An insurance policy/plan is a liaison between an individual (the policyholder) and an insurance company (the provider). Under the contract, you pay a regular amount (as a premium) to the insurer, and they pay you if the sum insured arises on an unfortunate event, for example, an untimely death of the insured, an accident, or damage to a house. Let us know what is insurance and what are the different benefits, features and types of insurance.
So let me tell you about Insurance, what is life Insurance, what is Health Insurance, what is family health Insurance, so that I will tell you about many Insurances, so let’s go ahead.
What Is Insurance?
Insurance is a contract, presented by a policy, in which a person or entity receives financial protection or reimbursement from an insurance company against loss. The company pools the risks of the customers to make the payment more affordable for the insured.
Insurance policies are used to protect against the risk of financial loss, both major and minor, that may result from damage to the insured or his property, or liability for damage or injury caused to a third party.
Based on the insurance terms, the insurer provides a lump sum amount to the policyholder/nominee in case of an eventuality.
The choice of a specific type of insurance policy is done on the basis of individual needs and life goals.
There are various components of an insurance policy, a firm understanding of which goes a long way in choosing the plan that best suits your needs.
How Insurance Works
There are different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them – for a price. The most common types of personal insurance policies are auto, health, homeowner, and life. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.
- Insurance is a contract (policy) in which one insurer indemnifies another against damages caused by specific contingencies or perils.
- There are many types of insurance policies. Life, health, homeowner and auto are the most common forms of insurance.
- The main components that make up most insurance policies are the deductible, policy limit, and premium.
Businesses need special types of insurance policies that insure against specific types of risks faced by a particular business. For example, a fast-food restaurant needs to have a policy that covers damage or injury resulting from cooking with a deep fryer.
An auto dealer is not subject to this type of risk, but coverage is required for damage or injury that occurs during a test drive.
Important: To select the best policy for you or your family, it is important to look at three important components of most insurance policies- deductible, premium and policy limit.
Insurance policies are also available for very specific needs such as kidnapping and ransom (K&R), medical malpractice, and professional liability insurance, also known as errors and omissions insurance.
Insurance Policy Components
When choosing a policy, it is important to understand how insurance works.
A strong understanding of these concepts helps you choose the policy that best suits your needs. For example, whole life insurance may or may not be the right type of life insurance for you. There are three components to any type of insurance (premium, policy limit and deductible) that are important.
Here are some of these components to help you better understand ‘what is insurance‘ and how it works:
Insurance Premium Policy
The premium of the policy is its cost, which is usually expressed as the monthly cost. The premium is determined by the insurer based on the risk profile of you or your business, which may include creditworthiness.
For example, if you own several expensive automobiles and a history of reckless driving, you will pay more for an auto policy than for a single mid-range sedan and a person with a perfect driving record. However, different insurers may charge different premiums for similar policies. So finding the right price for you requires some legwork.
The premium of an insurance policy is the amount that you need to pay to buy a specific amount of insurance cover. It is usually expressed as a regular cost, whether monthly, quarterly, semi-annually or annually, that you incur during the premium paying term.
There are many factors on the basis of which an insurance company calculates the premium of an insurance policy. The idea behind this is to check the eligibility of an insured person for the specific type of insurance policy he/she wishes to buy.
For example, if you are healthy and have no medical history of treatment for serious physical ailments, you will be likely to pay less for a health insurance or life insurance policy than a person suffering from multiple diseases.
You should also be aware that different insurance companies may charge different premiums for similar types of policies. Hence, some effort is required to select the right one at a cost that you can afford.
Policy limit is the maximum amount that an insurer will pay for damages covered under the policy. The maximum term can be set per term (for example, annual or policy term), per loss or injury, or during the life of the policy, also known as the lifetime maximum.
Typically, higher limits incur higher premiums. For a normal life insurance policy, the maximum amount that the insurer can pay is referred to as the face value, which is the amount paid to the beneficiary on the death of the insured.
It is defined as the maximum amount that the insurance company is liable to pay for the damages covered under the insurance policy. It is determined based on the term (policy term), loss or injury, and other similar factors.
