A Guide For All Types Of Insurance
Insurance is one of those things in life that most people have without really knowing what it is. With all the details and technical terms, the average person only bothers learning about it in a general sense. Insurance touches almost every area of the economy, though. So, understanding as much as you can about insurance will only benefit you. Here are some basics that will help guide you in learning what insurance is and why you need it.
Insurance Transfers Risk
As mentioned above, insurance is complicated and filled with tons of facts and legalities. In its simplest form, though, insurance is the transfer of risk of loss in exchange for payment. More specifically, its an arrangement in which you pay a company in exchange for guaranteed compensation in the case of a specified injury, loss, or damage. Think of insurance like a security blanket: it provides a sense of protection and safety against the unknown.
States Regulate Insurance
Insurance laws are controlled by state, not the federal government, so insurance requirements will vary from state to state. This makes sense because different locations offer different risks. California, for instance, is prone to earthquakes, while Florida is most at risk of hurricanes. When looking for any type of insurance, read up on the regulated laws in your state to find out the minimum requirements that need to be fulfilled.
In order to accommodate all the different laws between states, many insurance companies have created localized companies for that area. For example, State Farm is actually made up of about a dozen different insurance companies. So, if you are interested in a specific company that you found isnt available near you, check if they go by another name in your area.
You Need Four Types Of Insurance
There are all kinds of insurance available. You can cover everything from the most basic needs in life to the most random (like alien abduction or the zombie apocalypse). However, most people only need a few types of insurance. The most essential types of insurance you will need are:
- Life: With life insurance, your loved ones will be financially secure in the case of your death.
- Health: This insurance helps you pay expenses when an accident, injury, or illness occurs.
- Auto: Required by most state laws, auto insurance covers car damages or expenses due from those damages (i.e. injury or property damages caused by a car accident).
- Home: Home insurance protects the replacement value of your home and its contents.
Coverage Isnt One Size Fits All
The core basis for insurance boils down to coverage and premiums. How much protection do you want and how much are you willing to spend on it? To keep things simple, consider paying only the amount of risk youre willing to take for the proper value of the item. Dont spend any more than you can afford to lose and dont pay more than the item costs to replace. Also, consider the chances of damages occurring. It doesnt make sense to pay a lot when the odds for particular damages are only slightly higher than the premium.
Insurance Is Principled
Contracts, known as policies, are always written up outlining the specifics of the agreement between you and the insurance company. Every contract follows certain principles set in place to protect both parties, and are looked to as industry standards. The six principles of insurance are:
- Principle of Utmost Good Faith: Requires honesty and full disclosure on all relevant facts, at all times.
- Principle of Insurable Interest: Requires you to have insurable interest, or some type of gain, in the object of insurance.
- Principle of Indemnity: Requires compensation or security to you against unpredicted injury, loss or damage.
- Principle of Contribution: Restricts you to claiming compensation only equal to the extent of loss, even if you take out multiple policies for the same item.
- Principle of Subrogation: After compensating you for the loss, the insurance company is allowed to recover the amount from a third party responsible for the loss.
- Principle of Proximate Cause: In cases where damage has occurred from multiple causes, the nearest or most dominant cause determines the liability.
Policies Vary By Person
Every policy is different because its designed to meet each persons specific needs. A 25 year old female, for example, will have a very different health insurance policy than a man in his 60s. Always look over your policy carefully to know exactly what you have covered and how much you are paying for it. After all, you dont want to be taken advantage of when it comes time to file a claim. If you dont understand something in your policy or want something clarified, ask your insurance agent. Theyre there to help you.
It might also be necessary to change or update your policy from time to time. When certain circumstances in your life change, you may want to recalculate your insurance needs. Some major life changes that would require you to adjust one or more of your policies include:
- Change in salary
Now that you have a better understanding about what insurance is and why you need it, you can visit InMyAreas resource page for more information about the different types of insurance. When youre ready to start shopping for insurance, check out which providers are available in your area here.