What Type Of Insurance Do I Need?
We purchase insurance to shelter our financial position. If we do not have insurance, we can be subject to a lawsuit for any small accident that could possibly happen. We protect our families and ourselves by buying insurance to resolve any mishaps that should occur in our lives. We drive automobiles and accidents can easily happen; we own homes where people can visit and fall and sustain injuries, and we require individual health insurance to pay for necessary treatment if we are ill. There are also numerous other types of policies that can protect us from lawsuits and judgments that may be passed against us. This is why we faithfully pay premiums to insurance companies, to protect our assets and provide representation for us in a court of law.
Insurance transfers the risk of loss from an individual to a group and it has been practiced for thousands of years. Insurance is setting aside sums of money now to protect you in the future. Insurance has been documented throughout history in a variety of different ways. Thousands of years ago, when a family’s hut was destroyed in fire, the entire community helped to rebuild it. Many Egyptian societies collected funds and assisted in paying burial expenses, and provided assistance to those who were seriously ill or injured.
The types of insurance you require are determined by your lifestyle. If you do not own an automobile, you will not require automobile insurance. Assuming you have a dwelling of some sort, you will require some version of an affordable home insurance policy. Health insurance will be necessary unless, of course, your employer provides this for you or you are eligible for Medicare from the federal government. Even with Medicare, a supplemental policy will be necessary to fill in the gaps that currently exist in a Medicare policy.
Some insurance terms that you should familiarize yourself with could include the following:
Coverage – the promise to provide financial support for specific claims should they occur. Examples would be liability, personal injury, etc.
Deductible – refers to the amount of money that you pay out of pocket before insurance coverage becomes available.
Liability – A financial obligation to another person for personal injury or property damage, which you have caused.
Liability coverages – An insurance policy promises to defend the insured in court and compensate the injured party for personal injury or property damage you caused.
Peril – a particular cause of a loss, such as windstorm, fire, or flood.
Policy – the legal contract between the insured and an insurance company that describes the coverage provided for the premium paid.
Premium – the price you pay for an insurance policy for a specific period of time known as the policy period.
Risk – this refers to the uncertainty of loss. Insurance companies frequently refer to the insured or his property as the risk.
Hazard – will increase the likelihood of loss through a specific peril. Physical hazard refers to the condition or characteristics of the insured subject. Moral hazard refers to human behavior that could cause a problem for the insurer. Occupational hazard refers to the occupation of the insured as it increases the chance of a loss occurring.
Risk is the most important consideration of an insurance company. They must measure risk so that they can determine when to accept a risk and how much to charge for it. Risk refers mainly to the law of averages. They can predict how much risk will be involved in a specific group of insureds.
There are various ways that risks can be spread out over large groups:
Numerical spread of risks refers to when insurance companies insure a large number of homes and the company can easily predict the percentage of loss and set rates accordingly.
Geographical risk means that an insurance company spreads their policies over many parts of the country, rather than concentrate in a specific area. Local catastrophes can therefore be held to a minimum of loss.
Handling more than one type of policy also spreads risk. Most companies offer several major lines of insurance as a means of balancing their risks.
Classifications are often used to determine different premium amounts for certain groups of people. The higher risk insureds pay higher premiums helping the companies to balance their income versus their claims.
Reinsurance is another way of sharing risk, as a company offers a portion of their risk to another company in exchange for a portion of the premium. Then, when a loss occurs, the risk is shared between the two companies.