Insurance Basics
- Definition: Insurance is a contract that transfers financial risk to an insurer in exchange for premiums.
- How It Works:
- Spreads risk among a group of people.
- Uses pooled premiums to cover losses for those affected.
- Key Roles:
- Insured: The policyholder.
- Insurer: The company providing coverage.
- Agent: Facilitates policy purchases.
- Underwriter: Evaluates risk and sets premiums.
Common Insurance Terms
- Premium: Amount paid for coverage.
- Deductible: Out-of-pocket amount before insurance kicks in.
- Co-Pay: Fixed payment per covered service.
- Policy Limit: Maximum amount insurer will pay.
- Claim: Request for coverage of a loss.
- Benefit: Amount paid by insurer for a claim.
Types of Insurance
- Health Insurance:
- Covers medical expenses.
- Reduces financial burden of medical care.
- Disability Insurance:
- Replaces income lost due to inability to work.
- Covers a percentage of salary during disability.
- Long-Term Care Insurance:
- Pays for care during chronic illnesses or disabilities.
- Includes nursing home care, home health care, etc.
- Life Insurance:
- Term Life: Covers a specific time period.
- Whole Life: Provides lifelong coverage and builds cash value.
- Property Insurance:
- Protects property and belongings from unexpected events.
- Includes homeowner’s and renter’s insurance.
- Car Insurance:
- Liability: Covers damage caused to others.
- Collision: Covers car damage regardless of fault.
- Comprehensive: Covers non-collision-related damage.
- Uninsured Motorist: Covers accidents with uninsured drivers.
Additional Insurance Options
- Extended Warranties: Covers repairs/replacement of products.
- Mortgage Protection: Pays off the mortgage if the policyholder passes away.
- Accidental Death and Dismemberment (AD&D): Covers severe injuries or death in accidents.
- Debt Cancellation: Eliminates debts under specific conditions like illness or job loss.