What Types of Insurance Are Available?
Nicholson Insurance provides a safety net against financial disasters such as medical bills, home damage, and car accidents. It’s a complex business, involving actuarial science in its ratemaking and costing processes.
Insurance policies are pooled together from many policyholders (called insureds) and administered by insurance companies. This allows individuals to get a large financial payout in the event of a disaster.
The death of a loved one is a tragedy, but the financial impact of this event can be minimized with life insurance. This coverage pays a specified lump sum (known as the death benefit) to your beneficiaries upon your death or when your policy reaches maturity. Life insurance can be purchased to cover just the death benefit or for an accumulation of cash value over time through investments.
The person who owns a policy is known as the policy owner, which can be you, your spouse, or other individuals such as children, a partnership, or a corporation. A free look period is provided to allow you to examine the policy and if not satisfied return it for a full refund within 10-30 days of purchase. A legal document stating the terms and conditions of the life insurance policy is called a policy.
A statement or proof of health, finances or job that you provide to the insurer when applying for life insurance. This information helps determine your underwriting classification and premium rate.
Mortality – the likelihood of dying at each age as shown on an insurance company’s actuarial tables. It is the basis for calculating pure cost of life insurance and annuities.
Insurable Interest – For persons related by blood, a substantial interest established through love and affection; for all others, a lawful and substantial economic interest in having the life of the insured continue. Insurable interest is required to be a condition of receiving a life insurance policy.
Non-Forfeiture Option – If you discontinue premium payments on a participating policy, the insurance company will pay you dividends which can be used to extend the term of your policy or reduce your total paid up premium. This is known as a Reduced Paid-up Insurance (RPI) Option.
Health insurance is a type of insurance that pays some or all of the costs associated with an insured person’s medical and surgical expenses and preventative care. It is generally paid for through a monthly premium, which is an amount the insured agrees to pay in exchange for the insurer covering part or all of their eligible healthcare expenses. The exact terms and conditions of a specific policy vary, but most include a limit on the amount the insured must pay out of pocket before the insurer begins paying; this is known as an “out-of-pocket maximum.” In addition, most policies have provisions to allow for coverage through preferred providers, who are on a list agreed to by the insurance company and accept rates that are further discounted from the “usual and customary” charges the insurer would otherwise pay to out-of-network providers.
There are many different types of health insurance plans, from individual and family plans to employer-sponsored and government-funded plans. Private health insurance is purchased from private companies, while public health insurance includes plans funded by federal, state and local governments, such as Medicare, Medicaid, Children’s Public Health Insurance Program (CHIP), the Veterans Health Administration (VHA) and TRICARE.
Health insurance is regulated at the state and federal level, with each having its own insurance commissioner and department. The Centers for Medicare and Medicaid Services oversees regulations relating to Medicare, and the Employee Retirement Income Security Act (ERISA) governs self-insured group health plans. Consumers may choose to purchase high-deductible health plans, which typically have lower monthly premiums but large out-of-pocket healthcare expenses in the event of a major illness or accident.
Homeowners insurance provides financial protection against the damage or destruction of your home and personal belongings. It generally covers the cost to rebuild or replace your house and possessions if they are destroyed, although it may exclude specific items like termites and floods. It also pays for liability coverage if someone is hurt on your property, and it covers additional living expenses if you need to move while your home is being repaired. Homeowners policies come in a variety of policy forms, and prices vary widely depending on the type of policy, location and coverage needs.
There are two main types of homeowners insurance: broad form and special form. Most current homeowners’ policies are written on a broad-form basis (HO-3). These policies cover the dwelling, other structures and personal property on an all-risks basis — meaning that except for exclusions, any event could cause a loss. In the past, insurers wrote narrow-form home insurance policies (HO-1 and HO-2), which covered only named perils.
Insurance companies decide which risks to cover and what price to charge for a policy by using a process called underwriting. They review your application and take into account factors such as your age, credit history, and the value of your house and belongings. They also consider any previous claims you or your family have made against other homeowners or renters’ policies.
When a loss occurs, your insurer will pay up to the limits of your policy, less any deductibles you have chosen. For example, if your insurer approves a claim for $20,000 in repairs, you will need to pay the first $1,000 of the deductible. Your deductible is an important factor in determining your premium. It’s usually lower if you choose a higher deductible.
Car insurance (or vehicle or motor insurance) offers financial protection against physical damage to your car and liability resulting from traffic collisions. It also provides coverage for your car against theft and damage from other causes such as natural disasters or vandalism. A variety of coverages are available depending on your needs and the legal regulations in your state. The most common are liability for bodily injury and property damage, medical payments, uninsured motorist and comprehensive and collision coverages.
Bankrate’s insurance editorial team can help you understand the nuances of car insurance and choose the coverage that best suits your needs and budget. A car insurance quote can vary based on your driving record, age and gender, location, the type of vehicle you drive, coverage history and your deductible amount. The deductible is the amount you must pay before the insurance company begins to process a claim. A higher deductible usually results in lower premiums. However, you must be reasonably sure that you could afford to cover the deductible amount in the event of an accident.
There are several other coverage options to consider such as loan gap coverage, mechanical breakdown coverage, emergency roadside assistance and new car replacement coverage. These can add to your overall policy cost and some may be optional, while others are mandated by your state’s laws or required by your financial lender.
The specific terms of a car insurance policy are set forth in its written contract. These include the responsibilities and duties of the insured, insurer, agent or broker and other parties. The actual policy must be reviewed in its entirety to fully understand the coverages, deductibles, exclusions and other provisions.
Umbrella insurance provides a layer of protection over and above your car and homeowners or co-op/condo policies. It covers liability that could quickly deplete your financial assets, such as a judgment against you in a lawsuit or costs associated with large medical bills or property damage from an auto accident. Typically, umbrella policies provide $1 million to $10 million in coverage and kick in after you reach your auto or home policy’s liability limits. In today’s litigious society, anyone who has assets at risk should consider an umbrella policy.
For example, let’s say your teen drives into another car and causes extensive damages and injuries. The other driver’s auto insurance will pay up to its limit for bodily injury, but your homeowner’s policy does not offer that much coverage. An umbrella policy would take over, paying up to its limit plus providing legal defense and related fees.
An umbrella policy also can cover incidents that your underlying auto, boat or homeowners insurance does not, such as dog bites or claims against you for libel or slander. You generally must have a certain amount of auto or home/condo coverage to qualify for an umbrella policy, and many insurers require that you buy your auto and homeowners or co-op/condo insurance through them in order to offer one.
It’s important to review your assets and liabilities in order to determine how much coverage you need. Keep in mind that any assets in 401(k) or 403(b) plans are protected from lawsuits by federal law, as well as assets up to $1 million in individual retirement accounts (IRAs). The cost of an umbrella policy is relatively inexpensive in comparison to the potential financial loss you could face if sued.