Generally, higher the policy limit, higher will be the premium payable. For a life insurance policy, the maximum amount that an insurer can pay to the nominee is known as the sum assured.
Deductible is a specific amount that the policy-holder has to pay out of his own pocket before the insurer will pay the claim. Deductibles serve as a deterrent for large amounts of small and insignificant claims.
Deductibles can apply counter-policy or counter-claim depending on the insurer and the type of policy. Policies with very high deductibles are generally less expensive because higher out-of-pocket expenses usually result in fewer small claims.
Deductible relating to an insurance policy is the amount or percentage that the policyholder agrees to pay out of pocket before the insurer settles the claim. You can also think of it as a deterrent to the small, insignificant claims that many people file under their insurance policies.
Deductibles apply per policy or per claim as defined by the terms of a specific type of policy. Generally, insurance policies purchased with higher deductibles are less expensive because higher out-of-pocket expenses result in fewer claims.
How Does Insurance Work?
As defined above, an insurance policy is a legal contract that binds both the policyholder and the insurance company to each other. It contains all the details of the conditions or circumstances under which the insured or the policy nominee receives insurance benefits from the insurer.
Insurance is one way by which you can protect yourself and your loved ones from facing financial crisis. You buy an insurance policy for the same, whereas the insurance company takes the risk involved and provides an insurance cover at a specific premium.
In case of any eventuality, the insured or the nominee can file a claim with the insurer. Based on the claims evaluation criteria, the insurer reviews the claim application and settles the claim.
Types of Insurance in India
The four most common types of Insurances that people buy are :
- Life Insurance
- Health Insurance
- Motor Insurance
- Home Insurance
What Is Life Insurance?
Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees that the insurer pays an amount to the designated beneficiaries when the insured dies in exchange for premiums paid by the policyholder during his lifetime.
The life insurance application must accurately disclose the insured’s past and present health conditions and high-risk activities for the contract to be enforced.
- Life insurance is a legally binding contract that pays a death benefit to the policy owner upon the death of the insured.
- For a life insurance policy to remain in effect, the policyholder will have to pay a single premium upfront or pay regular premiums over a period of time.
- When the insured dies, the policy’s designated beneficiaries will receive the policy’s face value, or death benefit.
- Term life insurance policy expires after a certain number of years. Permanent life insurance policies remain active until the life insured dies, stops paying premiums, or surrenders the policy.
- A life insurance policy is only as good as the financial strength of the company issuing it. If the issuer cannot, the state guarantee fund can pay the claims.
Types of Life Insurance
There are many different types of life insurance available to meet all kinds of needs and preferences. Depending on the short or long term needs of the insured, it is important to consider the prime option of opting for temporary or permanent life insurance.
Term life insurance
Term life insurance lasts for a specified number of years, then expires. You choose the term when you withdraw the policy. Common terms are 10, 20 or 30 years. The best term life insurance policies balance affordability with long-term financial strength.
Decreasing Term Life Insurance – Reducing Term Life Insurance is renewable term life insurance with reduced coverage over the life of the policy at a predetermined rate.
Convertible Term Life Insurance- Convertible term life insurance allows policyholders to convert a term policy into permanent insurance.
Renewable Term Life Insurance— An annual renewable term life policy that provides a quote for the year the policy was purchased. The premium increases annually and is usually the least expensive term insurance to start with.
Permanent life insurance
Permanent life insurance remains in force for the entire life of the insured until the policyholder stops paying premiums or surrenders the policy. It is usually more expensive than the term.
Term vs. Permanent Life Insurance
Term life insurance differs from permanent life insurance in many ways, but is best suited to meet the needs of most people. Term life insurance lasts only for a specified period and pays a death benefit if the policyholder dies before the end of the term.
Permanent life insurance remains in effect as long as the policyholder pays the premium. Another important difference is the premium involved- term life is usually much less expensive than permanent life as it does not involve the creation of cash value.
Before applying for life insurance, you should analyze your financial situation and determine how much money will be required to maintain the standard of living of your beneficiaries or to meet the requirement for which you are buying the policy.
For example, if you are a primary caregiver and you have children between the ages of 2 and 4, you may want to keep your children until they are older and able to support themselves. Want enough insurance to cover custodial responsibilities.
