how insurance works
many insurance policy types are available and virtually any individual or business can find an insurance company willing to insure them for a price common personal insurance policy types are auto health homeowners and life insurance most individuals in the united states have at least one of these types of insurance and car insurance is required by state law businesses obtain insurance policies for field specific risks for example a fast food restaurant s policy may cover an employee s injuries from cooking with a deep fryer medical malpractice insurance covers injury or death related liability claims resulting from the health care provider s negligence or malpractice a company may use an insurance broker of record to help them manage the policies of its employees businesses may be required by state law to buy specific insurance coverages 2most insurance is regulated at the state level there are also insurance policies available for very specific needs such coverage includes business closures due to civil authority kidnap ransom and extortion k r insurance identity theft insurance and wedding liability and cancellation insurance insurance policy componentsunderstanding how insurance works can help you choose a policy for instance comprehensive coverage may or may not be the right type of auto insurance for you three components of any insurance type are the premium policy limit and deductible a policy s premium is its price typically a monthly cost often an insurer takes multiple factors into account to set a premium here are a few examples 3much depends on the insurer s perception of your risk for a claim for example suppose you own several expensive automobiles and have a history of reckless driving in that case you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record however different insurers may charge different premiums for similar policies so finding the price that is right for you requires some legwork the policy limit is the maximum amount an insurer will pay for a covered loss under a policy maximums may be set per period e g annual or policy term per loss or injury or over the life of the policy also known as the lifetime maximum typically higher limits carry higher premiums for a general life insurance policy the maximum amount that the insurer will pay is referred to as the face value this is the amount paid to your beneficiary upon your death the federal affordable care act aca prevents aca compliant plans from instituting a lifetime limit for essential healthcare benefits such as family planning maternity services and pediatric care 4the deductible is a specific amount you pay out of pocket before the insurer pays a claim deductibles serve as deterrents to large volumes of small and insignificant claims for example a 1 000 deductible means you pay the first 1 000 toward any claims suppose your car s damage totals 2 000 you pay the first 1 000 and your insurer pays the remaining 1 000 deductibles can apply per policy or claim depending on the insurer and the type of policy health plans may have an individual deductible and a family deductible policies with high deductibles are typically less expensive because the high out of pocket expense generally results in fewer small claims types of insurancethere are many different types of insurance let s look at the most important health insurance helps covers routine and emergency medical care costs often with the option to add vision and dental services separately in addition to an annual deductible you may also pay copays and coinsurance which are your fixed payments or percentage of a covered medical benefit after meeting the deductible however many preventive services may be covered for free before these are met 5health insurance may be purchased from an insurance company an insurance agent the federal health insurance marketplace provided by an employer or federal medicare and medicaid coverage the federal government no longer requires americans to have health insurance but in some states such as california you may pay a tax penalty if you don t have insurance 6if you have chronic health issues or need regular medical attention look for a health insurance policy with a lower deductible though the annual premium is higher than a comparable policy with a higher deductible less expensive medical care year round may be worth the tradeoff homeowners insurance also known as home insurance protects your home other property structures and personal possessions against natural disasters unexpected damage theft and vandalism homeowner insurance won t cover floods or earthquakes which you ll have to protect against separately policy providers usually offer riders to increase coverage for specific properties or events and provisions that can help reduce deductible amounts these adders will come at an additional premium amount renter s insurance is another type of homeowners insurance your lender or landlord will likely require you to have homeowners insurance coverage where homes are concerned you don t have coverage or stop paying your insurance bill your mortgage lender is allowed to buy homeowners insurance for you and charge you for it 7auto insurance can help pay claims if you injure or damage someone else s property in a car accident help pay for accident related repairs on your vehicle or repair or replace your vehicle if stolen vandalized or damaged by a natural disaster instead of paying out of pocket for auto accidents and damage people pay annual premiums to an auto insurance company the company then pays all or most of the covered costs associated with an auto accident or other vehicle damage if you have a leased vehicle or borrowed money to buy a car your lender or leasing dealership will likely require you to carry auto insurance as with homeowners insurance the lender may purchase insurance for you if necessary 8a life insurance policy guarantees that the insurer pays a sum of money to your beneficiaries such as a spouse or children if you die in exchange you pay premiums during your lifetime there are two main types of life insurance term life insurance covers you for a specific period such as 10 to 20 years if you die during that period your beneficiaries receive a payment permanent life insurance covers your whole life as long as you continue paying the premiums 9travel insurance covers the costs and losses associated with traveling including trip cancellations or delays coverage for emergency health care injuries and evacuations damaged baggage rental cars and rental homes 10 however even some of the best travel insurance companies do not cover cancellations or delays due to weather terrorism or a pandemic they also don t often cover injuries from extreme sports or high adventure activities 