Purpose of Insurance in California

The purpose of insurance in California is to protect the lives of residents, their health, properties, and businesses against unforeseen circumstances like death, life-threatening illnesses, property damages, and liability claims. Getting the appropriate insurance policy helps to mitigate financial uncertainty. There are various insurance types available in California, some of which are:

• Life insurance
• Health insurance
• Business (commercial) insurance
• Private property insurance
• Disaster insurance
• Liability insurance

With hundreds of insurers offering similar coverage, the shopping process comes down to comparing all possible options and selecting the most optimal plan for the best price. Talk to a state-licensed California insurance specialist before purchasing any insurance policy in the state and ask all your insurance questions. The agent will help access your needs and recommend the suitable insurance products for such needs. A knowledgeable insurance agent will also help you determine how much coverage is needed, compare insurance quotes from several insurance companies, and ensure you save on insurance costs.

Why Do We Have Insurance in California?

Insurance exists in California to protect residents financially against expected and unforeseen events. This is why the California Department of Insurance, which is headed by the California insurance commissioner, allows the 1,454 insurance companies in the state to sell auto, health, life, commercial, and home insurance policies to over 39.5 million California residents who need them.

LIFE Insurance

Life insurance helps to provide financial protection and security to your family members at your demise. With about 104 million people in the United States lacking life insurance policies in 2022, most families will be financially insecure if their breadwinners suddenly pass away. Dying without having any financial plans for your loved ones, especially if you are the home's breadwinner, can be financially devastating for your loved ones. Besides the death benefit, life insurance works as a financial and retirement planning tool with tax benefits for the insured while they are alive.

In 2021, Californians paid nearly $21 billion in life insurance premiums. With a population of over 39 million in 2022, this was an average of over $535 per resident of the state. As of 2022, there were 286 insurance companies offering life insurance in California.

COMMERCIAL Insurance

As of 2022, there were over 4.2 million businesses in California, employing nearly 19 million people in over 800 occupations. Every week an average of 1,000 to 1,800 new businesses get registered in the state and all these businesses need commercial insurance to protect against financial losses that can affect their operations and possibly avoid them from going bankrupt.

In 2022, there were 205 insurance companies offering commercial insurance in California, meanwhile, 216 issued coverage for commercial auto insurance, Liability insurance was offered by 102 insurers, while Medical Malpractice coverage was obtainable from just 32 companies.

HEALTH Insurance

With the California Department of Finance projections that by 2030 there will be nearly 8.6 million seniors (aged 65 and above) living in California, it is vital to pay attention to the health status of this age group. This is because, as of 2021, over 5.9 million seniors in California were battling chronic conditions and diseases like Alzheimer's, arthritis, colon cancer, diabetes, heart disease, and stroke. For instance, one out of every six Californian seniors has Type 2 diabetes. Unfortunately, these health conditions can worsen without the appropriate health insurance policies that would provide financial protection for medical conditions and prevent out-of-pocket expenses.

Health insurance helps the insured with covering medical bills and other medical expenses. In 2023, there were 19 insurance companies offering health insurance in California. Speak with a California health insurance agent to discuss your coverage options.

AUTO Insurance

Owners of the 35 million vehicles registered in California must get auto insurance policies to cover all the vehicles with active registration because it is mandated by California car insurance law. All drivers must carry a minimum auto liability coverage of $15,000 per person, $30,000 per accident, and $5,000 per property damage. Failure to carry the necessary auto insurance policy may result in fines and imprisonment. It can also lead to out-of-pocket expenses in the event of auto theft and accidents.

In 2022, there were 130 auto insurance carriers in California offering private passenger auto insurance to the state’s residents. To buy car insurance, speak with California-licensed auto insurance agents who have access to multiple competing insurers.

RESIDENTIAL Insurance

Owners and renters of the over 14.5 million housing units in California need residential insurance to protect their homes and personal belongings from damages caused by covered perils. Residential insurance is a broad term for homeowners, renters, condo, and landlord insurance policies. The type of structure and ownership status is what determines the type of home insurance policy to purchase. In 2022, there were 115 insurance companies offering homeowners, renters, and other types of residential insurance coverage in California. Speak with a California-licensed property and casualty insurance agent to help you determine the suitable home insurance policy and coverage types to fit your needs. Compare multiple quotes and bundling options, to reach the desired coverage and affordable price.

