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5 Types of Insurance and Why You Need to Get Them

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Insurance has become a necessity in the past couple of years. From our natural tendency towards living dangerously to the latest global health crisis—people of all ages, genders, and backgrounds are starting to realize that having some type of insurance might be a smart idea in the long run. This does not only apply to individuals but to people around them as well, not to mention the implications this kind of security has on the economy and the environment. 

So what are the types of insurance you can sign up for, and what are the benefits?

Just the Nuggets

  • Having insurance of any kind has become a requirement for a modern-day citizen in this fast-paced world of business and finance.
  • The most common types of insurance include life insurance, health insurance, car insurance, education insurance, and lately, the umbrella insurance.
  • The insurance company decides on whether or not you are eligible for a policy by researching your features such as age, gender, risk tendency, medical condition, etc.
  • Based on the type of policy, you are agreeing to pay a certain amount in premium for a policy, as well as other features to keep your policy functioning.

Why is Insurance Important?

Insurance is a type of financial protection for the client against losses. Depending on the type you are signing up for, it can protect you from different types of risks and unpredictable outcomes of a certain endeavor in your life. 

Insurance is also quite beneficial for the companies since they have a lot of capital at stake within their business strategies and plans. Here, insurance is a safety net against liability and unavoidable financial losses in any industry.

Regardless of the type of insurance you decide to sign up for, the majority of them have a few of the same components necessary for the policy to work well for both sides. It is essential for you to understand these features since they contribute to your decision of the most beneficial policy type for you and your finances.

Policy Premium

A policy premium is a price you’ll have to pay for your insurance. It is usually expressed through monthly payments, and it is affected by many things and features that affect both you and the respective institution providing the insurance in question. Some of these features include your creditworthiness, as well as your tendency to find yourself in risky situations depending on your job description, the place you live, your health, etc.

For example, if you are a firefighter, your job is significantly riskier than that of a receptionist or a business manager. Accordingly, your life insurance policy would have a higher premium since your tendency for risk is a lot greater. You should take this into consideration when applying for an insurance policy since it is a crucial part of it.

Policy Limit

The policy limit, on the other hand, refers to the insurer. The limit is the amount of money your insurer will pay in case you are struck with a loss that the policy is protecting you from. The limit is determined for a period of time, for example, the lifetime period for the life insurance policy. Also, you should keep in mind that the higher limit also brings a higher premium, since both parties are affected by the loss—an injury or other type of liability that the insurance policy is addressing.

Deductible

The deductible is the amount of money the client has to pay the insurer before the latter is due to pay a claim. They can refer to both policies and individual claims, and they generally depend on the type of insurance policy. Usually, the policies with higher deductibles are a lot less expensive since they result in much smaller claims in comparison.

How Much Insurance Do You Need?

Today, there are virtually so many types of insurance you can cover in every area of your life. From car insurance to travel insurance when you are traveling to another country, you are able to take advantage of these contracts with quite a low amount in investments. In return, the protection from possible risks and losses can keep you from the damage that would be impossible to avoid in dangerous life situations. 

The following are the most common types of insurance and their benefits to the clients.

Life Insurance

Life insurance is a type of contract between the insured(i.e. policyholder) and the insurer, based on which the insurer guarantees the payment of a death benefit to the policy holder’s beneficiaries in case of their demise. This contract is binding, and it requires the client to provide details of their current and previous health conditions, as well as high-risk activities—from the person’s job to their hobbies and sporting activities.

The insured agrees to pay the premium in two possible ways—either the entire premium upfront or in several installments over a determined period of time. The insured also names the beneficiaries who will receive, in case of their death, the policy claim—otherwise known as the death benefit.

A life insurance policy can last either for a certain amount of time or during the entire lifetime of the policyholder. In the first case, the policy can expire on the previously determined date, or in case the client stops paying premiums or surrenders the policy.

There is a lot of controversy surrounding the topic of life insurance. Many people believe that they do not need life insurance if they are alone or have no relatives or other people who would collect the death benefit. Also, it is often discussed that the different insurance policy providers and institutions tend to forge the conditions and circumstances surrounding this agreement to turn them into their favor. Still, while some people would benefit from a life insurance policy more than the other groups, there aren’t any damaging downsides to it. 