You can research the cost of hiring a nanny and a housekeeper or using commercial child care and a cleaning service, then perhaps adding some money to education. Include any outstanding mortgage and retirement needs for your spouse in your life insurance calculation.
Especially if the spouse earns significantly less or is a stay-at-home parent. Add up these costs over the next 16 or so years, add more for inflation, and that’s the death benefit you’ll want to buy — if you can afford it.
How Much Life Insurance to Buy
Many factors can affect the cost of life insurance premiums. Some things may be out of your control, but other criteria can potentially be managed to reduce costs before they are implemented.
After being approved for an insurance policy, if your health has improved and you have made positive lifestyle changes, you can request to be considered for a change in risk category. Even if it is found that your health is worse than the initial underwriting, your premium will not increase. If you are found to be in better health, you can expect a reduction in your premium.
STEP 1 – Determine How Much You Need
Think about what expenses will need to be covered in the event of your death. Things like mortgages, college tuition, and other debt, not to mention funeral expenses. Also, if your spouse or loved ones need cash flow and are not able to provide it on their own, income replacement is a major factor.
There are helpful tools online to calculate the lump-sum that can round out any potential expenses that would need to be covered.
What Affects Your Life Insurance Premiums and Costs?
STEP 2 – Prepare Your Application
Age: This is the most important factor as life expectancy is the biggest determinant of risk for the insurance company.
Gender: Because women live statistically longer, they generally pay lower rates than men of the same age.
Smoking: A person who smokes is at risk of several health problems that can shorten life and increase the risk-based premium.
Health: Medical exams for most policies include screening for health conditions such as heart disease, diabetes, and cancer, and related medical metrics that may indicate risk.
Lifestyle: Dangerous lifestyle can make premiums more expensive.
Family medical history: If there is evidence of a major illness in your immediate family, your risk of developing certain conditions is very high.
Driving Record: A history of violations or drunk driving can dramatically increase the cost of insurance premiums.
Life Insurance Buying Guide
Life insurance applications typically require personal and family medical history and beneficiary information. You will probably also need to submit to a medical exam. You will also need to disclose any pre-existing medical conditions, history of moving violations, DUI, and any dangerous hobbies such as auto racing or skydiving.
Standard forms of identification will also be required before the policy can be written, such as your Social Security card, driver’s license, and/or U.S. Passport.
Benefits of Life Insurance
There are many benefits of having life insurance. Some of the most important features and protections provided by life insurance policies are mentioned below.
Most people use life insurance to provide money to beneficiaries who will face financial hardship upon the death of the insured. However, for wealthy individuals, the tax benefits of life insurance, which include tax-deferred growth of cash value, tax-free dividends and tax-free death benefits, can provide additional strategic opportunities.
What Is Health Insurance?
Health insurance is a contract that requires the insurer to pay for some or all of a person’s health care costs in exchange for premiums. More specifically, health insurance typically pays for medical, surgery, prescription drug, and sometimes dental expenses incurred by the insured.
Health insurance may reimburse the insured for expenses caused by illness or injury, or may pay directly to the care provider.
It is often included in employer benefits packages as a means of luring quality employees, with premiums partially covered by the employer but often deducted from employee paychecks as well. The cost of health insurance premiums is deductible for the payer, and benefits received are tax-free, with a few exceptions for S corporation employees.
- Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured.
- Choosing a health insurance plan can be difficult because of plan rules regarding in- and out-of-network services, deductibles, copays, and more.
- Since 2010, the Affordable Care Act has prohibited insurance companies from denying coverage to patients with pre-existing conditions and allowed children to remain on their parents’ insurance plan until age 26.
- Medicare and the Children’s Health Insurance Program (CHIP) are two public health insurance plans that target older individuals and children, respectively. Medicare also serves certain people with disabilities.
How Health Insurance Works
Health insurance can be difficult to navigate. Managed care insurance plans require policyholders to obtain care from a network of designated healthcare providers for the highest level of coverage.
If patients seek out-of-network care, they must pay a higher percentage of the cost. In some cases, the insurance company may even outright refuse payment for services received from the network.
