Insurance: Importance, Types and Benefits

INSURANCE AS A TERM

The life and property of an individual are surrounded by the risk of death, disability or destruction. These risks may result in financial losses therefore Insurance is seen as a prudent way to transfer such risks to an insurance company.

Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on happening of the insured contingency. The contingency is the event which causes a loss. It can be the death of the policyholder or damage/destruction of the property. It’s called a contingency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by the insurer. Insurance can as well be termed from this perspective; Insurance as a contract of reimbursement. For example, it reimburses for losses from specified perils, such as fire, hurricane, and earthquake. An insurer is the company or person who promises to reimburse. The insured (sometimes called the assured) is the one who receives the payment, except in the case of life insurance, where payment goes to the beneficiary named in the life insurance contract. The premium is the consideration paid by the insured—usually annually or semiannually—for the insurer’s promise to reimburse. The contract itself is called the policy. The events insured against are known as risks or perils.

INSURANCE AND THE WAY IT WORKS

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The insurer and the insured get a legal contract for the insurance, which is called the insurance policy. The insurance policy has details about the conditions and circumstances under which the insurance company will pay out the insurance amount to either the insured person or the nominees. Insurance is a way of protecting yourself and your family from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid. The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance. This is why you get insurance for a big amount at a low price. Any individual or company can seek insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies like TATA AIG, The Brand Trust and others refuse to provide insurance to high-risk applicants.

It was intentional that we began this article with an overview of the types of insurance, from both a consumer and a business perspective. Now, we want to peruse in greater details the various most important/useful types/forms of insurance: property, liability, and life.

Public and Private Insurance
Sometimes a distinction is made between public and private insurance. Public (or social) insurance includes Social Security, Medicare, temporary disability insurance, and the like, funded through government plans. Private insurance plans, by contrast, are all types of coverage offered by private corporations or organizations. But here, our focus is private insurance.

INSURANCE AND ITS TYPES FOR INDIVIDUALS
Investopedia explains the following 5 Policies of Insurance

Life Insurance

Life insurance provides for your family or some other named beneficiaries on your death. Two general types are available: term insurance provides coverage only during the term of the policy and pays off only on the insured’s death; whole-life insurance provides savings as well as insurance and can let the insured collect before death.

Health Insurance

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Health insurance covers the cost of hospitalization, visits to the doctor’s office, and prescription medicines. The most useful policies, provided by many employers, are those that cover 100 percent of the costs of being hospitalized and 80 percent of the charges for medicine and a doctor’s services. Usually, the policy will contain a deductible amount; the insurer will not make payments until after the deductible amount has been reached. Twenty years ago, the deductible might have been the first $100 or $250 of charges; today, it is often much higher.

Disability Insurance
A disability policy pays a certain percentage of an employee’s wages (or a fixed sum) weekly or monthly if the employee becomes unable to work through illness or an accident. Premiums are lower for policies with longer waiting periods before payments must be made: a policy that begins to pay a disabled worker within thirty days might cost twice as much as one that defers payment for six months.

Homeowner’s Insurance

A homeowner’s policy provides insurance for damages or losses due to fire, theft, and other named perils. No policy routinely covers all perils. The homeowner must assess his needs by looking to the likely risks in his area—earthquake, hailstorm, flooding, and so on. Homeowner’s policies provide for reduced coverage if the property is not insured for at least 80 percent of its replacement costs. In inflationary times, this requirement means that the owner must adjust the policy limits upward each year or purchase a rider that automatically adjusts for inflation. Where property values have dropped substantially, the owner of a home (or a commercial building) might find savings in lowering the policy’s insured amount.

Automobile Insurance

Automobile insurance is perhaps the most commonly held type of insurance. Automobile policies are required in at least minimum amounts in all states. The typical automobile policy covers liability for bodily injury and property damage, medical payments, damage to or loss of the car itself, and attorneys’ fees in case of a lawsuit.

CLAIM
WHAT IS AN INSURANCE CLAIM?
Claim is a term used in reference to insurance, a claim may be a demand by an individual or corporation to recover, under a policy of insurance, for loss that may come within that policy.
An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim (or denies the claim). If it is approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured.