DISASTER Insurance

Natural disasters like volcanoes, wildfires, drought, floods, landslides, earthquakes, and storms are common in California. For instance, there are about 20 volcanoes located in California that can erupt without notice. Meanwhile, floods can come in as a result of rains, earthquakes, and the rising sea levels. With nearly 200 thousand Californians residing in the coastal areas, and considering that standard property insurance does not cover flooding, possible flood damage is a growing problem.

Most disaster insurance is typically purchased as an add-on to the regular property coverage. For example, basic flood insurance up to the national coverage limit ($250,000 for owners and $100,000 for renters) is administered by the National Flood Insurance Program (NFIP), and the additional coverage, if needed, can be sourced through private insurers.

In 2023, 21 insurers in California offered flood insurance, while 93 wrote coverage for earthquakes.

LIABILITY Insurance

Personal liability insurance in California protects the insured (private individual or business) from having to pay out of pocket if their actions or inactions cause another party bodily injuries, property damage, or financial losses. For example:

• Causing a car accident with property and/or bodily injuries
• Not maintaining your rental home or business property and causing a slip and fall injury
• Selling a product that hurts or injures someone
• Providing a professional advice that leads to losses by your clients

In most cases, personal liability insurance is used to cover legal fees, medical payments, and pay to repair caused property damage. Liability insurance can be found as an attachment to an existing business insurance, property coverage, as an additional protection (umbrella coverage), or as a stand-alone policy.

What is Insured?

The type of insurance policy you purchase is what determines what is insured. For instance, a life insurance policy can only insure your life; it cannot insure your home. Get homeowners insurance, where the dwelling coverage provides protection if you want to insure your home. Talk with a California-licensed insurance agent who can evaluate your needs and ensure you get the right policy.

What is an Insurer?

In California, an insurer is the insurance company providing financial protection in the event of a covered loss. There are over 1,400 licensed insurance companies in California offering life, health, auto, commercial, or home insurance policies.

What is an Insured?

An insured is a person or entity protected in case of a covered loss or claim. The definition of insured may differ from one insurer to another, but you can find your own insurer's definition in the insurance policy document. The only thing required from an insured in California throughout the policy tenure is the consistent payment of premiums. Failure to do so can lead to policy lapse.

What is an Insurance Policy?

An insurance policy in California is a written contract between an insured and an insurance company that spells out the terms and conditions of the policy agreement. You should always go through your insurance policy document to understand your policy so you can know your responsibilities. Failure to meet these responsibilities may affect your claims or coverage. Speak to a California-licensed insurance agent if you have difficulty understanding the terms of your policy.

What Does an Insurance Policy Consist of in California?

An insurance policy in California consists of the following:

• Declarations page: This is commonly known as the dec page. The dec page summarizes the key details of the insurance policy. It is usually on the first few pages of the policy document. Some of the information on the dec page are:
  • Insured’s name and address
  • Premiums and discounts
  • Coverage period
  • Policy number
  • Deductibles
  • Types of coverage provided and their limits
  • Endorsements or riders to the policy

Note that the information you will find on the dec page depends on the type of insurance policy you purchase. For instance, you can find information like policy terms, listed drivers, vehicle details (VIN, car make and model), premiums, car coverages, deductibles, and endorsement on the dec page of an auto insurance policy. However, the dec page of a homeowners policy will be slightly different from that. It will include the insured’s name, policy dates, the physical address of the insured property, the name of your mortgage lender, coverages, property, and liability coverage limits.

