A Guide to Insurance Policies

It is useful for you to familiarize yourself with certain terms used in insurance. This will help you better understand how these Coverages work when you compare insurances.

Insurance is a contract represented by a policy, in which a person receives financial protection or reimbursement for losses from specified perils. These policies are used to hedge against the risks of financial losses.

An insurer is a company or person who promises to reimburse. The beneficiary is called the insured or assured. The premium is the consideration paid by the insured at an agreed date for the insurer’s promise to reimburse.

The policy refers to the contract itself and the events insured against are known as perils or risks.

Variations in Insurance Policies

There are multitudes of insurance policies including online insurance and virtually any individuals or businesses can find a cover that suits their needs and budget.

The widely-known types of insurances are auto, health, homeowners and life insurance. Most people in the US have at least one type of the mentioned insurances.

Businesses may require a special type of insurance policy since they may need to be more specific on the type of risks faced by that business.

For instance, a food restaurant needs a policy that covers damages caused as a result of cooking with a frying pan. An auto dealer may require a policy that covers injury caused during test drives. There are also specific needs such as kidnapping, medical malpractice, and professional liability insurance which may be covered by certain insurance policies.

How to Identify Insurance Policy Components

Two of the most important components of all insurance policies you need to know are the premium and the deductible.

A deep understanding of the functioning of these two concepts will go a long way in helping you choose the best policy as you compare insurances. It will be important for you to spend some time researching the best premiums.

The deductible is the minimum out-of-pocket expense you are required to meet wherever you make a claim. Only then can an online insurance company pay for your losses. Depending on the insurance, deductibles can either be per policy or per claim.

Policies with very high deductibles are generally cheaper because since the insured is willing to incur high-out-of pocket costs, they are less likely to make small claims.

If you have a chronic health condition or regularly need medical attention, you should seek policies with lower deductibles. Cheaper access to medical care is surely worth it even though the annual premium might be higher.

Public and Private Insurance

Sometimes referred to as social insurance, public insurance includes Social Security, Medicare or temporary disability insurance. These are normally funded by the government.

Private insurance plans include all types of insurance coverage offered by private organizations. Ensure you get the distinction between the two when comparing insurances.

Types of Individual Insurances

Life Insurance

This type of insurance covers your immediate family member or a named beneficiary in the event of your death. It is further categorized into two: term insurance and whole-life insurance.

Term insurance covers only during the term of the policy and pays off after the insured’s death. Whole-life can let the insured claim reimbursement even before death.

Health Insurance 

Health insurance policies cover the cost of hospitalization, consultation fee to the doctor’s office and prescription medicines. A health insurance policy would be meaningful if it covered 100 percent of the hospitalization cost.

The charges for medicine and a doctor’s service can amount to 80 percent of the charges covered. The insurer will only make payments after the deductible amount has been reached.

Disability Insurance

Disability policies pay off a certain percentage of an employee’s wages if the employee cannot work due to illness or accident. Policies that have longer waiting periods before they are paid have lower premiums.

Homeowners Insurance

Homeowners insurance provides coverage for damages due to such perils as fire or theft. When a homeowner chooses an online insurance they must assess their needs by looking to the likely risks in the area.

Reduced coverage for homeowners is possible if the property is not insured for at least 80 percent of its replacement costs. In cases of a drop in the property value due to inflation, a homeowner might find savings in lowering the policy’s insured amount.

Auto Insurance

Auto insurance is perhaps the most common type of insurance. Auto insurance policies are minimum requirements for drivers in all states. The policy covers bodily injury, property damage, medical payments and damage to the car itself.

Business Insurances

Every business owner must insure his employees as well as his property. The main types of business insurances are:

  • Workers compensation: Every business in the state is expected by the law to insure its workers against injury while on the job. Workers compensation policies are available through commercial insurers and trade associations.
  • Automobile insurance: A business that uses vehicles should maintain a minimum car insurance policy on its vehicles.
  • Property insurance: A business should protect its buildings, permanent fixtures, machinery or inventory.
  • Business interruption insurance: A company may decide to purchase insurance that will cover loss of earnings if the business is interrupted by power shortage, strike or loss of raw material.