Insurance is a way of protecting yourself and your assets from financial losses caused by unexpected events, such as accidents, illnesses, natural disasters, or lawsuits. It can also provide peace of mind and security for you and your family.
What is Insurance?
Insurance is a contract between an individual and an insurance company with the agreement to pay a certain amount of money called a premium in exchange for a promise from the insurance company to pay a certain amount of money called a benefit, if a specific event called a risk happens.
The insurance company collects premiums from many customers and pools them together to create a fund that can pay for the benefits. The insurance company also uses statistics and probability to estimate how likely it is that a risk will happen and how much it will cost to pay for the benefits. The insurance company then sets the premium based on the level of risk and the amount of benefit.
What are the main types of insurance?
There are many types of insurance policies available for different purposes and needs. Some of the most common types of insurance are:
- Life insurance
This type of insurance pays a benefit to individual beneficiaries such as spouse, children, or other dependents in the events of death. The benefit can be used to cover funeral costs, pay off debts, replace income, or support loved ones. There are two main types of life insurance which are; term life and permanent life.
- Health insurance
This type of insurance pays for medical expenses, such as doctor visits, hospital stays, prescriptions, tests, surgeries, or treatments if the client get sick or injured. It can also cover preventive care such as check-ups, screenings, vaccinations, or wellness programs to help stay healthy. There are many types of health insurance plans such as employer-sponsored plans, individual plans, government-sponsored plans, or short-term plans that vary in terms of coverage, cost, and network of providers.
- Homeowners insurance
This type of insurance pays for the damage or loss of home and personal belongings such as furniture, appliances, clothing, or jewelry, due to events such as fire, theft, vandalism, storm, or flood. Homeowners insurance is usually required by mortgage lenders if you finance your home.
- Auto insurance
This type of insurance pays for the damage or loss of vehicle such as car, truck, motorcycle, or RV due to events such as collision, theft, vandalism, hail, or animal strike. It can also cover liability if the client cause damage or injury to someone else or their property with vehicle. Auto insurance is required by state law in most states to drive legally.
- Other types of insurance
There are also other types of insurance policies that can cover specific risks or needs such as travel insurance, pet insurance, renters insurance, disability insurance, long-term care insurance, umbrella insurance, or identity theft insurance.
Important Insurance Terms you should know and understand
Below are some of the notable insurance terms that you need to know and understand
- Premium: This is the amount of money you pay to the insurance company for your policy, usually on a monthly, quarterly, or annual basis. The premium depends on various factors, such as the type, amount, and duration of coverage, your age, health, lifestyle, location, credit score, and claims history.
- Deductible: This is the amount of money you have to pay out of your own pocket before the insurance company pays for your benefit.
- Policy limit: This is the maximum amount of money the insurance company will pay for your benefit. The higher the policy limit, the higher the premium, and vice versa.
- Co-payment: This is a fixed amount of money you have to pay for a specific service or item covered by your insurance policy usually at the time of service. It’s common for health insurance, dental insurance, or prescription drug insurance.
- Co-insurance: This is a percentage of the cost of a service or item covered by your insurance policy that you have to pay, usually after you meet your deductible.
- Exclusion: This is a condition, event, or item that is not covered by your insurance policy. They are usually listed in the policy document or contract, and you should read them carefully before buying a policy.
- Claim: This is a request you make to the insurance company to pay for your benefit when a risk happens. The insurance company will then review your claim and decide whether to approve or deny it, or offer you a settlement.