• Definitions: This page is included in the insurance policy so that the insured can understand the meaning of legal words used in the policy document. When the words listed on the definition page appear on other pages of the policy document, they are usually written in special formatting like italics, boldface font, and quotations to show they have special definitions
• Insuring agreements: This is the main part of the insurance policy. The insuring agreements page defines who and what is covered by the policy. This is where the insurance company specifies the inclusions of the policy
• Exclusions and limitations: This page usually comes after the insuring agreement page, and it usually lists what is excluded from the policy. For example, home insurance policies do not cover damage from perils like floods and earthquakes, while auto insurance policies do not cover routine repairs and maintenance
• Conditions: This page includes the requirements that must be met for the insurance company to accept your claims after a covered event. For instance, one condition a homeowner would see in a homeowner's policy is that they must protect their property after a loss to prevent further damage

Speak to a California-licensed insurance company who can review your policy details with you so you can fully understand it and make adjustments, if necessary. In addition, they will review your policy provisions and provide answers to all your insurance questions.

What is Insurance Coverage?

Insurance coverage is the amount of risk that is protected by insurance. It helps people recover faster from financial losses resulting from incidents like property damage, unforeseen health emergencies, or car accidents. Individuals would have to pay premiums consistently to enjoy insurance coverage. The most common types of insurance coverage available in California are:

• Auto insurance coverage
• Life insurance coverage
• Home insurance coverage
• Health insurance coverage
• Commercial insurance coverage

What is Insurance Rate?

An insurance rate in California is the specific amount of money an insured must pay to enjoy insurance coverage. Unfortunately, most people make the mistake of using insurance rates interchangeably with insurance premiums. Insurance rate refers to insurance coverage costs per exposure unit, while insurance premium refers to the multiplication of the rate by the number of exposure units an insured purchases.

What is an Insurance Quote?

An insurance quote is an estimation of how much an insurance policy will cost. Comparing insurance quotes from multiple insurance companies in California is advisable before purchasing an insurance policy. Each of the insurance quotes you get will reveal the cost of the policy and what will be included in the coverage. You can get an insurance quote from an insurance company online or through a licensed insurance agent.

When getting a quote from an insurance company, be ready to provide information about yourself and what you intend to insure. This helps the insurance provider to customize the quote based on your needs. For instance, when getting a life insurance quote, the insurance company will ask for your income level, occupation, specific medical condition, and outstanding debts. They will also ask about general medical information like height, blood pressure, weight, and cholesterol levels. In contrast, for a homeowners insurance quote, the insurance company will ask questions about the home, like the location, size, construction details, the year the house was built, and recent renovations or repairs. Each of these factors comes to play in determining the price of the insurance policy.

After comparing several quotes, the next thing is to select the best insurance company you would prefer to handle your insurance needs. Once you have decided to purchase the policy, you can go ahead to make your first premium payment. Some insurance companies might want you to provide additional information before or after they issue a policy. After all the necessary details are in place, you will discover that the quoted price may be slightly different from the final cost of the policy. Always ensure to employ the services of a licensed agent when shopping around for insurance quotes in California.

What is a Discount in Insurance?

A discount in insurance is a reduction in the actual price of an insurance policy. There are several discounts available before and after buying a policy. For instance, about 18 residential property insurance companies are currently offering discounts to homeowners in California.

Premium discounts are deductions given to insureds on the usual price of their policy when they meet specific requirements. On the other hand, a discount rate is the interest rate that an insurance company uses to estimate cash flow and investment projections. However, in the context of health insurance, a discount rate is the agreed-upon discounted fee between the insurance company and healthcare providers. Discounted rate is typically less expensive than what the insured would normally pay for specific coverage.

The types of insurance discounts you may enjoy in California are:

• Multi-policy discount: Some insurance companies offer discounts when you buy more than one insurance policy from them. Buying homeowners' coverages and auto insurance policies from the same insurance company and their affiliated companies may give you a multi policy discount of 5 to 25 percent, depending on the amount and type of insured properties.
• Low mileage discounts: This type of discount applies to auto insurance policies. Some insurers give discounts to drivers who drive 10,000 miles or less per year
• Group discounts: Some insurance companies offer discounts to employers, associations, or organizations who get auto, health, or life group insurance policies for their employees or members
• Security discount: Most insurance providers offer discounts to insureds who take safety measures. For instance, you may get 5% off your homeowners policy premiums if you have a smoke detector, burglar alarm, or deadbolt locks. Some insurers may even offer you a 15% or 20% if you have sprinkler systems and burglar or fire alarms that ring at monitoring stations
• Coverage amount discounts: Most life insurance companies offer discounts to insureds if they buy high-limit coverages. For instance, an insured who buys a $250,000 life insurance coverage may enjoy a discount that makes their premium less than one who buys a $200,000 life insurance coverage
• Retiree discount: Some home insurance companies offer 10% discounts to retired insureds who stay at home than those who go to work. This is because retired homeowners have more time to maintain their homes. They are also more likely to spot fire sooner and less likely to be burglarized

