What to Know About Insurance:
Financial security? Where do I sign? I think it’s safe to say that all of us want that for ourselves and for our families.
While we all know, at least in theory, that having insurance that’s meant to protect us might be very helpful, and can contribute to a solid financial plan, many people don’t know much about the topic.
Plus, we don’t usually think of risks and unexpected situations that might appear (after all, they are unexpected…), so most of the time, we just leave things to chance.
One of the reasons why that might happen is that people don’t know a lot about this subject. After all, they’re not so easy to understand.
Insurance is a great tool made to reduce financial loss and hardship. In other words, it’s a contract between the insured and an insurance provider, where the insurer can be paid for some losses.
The insurance provider tries to maximize the advantages and minimize the risks, in order to make the payment as affordable and worthy as possible. It can also be seen as protection that can help cover the cost of unwanted events, like theft, illness, property damage, or death.
The protection or coverage you get is for a limited period of time, but it can also be throughout your lifetime. In exchange for protection, you have to pay a premium.
Premiums are the amount of money you pay periodically, and it depends on the type of insurance you choose and what’s stated in your policy.
The amount of premiums is also calculated depending on the probability that you’ll go through a claimable loss. There are other factors as well that can be taken into consideration, such as the insured’s age, health, lifestyle, and even family history.
When it comes to health, dental, home, and auto insurance policies, the number of premiums can differ, depending on the deductible. The deductible is the amount of your claim you agreed to pay, and after that, the insurer pays the rest.
Naturally, choosing a higher deductible might lessen your premiums, and that’s because you agree to pay for a larger part of the loss.
How does it work?
When people get coverage, they put their money into a pool with other money. A certain amount of money in that pool helps the policy-holders who go through hardship in that period.
The hardship might be home, auto, or business losses. Also, it’s worth mentioning that you are covered for losses that are written in the contract, not for other predictable events.
When a hardship or loss happens, a claim is made. It’s basically an official request for the insurer to pay for the suffered loss. The insured’s agent or broker might assist in claiming benefits.
Supporting documents are required while the claim is processing, but it depends on the type of loss.
How many types of coverage are out there?
It provides a payment to the insured’s relatives after the insured’s death. The insured names one person or more, which are seen as beneficiaries, who are bound to receive the death benefit as is stated in the policy.
The proceeds or death benefits are completely tax-free. There are 2 main types of life insurance you need to know about:
- Term – covers you for a specific amount of time. If the insured dies within the agreed period of coverage (and the premiums are paid(, then the beneficiaries receive the death benefit as stated in the policy. The coverage automatically ends at a specific term. Of course, it can be renewed after the term, but the premium might increase, depending on the insurer’s age.
- Permanent – covers the insured until the end of life (unless the insured fails to pay all the premiums). Here, there are two other kinds: whole life insurance, which guarantees that premiums won’t change as you get older, and universal life insurance, which is a combination between life insurance and investment.
There’s more to know about life coverage, so if you want to find answers to all your questions, here’s a great book.
It will help you pay for services that the typical health care plan won’t cover. There are some types that can supplement your income, in case you suffer from a major illness or injury.
There are also other types that deal with medical expenses, in case you become ill while you’re on vacation. Here are the most common types:
- supplementary health insurance
- disability insurance
- travel medical insurance
- critical illness and trauma insurance
- long term care insurance
Property and Casualty Coverage
Property insurances cover the losses or damages done to your home or personal possessions, your car, but also to your business.
Casualty insurance protects the insured from legal liability for losses that are caused either by injuries to other people or damages to the property of others. Here are some types you need to know about:
- home/property insurance
- tenant/renter’s insurance
- auto insurance
- liability insurance
- accident benefits/bodily injury insurance
- collision insurance
- comprehensive insurance
- business insurance
- commercial property insurance
- public liability insurance
- errors and omissions insurance
According to Benefits Consultant.ca, “group coverage offers a mechanism for employers to provide employee benefits, which usually are part of the employee’s total compensation package, as part of one group, besides other government-provided benefit programs.”
There are so many workplaces in the United States that offer additional benefits to employees, to show that they really care for their wellbeing, and to strengthen a healthier workforce.
On a more practical side, the costs that are paid for a group coverage program are seen as tax-deductible business expenses.
Where do premiums go?
Insurers use premiums to pay claims costs, investments, and operational expenses. They are obliged to practice diligent financial management, so the claims can be paid.
For instance, they prefer investing in low-risk investments that can be easily liquidated, in case they have to pay out claims. Also, they set money aside, which is considered to be a legal reserve.
They’re also required by law to maintain the same amount. The legal reserve guarantees that an insurer is able to pay you a great number of claims within a short period of time.
How do you apply?
Insurers must evaluate if they can issue a policy, and they have different criteria to do that, such as age, medical history, previous claims that were made, and the amount of coverage you’re requesting.
There are certain types of insurance, like the life ones, that will require you to go through a medical exam. After that, the insurer will review your application and access your personal and medical history, so they can properly assess your risk.
After that, you will know the exact amount of coverage you’re qualified for, and the premiums you have to pay. No matter which kind of coverage you choose to apply for, it’s mandatory to answer all the questions fully and honestly.
Because if you withhold crucial information, or if you lie on your application, it’s not only enough for them to cancel your policy, but they can also refuse your claim in the future.
If there’s anything else that you feel we didn’t mention, feel free to tell us in the comments section! Also, we’re very interested to know more about YOUR experiences with this matter.
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