Many managed care plans – for example, health maintenance organizations (HMOs) and point-of-service plans (POS) – require patients to choose a primary care physician who oversees patient care, regarding treatment.
Makes recommendations, and provides referrals to medical specialists. , In contrast, preferred-provider organizations (PPOs) do not require referrals, but have lower rates for in-network practitioners and access to services.1
Insurance companies may also deny coverage for certain services that were obtained without prior authorization. In addition, insurers may refuse to pay for name-brand drugs if a generic version or comparable drug is available at a lower cost.
All of these terms should be stated in the material provided by the insurance company and carefully reviewed. It’s worth checking directly with the employer or company before making a major expense.
Increasingly, health insurance plans also have copays, which are fixed charges that plan customers must pay for services such as doctor visits and prescription drugs; Deductibles that must be met before health insurance will or will pay for the claim; and co-insurance, a percentage of health care costs that the insured must pay even after the insured has met his deductible (and before reaching his out-of-pocket maximum for a certain period of time).2
Insurance plans with higher out-of-pocket costs generally have smaller monthly premiums than plans with lower deductibles. When shopping for plans, individuals should weigh the benefits of lower monthly costs against the potential risk of larger expenses in case of a major illness or accident.
High-Deductible Health Plans (HDHP)
An increasingly popular type of health insurance is a high-deductible health plan (HDHP). These insurance plans are characterized by high deductible and low premiums. For 2021, the IRS defines a high-deductible health plan as a deductible of at least $1,400 for an individual or $2,800 for a family. The total out-of-pocket maximum is $7,000 for an individual and $14,000 for a family.
For 2022, the deductible limit will remain the same. But the out-of-pocket maximums will rise to $7,050 and $14,100 respectively. 3 Out-of-pocket maximums do not apply to out-of-network services.
High-deductible health plans offer a unique benefit in that, if you have one, you are allowed to open a health savings account and contribute pretax income, which can be used to pay for qualified medical expenses. These plans offer one-third tax benefit in that:
- Contributions are tax-deductible.
- Contributions grow on a tax-deferred basis.
- Qualified withdrawals for health care expenses are tax-free.
In addition to health insurance, sick people who qualify can get help from a number of ancillary products available in the market. These include disability insurance, critical (catastrophic) illness insurance, and long-term care (LTC) insurance.
What Is Health Insurance and Why Do You Need It?
Health insurance is an agreement you enter into with an insurer to pay for some or all of your medical expenses in exchange for premiums. Having health insurance can help you avoid medical bills that you cannot pay out of pocket.
Who Needs Health Insurance?
The simple answer is everyone. Health insurance can help offset the cost of minor medical issues or major issues, including surgery or treatment for life-threatening illnesses. But if you don’t have health insurance, you won’t be penalized for it under the terms of the Affordable Care Act.
How Do You Get Health Insurance?
If your employer offers health insurance as part of an employee benefits package, you may be covered by it. You can also buy health insurance through the Health Insurance Marketplace. Some individuals may qualify for health insurance coverage through Medicaid or Medicare programs.
How Much Does Health Insurance Cost?
Your cost for health insurance can vary depending on the scope of coverage, the type of plan you have, and your deductible. Copays and Coinsurance can also add to the cost, so it is important to consider what you will pay before enrolling in a health care plan.
What is Home Insurance – Features & Advantages
Home insurance is an insurance policy that covers the cost and damage of your home or any insured property. It is a form of property insurance and is one of several types of general insurance products.
Home Insurance – Coverage & Exclusions
Home insurance is also called homeowner’s insurance. It protects your bungalow/apartment/rent flat/owned house/manufactured house from potential risks. It covers the cost of loss caused due to any unfortunate event.
Homeowners insurance is a form of property insurance that covers loss and damage to an individual’s residence, along with furnishings and other properties in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.
- Homeowners insurance is a form of property insurance that covers loss and damage to an individual’s home and property in the home.
- The policy usually covers internal damage, external damage, loss or damage to personal property, and injury to property.
- Every homeowners insurance policy has a liability limit, which determines how many unfortunate events the insured should have.
- Homeowners insurance should not be confused with home warranty or mortgage insurance.
