Insurance is a way of protection against financial loss. It’s a sort of risk management, mostly used to offset the risk of an uncertain or contingent future expense. It’s often used as a source of life insurance, retirement plan and/or mortgage protection. Some people even use it to protect their home. Insurance coverage can be tailored to suit the needs of any individual or family.
Most people know what life insurance is: it’s a contract between an insurer and an insured, which promise to pay the insured a sum of money upon the death of the insured. But there are many other types of insurance policies. Some of the more common ones include property insurance policies, critical illness policies, automobile and health insurance policies and flood insurance endorsements. Each one has its own special features that can be tailored to suit the needs of the insured.
Property insurance provides protection for the physical structure of the property. In case of natural disasters, damage or destruction caused by a disaster, such as a hurricane, tsunami, fire, earthquake or explosion, the property covered by the policy may need restoration. Insurance coverage also takes care of repair costs for personal property carried within the home. Some insurers also provide protection for personal effects (e.g., jewelry, artwork, electronics, antiques, collectibles) that might be damaged or lost by a covered peril.
Coverage provided by the insurance policy depends on a number of factors. Depending on the insurer, age and value of the insured, and the risk level of the insured, the cost of the insurance policy will vary. For example, the premiums may be affected by the lifestyle choices of the insured. Insured persons who smoke, drink alcohol or have a risky occupation may expect to pay higher insurance rates. And being an older person, with greater medical risks, you might expect your premium to be higher.
Insurance premiums are assessed based on risk. The age and health of the insured and the type of occupation (i.e., construction worker, auto mechanic, etc.) are considered in assessing risk. Insurance companies use mortality tables to assess and establish premiums for a given age and occupation.
General insurance coverage is intended to provide a replacement income if the insured dies during the period of coverage. Premiums are based on the age at which the insured begins coverage and the period of time he or she is expected to remain in the plan. Some insurers include accidental death and dismemberment benefits in the base premium, which means that if the insured should die during the period of insurance, his or her loved ones would receive payment from the life insurance company instead.
Most insurance policies include a variety of features to attract and keep customers. While many consumers would prefer to avoid high premiums, some individuals need to pay higher premiums in order to receive necessary benefits. For instance, a 45-year-old man who has never had a heart attack may be charged a much higher premium than an identical person who has suffered a broken hip and back problems. Some insurers will offer cheaper rates to those who have never had serious ailments and/or have no family history of heart disease or other life-threatening conditions. Insurance companies use statistical data to determine rates and premiums.
Policy holders are underwritten by the insurance industry. The insured party is referred to as the policyholder. Policyholders can choose to maintain the same insurance policy for a specified period or they can select a new policy each year. Once a policy has been established, coverage and premiums remain steady throughout the year.