Why Do You Need Insurance in California?

You need insurance in California because of the financial protection it brings when something bad and unexpected happens. Specifically, you need some insurance policies because they are mandatory by law. For instance, every motorist in California must carry minimum liability insurance of:

• $15,000 for bodily injury per person
• $30,000 for bodily injury per accident
• $5,000 for damage to property

Driving without auto liability insurance in California is illegal. Failure to have insurance can lead to license suspension and vehicle impoundment. Additionally, California law requires employers to provide workers' compensation insurance to their employees. Failure to do so is considered a misdemeanor and attracts severe penalties like fines, jail terms, and an increase in premiums.

California insurance guarantee association

You need insurance because no matter what happens to your insurance company, structures are in place to ensure your coverage continues and your claims are paid. All licensed insurance companies in California belong to a guarantee association that helps to pay covered claims when a company becomes insolvent. The California Insurance Guarantee Association (CIGA) is a major player in taking over the obligations of insolvent insurance companies.

Deductible vs. Premium

There is a sharp difference between deductible and premium. A deductible is an amount you pay for the cost of an insurance claim before your insurance kicks in, while a premium is the amount of money you have to pay for insurance coverage. All insurance policies have deductibles except life insurance policies. In contrast, all insurance policies have premiums insureds must pay to keep their policies in force.

What is a Deductible in Insurance?

A deductible in California insurance refers to the specific amount you have to pay out of pocket towards a loss or liability before your insurance kicks in. For instance, if you select a 1% Wind and Hail deductible for your homeowners policy, you must meet this amount before your insurance company starts paying for losses or damages caused by a covered loss. Therefore, if your home is insured for $600,000, you will be responsible for $6,000 out of pocket for wind or hail damage, while the insurer pays the rest.
Similarly, the deductible is set in health, liability, and all types of property and business insurance. Life insurance is the only type of insurance which does not have a deductible.

What Does Deductible Mean in California Insurance?

In California, a deductible means the amount of money you must pay before benefits from your insurer become payable. Always choose a deductible that you can easily pay out of pocket.

PROs of Deductibles

Below are the advantages of deductibles:

• A higher deductible reduces your insurance premiums
• It allows you to select an amount you can easily pay out of pocket for a covered loss or damage
• Deductibles reduce the temptation to turn in minor claims which prevent higher premiums due to claims history

CONs of Deductibles

Below are the disadvantages of deductible:

• Selecting a lower deductible increases your insurance premiums
• You might find it difficult to pay your deductibles if you choose an amount that is way higher than your financial capacity

What is a Premium in California Insurance?

In California, a premium is the amount of money an insurer charges for insurance coverage. Californians can use the interactive tool on the California Department of Insurance (CDI) website to compare premiums between insurance companies in the state.

What is Insurance Premium?

An insurance premium is the amount of money a person or business pays for an insurance policy. The insurer uses the collected premiums to cover the claims. Failure to pay premiums may lead to policy cancellation.

How is Insurance Premium Determined?

