dialogue much faster and more easily.
A good way to explain how insurance works is by painting a picture of what being insured looks like.
Use examples or analogies to explain insurance concepts.
Your child is aware that losing something very valuable – such as a house to a fire, or a car to a near-fatal car crash – is possible. But because that might be the extent of their knowledge, you need to let them know where insurance fits in.
P:If someone who is ready to prepare for the unexpected decides to become insured, this would mean that they act ahead of a future potential loss by buying insurance from an insurance company. The way they plan to pay for the insurance is by making payments (also known as a premium) towards their insurance plan that help to cover the cost of the future loss.
K: What’s in it for the insurance company?
P: A purchase of a product they sell, which is the policy.
K: What’s in it for you/a family/the insured?
P: Being financially protected and covered from certain risks.
At this point, your kid might ask:
K:…So you pay for the insurance policy now, rather than later?
P: Exactly. Because you won’t know your financial standing during the time the loss occurs, and by that time, it’ll be too late for the Insurance company to back you up. Plus, there are many other great benefits to owning an insurance policy, depending on the plan you choose..
Using examples like this will make them understand why it’s better to prepare ahead of these unexpected moments, making life like it once were before the occurrence of any loss.
Important Types of Insurance Coverages and How to Explain Them to Your Kids
You might get insurance for your automobile, life, your home, your phone, or all of the above. When you have these different types of insurance for these valuable assets in your personal and family life, you won’t find yourself scrambling, or worse, in a total tragedy when something undesirable happens out of the blue.
The parent that is fully strapped with multiple types of insurance for every aspect of their lives mustn’t worry. They also shouldn’t overload their kid with the ins and outs of each one. Instead, we’d advise parents to keep it simple, narrowing their insurance coverages down to the most common types. Here are the top four most important insurance coverages on our list that you can introduce to your kids, and how you can break each one down to them in a bite-size way:
Life Insurance. This is an agreement, also known as a contract between you and an insurance company whereby you pay them a monthly amount of money to help cover the cost of the insured and/or beneficiaries after their death. The money is paid to the beneficiaries and is meant to be used to cover the cost of the deceased during a funeral for example, but can be used for whatever purpose chosen. Explain to your kid the importance of this type of insurance being used during a loss from death, and how having the financial backing can drastically serve as a help to the family members.
Health Insurance. Kids should understand how health insurance is especially unique in that the benefits are more visible and ongoing. They should understand that health insurance not only covers routine check-ups to maintain good health, but also at times when you are sick or injured, protecting you from paying the full costs of medical services.
Homeowners or Renters’ Insurance. These are two different insurance types that your kid should know about that are closely related but with distinct differences. Explaining the two at the same time can help them to remember the similarities and differences of the two insurance types.
Similarities: both property insurance, discounted premiums available, includes a deductible, and allows premium to be paid monthly, quarterly, or yearly.
Now, Homeowners Insurance: it’s mandatory for anyone with a mortgage, it covers the entire property, personal belongings, medical payments and more.
Renters Insurance: it’s only required if/when Landlord requests it, costs significantly lower because of less coverage available.
Auto Insurance. Before your kid makes their way to the driver seat, they should know that having car insurance protects against financial loss from accidents and theft, helping to cover the cost of damage to your vehicle and also protects you financially if you’re liable for someone else’s injuries or damages.
How to Set a Good Example and Teach Insurance in Everyday Life
Even if you aren’t the parent strapped with multi-layer insurance coverage, you can still teach your child about the importance of being insured, and more importantly, by being a living example.
Here are some ways to set a good example for your kid while teaching them about insurance:
- Proactiveness over Reactiveness. By looking into the future, and acting before a situation becomes a source of a crisis can push you ten steps forward, whereas reacting to a previous situation pulls you ten steps backwards.
- Show you’re covered, and that they’re covered too. A great way to bring your insurance lessons closer to home is by proving yourself as a family policy holder. If your kids’ witness that they’re insured under you, it gives them an instant sense of assurance. It also lets them know that the whole family is safe.
- Don’t take coverage for granted. You feel bulletproof from head to toe, and from house to car, touting the best coverage around town, but aren’t quite living a prudent life.
Road rage is a given, house keys constantly go missing, and taking care of your personal health is far from priority. What your kid will begin to realize is that being covered is only as covered as one strives to be, regardless of insurance plan.
- Insurance – A contract that grants financial protection or reimbursement against losses
- Coverage – Benefits provided in an insurance company contract
- Premium – The price of policy expressed as a monthly cost
- Damage – Loss or harm to a person/property
- Liability – something a person or company owes, usually a sum of money.
- Claim – Any request or demand for payment
- Deductible – The portion of a claim you pay out-of-pocket
Books and Resources on Teaching Insurance to Your Kids
Here are some of our favorite books and websites for teaching insurance. Be sure to check out our big kids’ money library for more great reads for you and your kids.
The Bummer Game – This virtual arcade game brings insurance to life for kids as they make choices on insurance coverage and then spin the “Wheel of Fortune” hoping to avoid the “big” bummers.
Popsicle Insurance – Geared towards the next generation of insurance professionals, Popsicle Insurance is a children’s book that teaches kids about insurance in a fun way. This storybook takes a look at the world of insurance and how it helps people and families in their daily lives.
What is Insurance? Epic Books – This virtual storybook featured on a childrens’ storybook platform called Epic has a practical approach to getting kids to learn about life and how important it is to be insured to avoid the harsh realities.
InsureKidsNow.gov – If you are interested in getting your child insured for free or through low-cost means, this may be the resource for you! You can also use this informational website to learn about the various coverage options that are available for your family, and to learn about the Children’s Health Insurance Program (CHIP).