Insurance claims cover everything from death benefits on life insurance policies to routine and comprehensive medical exams. In some cases, a third-party is able to file claims on behalf of the insured person. However, in the majority of cases, only the person(s) listed on the policy is entitled to claim payments.

How an Insurance Claim Works

A paid insurance claim serves to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for the completion of an insurance contract between the insured party and an insurance carrier. The most common insurance claims involve costs for medical goods and services, physical damage, loss of life, and liability for the ownership of dwellings (homeowners, landlords, and renters) and liability resulting from the operation of automobiles.

Types of Insurance Claims
1. Health Insurance Claims
2. Property and Casualty Claims
3. Life Insurance Claims

WHAT IS MORTGAGE INSURANCE?

Mortgage insurance is an insurance policy that protects a mortgage lender or titleholder if the borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage. Mortgage insurance can refer to private mortgage insurance (PMI), qualified mortgage insurance premium (MIP) insurance, or mortgage title insurance. What these have in common is an obligation to make the lender or property holder whole in the event of specific cases of loss.

Mortgage life insurance, on the other hand, which sounds similar, is designed to protect heirs if the borrower dies while owing mortgage payments. It may pay off either the lender or the heirs, depending on the terms of the policy.

How Mortgage Insurance Works
Mortgage insurance may come with a typical pay-as-you-go premium payment, or it may be capitalized into a lump-sum payment at the time of mortgage origination. For homeowners who are required to have PMI because of the 80% loan-to-value ratio rule, they can request that the insurance policy be canceled once 20% of the principal balance has been paid off.

Types of mortgage insurance
1. Private Mortgage Insurance (PMI)
2. Qualified Mortgage Insurance Premium (MIP)
3. Mortgage Title Insurance

INSURANCE RECOVERY

Insurance Recoveries means the rights to any and all proceeds, including any interest or income earned thereon, and other relief, from (a) any award, judgment, relief, or other determination entered or made as to any Insurance Claims; (b) any and all amounts payable by an Insurer under any settlement agreement with the Debtors, a Participating Party or a Settling Insurer with respect to Insurance Claims; and (c) any and all proceeds of any Insurance Policy paid or payable to the Debtors, a Participating Party or a Settling Insurer with respect to Insurance Claims. Insurance Recoveries do not include any recoveries of a Settling Insurer under any agreement or contract providing reinsurance to the Settling Insurer.

It can also mean recoveries of proceeds obtained from or in connection with the Insurance Policies or the Insurance Litigation (whether such recoveries arise in contract or tort); provided, however, that Insurance Recoveries shall not include amounts payable pursuant to the St. Paul Insurance Policy, which shall be distributed in accordance with the provisions of Section IV.2.4 hereof.

Related to Insurance Recoveries
1. Certificate Insurance Policy
2. Hazard Insurance Policy

TRANSFER INSURANCE

A transfer of insurance contracts means a transaction in which a transferring company transfers one or more insurance contracts, together with all or substantially all of the liabilities and obligations under any such insurance contracts, to an assuming company so that the rights of policyowners under the contracts are directly affected. This includes a transfer of the type deceptively known as “assumption reinsurance.” This regulation is not intended to apply to a case of true reinsurance, where an insurer obtains additional security for the original undertaking.

Related to A transfer of insurance contracts
1. Insurance Contracts
2. Assignment of Insurances
3. Insurance Assignment
4. Reinsurance Agreements
Amongst others

CREDIT INSURANCE DEFINED

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Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment.
Credit insurance is marketed most often as a credit card feature, with the monthly cost charging a low percentage of the card’s unpaid balance.

How Does Credit Insurance Work?

Credit insurance can be a financial lifesaver in the event of certain catastrophes. However, many credit insurance policies are overpriced relative to their benefits, as well as loaded with fine print that can make it hard to collect.

Types of Credit Insurance
1. Credit Life Insurance
2. Credit Disability Insurance
3. Credit Unemployment Insurance

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