Insurance companies in California use various factors to determine insurance premiums. These factors vary from one policy type to the other. For instance, the factors an insurance company will use to determine homeowners insurance premiums will differ from what it will use to determine auto insurance premiums. This is because what is being insured is different, even if the insured remains the same. Below are the factors most insurance companies in California use to determine insurance premiums:

• Health status: Individuals with severe health conditions should expect to pay higher health and life insurance premiums than those with little or no health issues
• Individual vs. family enrollment: Most health insurance companies in California charge more for health plans that cover multiple individuals (the insured and their family members) than those that cover only the insured
• Annual mileage: Insureds who drive more than 50 miles daily should expect to pay higher auto insurance premiums because being on the road frequently makes people susceptible to auto crashes
• The type of car you drive: Auto insurance companies can offer higher premiums to drivers with expensive or newly purchased vehicles than those with less expensive ones. However, they may give discounts to insureds with high safety equipment cars
• Driving history: Having a history of accidents or serious traffic violations can increase your auto insurance premiums by 10% or 15% compared to when you have a clean record
• Gender: This plays a major role in determining life and health insurance premiums. Life insurance companies charge women lower premiums than men because they have a longer life expectancy. Alternatively, health insurance companies charge women higher premiums than men because they tend to need medical attention more often
• Occupation: Most health and life insurance companies charge higher premiums from individuals with high-risk or dangerous jobs than those with lower-risk jobs. For instance, flight engineers will pay higher premiums than school teachers
• Tobacco users: Life and health insurance companies charge smokers higher insurance premiums than non-smokers because smokers are at a higher risk of developing health issues like cancer, respiratory diseases, and heart diseases. Health insurance premiums for smokers can go as high as 50% compared to non-smokers, while for life insurance, smokers could pay up to 4 times more
• Security measures: Commercial and home insurance companies charge lower premiums from businesses and homeowners with installed security devices in their homes and business premises. For instance, businesses with security alarm systems and CCTV cameras enjoy lesser premiums than those who do not take safety precautions. Installing security systems like smoke detectors, burglar alarms, or deadbolt locks in your house may attract up to 5% in home insurance premium discounts. Furthermore, installing sophisticated sprinkler systems and fire alarms wired to the police or fire stations may cut 15% or 20% off your home insurance premiums
• Age: Age plays a major role in determining insurance premiums. For instance, life insurance companies charge older insured higher premiums than younger insureds. This is because the older a person gets, the shorter their life span and the more likely for them to die during the policy term. In contrast, auto insurance companies charge higher premiums from teen drivers than experienced mature drivers because of their lack of driving experience, and they are more likely to get into accidents. In the case of home insurance, homeowners residing in old homes with high rebuilding costs will pay higher home insurance premiums than those who live in newly-built homes
• The number of employees: Large businesses have greater chances of experiencing business-related crimes and liabilities like fraud, injuries, damages, theft, and embezzlement than small businesses. As a result, commercial insurance companies charge large corporations higher premiums than small businesses with fewer staff. However, employees of large businesses have greater chances of enjoying affordable group health and life insurance rates because they are likely to be eligible for group discounts
• Location: In California, your home or business location affects your commercial, auto, and home insurance policies. For instance, auto insurance companies charge insureds who live in populated cities like Los Angeles and San Diego higher premiums than those in less populated areas like Rolling Hills and Avalon. This is because populated areas have more vehicles on the road, which increases the likelihood of accidents and thefts. Additionally, homes and businesses located in areas prone to natural disasters should expect to pay higher premiums than those located in areas where weather-related incidents rarely occur
  One good way to save on insurance premiums is to shop around and compare insurance quotes from several insurance companies. An experienced California-licensed insurance agent who is familiar with the insurance market can help you with that, so you settle for an affordable policy. Other ways to save on insurance premiums are getting multiple insurance policies from the same company, raising your deductible, and taking advantage of discounts and group coverage.

How Do Deductibles Affect Premiums?

Your deductibles have a direct relationship with your premiums. Most times, you might be tempted to select a policy with the lowest premiums without being aware that a lower premium attracts a higher deductible. In contrast, an insurance policy with a higher premium comes with a lower deductible.
You have to consider how often you will likely use your insurance benefits when deciding your premium and deductible amounts. If you believe you might not be using your insurance frequently, you can go for a policy with a lower premium and a higher deductible. In contrast, if you rely on your insurance frequently, you might want to go for a policy with a higher premium and lower deductible.

California Insurance Code

California insurance law is outlined in the California insurance code.