Understanding Homeowners Insurance
A homeowners insurance policy typically covers four types of events on the insured property: internal damage, external damage, loss or damage to personal property/goods, and injury to the property. When any of these events are claimed, the homeowner must pay a deductible, which is actually the insured’s out-of-pocket cost.
For example, let’s say a claim is made to an insurer for internal water damage in a home. The claim adjuster has estimated the cost to return the property to habitable conditions at $10,000. If the claim is approved, the homeowner is informed of their deductible amount, such as $4,000, according to the policy agreement entered into.
The insurance company will continue to pay the additional cost, in this case, $6,000. The higher the deductible on the insurance contract, the lower the monthly or annual premium on the homeowners insurance policy.
Homeowners Insurance and Mortgages
When applying for a mortgage, the homeowner is usually required to provide proof of insurance on the property before the financial institution can loan any funds. Property insurance can be obtained separately or by the lending bank.
Homeowners who prefer to get their own insurance policy can compare multiple offers and choose the plan that works best for their needs. If the homeowner doesn’t have their property covered by loss or damage, the bank can get one for them at an additional cost.
Payments made for a homeowner’s insurance policy are usually included in the monthly payment for the homeowner’s mortgage. The lender bank that receives the payment allocates part of the insurance coverage to an escrow account. Once the insurance bill is due, the outstanding balance is settled from this escrow account.
Homeowners Insurance vs. Home Warranty
While the terms sound similar, homeowners insurance differs from a home warranty. A home warranty is a contract that provides for the repair or replacement of home systems and appliances such as ovens, water heaters, washers/dryers and pools.
These contracts usually expire after a certain time period, usually 12 months, and it is not mandatory for a homeowner to buy to qualify for a mortgage. A home warranty covers issues and problems that result from poor maintenance or inevitable wear and tear on items — situations in which homeowner’s insurance does not apply.
Homeowners Insurance vs. Mortgage Insurance
A homeowners insurance policy also differs from mortgage insurance. Mortgage insurance is usually required by the bank or mortgage company for home buyers who pay less than 20% of the cost of the property.
The Federal Home Administration also requires FHA borrowers to. 1 This is an additional fee that may be factored into the regular mortgage payment, or may be charged in a lump sum when the mortgage is issued.
Mortgage insurance covers the lender for taking on the additional risk of a home buyer not meeting normal mortgage requirements. Should the buyer default on payment, mortgage insurance will compensate. Basically, while both deal with housing, homeowners insurance protects the homeowner and mortgage insurance protects the mortgage lender.
Benefits of Insurance
Insurance policies benefit the people as well as the society in various ways. Along with the obvious benefits of insurance, others are not discussed or discussed much.
1. Cover against Uncertainties
This is one of the most prominent and important benefits of insurance. Insured persons or organizations are indemnified under insurance policies against loss. Buying the right type of insurance policy is, in fact, a way of getting protection against losses arising out of various uncertainties in life.
2. Cash Flow Management
The uncertainty of paying for out-of-pocket losses has a significant impact on cash flow management. However, you can easily deal with this uncertainty by having an insurance policy on your side. The chosen insurance provider pays for the occurrence of any insured events as and when they do occur.
3. Investment Opportunities
Unit linked insurance plans invest a portion of the premium in several market linked funds. In this way, they enable you to invest money regularly and meet your life goals for the benefit of market linked returns.
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A health insurance policy determines what types of medical services or benefits you are covered for, which doctors you can see, and which hospitals you can visit. Your plan also determines how much you pay for care and services.
What is the waiting period under insurance policies?
Waiting period refers to the period for which an insurance policyholder must wait before the insurance coverage takes effect. He cannot receive insurance benefits for claims filed before the end of the waiting period or until insurance coverage begins.
Why do I need to renew an insurance policy?
Insurance policies need to be renewed on time to provide continuous benefits to the policyholder. They are renewable within the grace period after the expiry date and may lapse if the premium is not paid on time.
Also, the insurance company is entitled not to offer coverage for the period for which no premium has been received.
Cashless facility is available with some types of insurance policies like health and motor insurance. Under this facility, the insurance companies pay the expenses incurred by the policyholder directly to the hospitals or network garages.