Insurance Continued…

The premium that a policyholder pays to an insurance company is small compared to the potential for loss. When losses occur, the insurance company pays for covered losses and distributes the costs among all of its policyholders. The premiums that you pay help compensate other policyholders for their losses, as the premiums that they pay help compensate you for any losses you sustain. This system provides financial security for individuals and businesses.

Insurance Agents

When buying insurance, you can deal directly with an insurance company, or go through an agent or insurance broker.

Insurance agents can be either independent or exclusive. An independent agent represents several different insurance companies and can choose from a variety of insurance products to find the one that best meets your needs. An exclusive agent works with only one insurance company and can offer only that company's products. An insurance broker acts as an intermediary between a client and an insurance company and is not limited to working with any specific companies.

You can also buy insurance directly from an insurance company. Many companies sell their products via telephone or over the internet.

Types of Insurance

There are several common types of insurance:

Auto – Auto insurance generally provides three types of coverage: property, medical costs, and liability. Property coverage will pay for your losses if your car is damaged or stolen. If an accident occurs, medical coverage pays for required medical treatment for any injuries. Liability coverage pays for any costs, from injury to others or damage to someone else's property, which arise from an accident and are your legal responsibility.

Homeowners – Homeowners insurance protects your home and its contents from loss due to fire, theft, or other disaster. This type of insurance usually includes liability coverage that pays for any costs, from injury to others or damage to someone else's property, which are caused by you, your family, or your pets, and are your legal responsibility. Many homeowner's policies do not cover flood or earthquakes; separate policies are required to insure against these types of disasters.

Health – There are two basic types of health insurance, fee-for-service and managed care. Under fee-for-service policies, a claim is filed for each service that a medical practitioner provides. Managed care plans provide comprehensive health services, and include health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

Life – Life insurance pays a death benefit to the beneficiary when the insured dies. This insurance can help to support surviving dependents, pay off debts, and cover funeral expenses. There are two basic types of life insurance, term and permanent. Term life insurance provides coverage only for a specified time. If the insured dies during that time, the insurance pays a death benefit. If not, the insurance will not pay a death benefit when he or she does die. Permanent life insurance, also called universal life or whole life, pays a death benefit regardless of when the insured dies.

There are other types of insurance policies to cover all sorts of financial risk: disability and long-term care, watercraft and aircraft, identity theft, travel, and even wedding insurance.

By Carla Wakeman