Insurance Basics: 5 Things You Should Know About Insurance

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Everybody, including you, wants financial security. Financial security is vital because it helps you live a life of solid financial plans and decisions. At its core, the concept of reasonable financial security comes from understanding financial considerations such as insurance. Because different insurance companies work differently, understanding their basics is essential in helping you know every requirement needed to qualify and the types of coverage offered.

Defining insurance and everything you should know

As a financial security safety net, insurance means financial protection that covers you from financial losses. It’s also a form of risk management you use to safeguard or hedge against risks of contingent or uncertain losses. As an entity, an insurance company or an insurer represents financial aides responsible for helping you avoid losses regardless of the nature of financial inabilities you face.

Insurance, therefore, helps you pay for the recovery of assets and other essential belongings after the occurrence of an unpredictable situation, including theft, fire, accident, or a lawsuit. When you purchase an insurance cover, you receive a policy which is the legal contract between you and the insurer. Once you complete the process, you then report any occurrence eligible for settlement as a claim. The insurance company pays you or your designated recipient, a relative, friend, or anyone you recommend as a beneficiary based on the policy terms. However, unlike other financial security options, insurance is complicated, mainly because you’re paying for something you hope doesn’t happen.

How does insurance work?

When you buy an insurance cover or policy, you’re putting your money into a pool with others. The funds collected help every policyholder who suffers hardships within the specified period of the cover. The difficulties you suffer can be business, personal, or auto-related such as damages and accidents. While you’ll expect compensation after paying for insurance, you only get compensation after written losses and not predictable happenings. Once something happens, you file a claim, an official request for the insurer to cover for losses and damages regardless of their number.

Types of insurance

Like other priority life considerations, insurance is divided into life, health, property, casualty or general Insurance, and group insurance.

Life Insurance: Life insurance is an agreed contract between you and the insurer where the insurer agrees to pay your designated beneficiaries an agreed sum of money upon your death. Depending on the type of life insurance you take and the terms of the agreement, your beneficiaries receive payment for other reasons besides death, such as when you suffer a terminal illness or other critical diseases. Life insurance comes in two types: term and permanent covers.

Term life insurance

provides coverage for a specified amount of time. If you pay for a term life insurance and die within the agreed time, your family and friends or anyone included as the beneficiary receives payments. The contract also ends within the specified time, whether you die or not. When this happens, there are no benefits unless you renew the contract. Also, premium charges for a term life insurance change based on your age, meaning what you pay and the beneficiary receives when younger is different from when you’re old.

Permanent life insurance

Insurance coverage covers you throughout your life unless you fail to pay the agreed premiums. On top of that, permanent life insurance comes in two types: whole and universal coverage.

      • Whole permanent life insurance: is a cover that guarantees you premiums that don’t change regardless of your old age. The same also comes with an agreed minimum amount paid to your beneficiaries and a death benefit amount.
      • Universal permanent life insurance: is a financial security agreement combining life insurance and investment. It’s a cover that pays your beneficiaries when you die that serves with investment savings that come with low premiums. The initial agreed amount you pay present the cover charges used to determine the death benefit payable to your beneficiaries after your death.

Health Insurance

Unlike other types of insurance coverage, health insurance is financial security and surety that covers your medical expenses arising from an illness. Expenses covered by health insurance can be due to hospitalization costs, costs of drugs and medication, or doctor’s consultation charges. Unlike life insurance with many types, health insurance comes in two varieties, including private and public. The public is the type of health insurance the government offers, such as Medicare, while private is the one you get through plans offered by insurers and marketplace financial aides.

General {Casualty and Property} Insurance

Property insurance covers you for losses and damages to your home and other personal possessions. Personal belongings eligible for settlements include your vehicle and business. On the other hand, casualty insurance covers you for legal liabilities, especially those causing losses such as injuries and damages you cause to others or damages to their properties.

 

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