Here are some examples of people who would highly benefit from having a life insurance policy.

1. Parents with special-needs children

Life insurance is probably the most beneficial contract in this case. Considering that the special-needs children require life-long care, the life insurance policy would protect them and keep them financially secure and stable even after the death of their parents. This type of benefit can be put into a special-needs trust, which will be managed by a fiduciary for the child.

2. Adults who own property together

Married or not, people who have agreed to own some kind of property together could benefit from a life insurance policy. In case of the demise of any of them, it could happen that the other person is no longer able to pay the loans, mortgage, or other type of financial bind on their own. In this case, the life insurance policy is a useful way to prevent them from giving up the said property and losing their entire investment.

3. Wealthy families with estate taxes

People and families who have a significant amount of money in their name would use the life insurance policy as a safety net to keep their estate intact in case of their death. Also, this goes both ways—for example, low-income families typically take out life insurance policies if they can afford the burial and funeral expenses.

4. Businesses with key employees

Businesses in any level of organization and structure typically have key employees who are crucial for the operations to run smoothly—for example, the CEO. In the case of the CEO’s death, the business would be significantly damaged when it comes to capital, so the life insurance policy would be used to cover those losses and keep the business afloat.

5. Married people with pensions

This type of life insurance policy is quite beneficial in case one spouse dies. The benefit would be paid to their partner as a significant boost in their pension, which is why this type of policy is also known as the pension maximization.

Types of Life Insurance

Luckily, today we have so many different types of life insurance at our disposal. Depending on your personal preferences, features and goals, you can choose one of these types.

1. Term Life 

The most important feature of the term life insurance is its affordability. It can last for a number of years before expiration—typically 10, 20, or 30.

2. Level Term 

With this type of life insurance, the premium is the same each year. No matter the circumstance, this is quite beneficial since there are no surprises along the way.

3. Increasing Term 

This type of life insurance brings a higher premium as you grow older. When you are young, the premium is lower, and then it is brought up as the time passes.

4. Permanent 

This life insurance policy type is a bit more expensive than the rest. It lasts forever unless the policyholder stops paying premiums or decides to surrender the policy.

5. Guaranteed Issue 

This is a special type of life insurance policy designed for people who have medical conditions that would otherwise make them uninsurable. Due to a higher risk of death, the benefit will not be paid out in case the death happens in the first two years of the policy signing, unless it was ruled accidental.

How to Buy Life Insurance

Before deciding on a life insurance policy type and the institution you are willing to sign this binding contract, there are a lot of small but important steps to take. After all, this is a lifelong commitment, so you should be completely sure of it. 

1. Analyze your financial situation

This is the first step you should take when it comes to making any major decision regarding your finances. Since the life insurance policy is a big and important obligation, you should make a detailed analysis of your finances and decide how much you are willing and able to put aside towards the life insurance policy premiums, deductibles, and other features.

2. Choose the right insurance company

This is the second most important feature you’ll need to cover and keep in mind the entire time of your decision-making process about a life insurance policy. You’ll need to find a company that is well-established and respected in this industry. Also, you should carefully research each condition of the policy, and not make a rash decision until you find the one that fits your goals just perfectly.

3. Get a health exam

With a life insurance policy, the most important feature the insurer would want to know about is your entire medical history. Depending on your current or past medical conditions and your history of allergies, family history, or any other detail that contributes to your health, the insurer will be able to decide on a premium, the term, and other policy features.

4. Turn in your application

Finally, after you’ve gathered all the necessary documentation and done your research, you can submit your application to the insurance company of your choice. After that, an underwriter who works for the company will decide on how much liability are you. Based on that, they will decide on the policy claim, monthly payments, and other financial details.

Health Insurance

This type of insurance is designed to cover medical and surgical bills, prescription drugs, and other expenses that come with medical care.

Health insurance is provided either by your employer or an insurance company, in which cases the process can be a bit different for acquiring it. In case that your health insurance is covered by your employer’s benefits package, the policy will be covered partially by your employer and partially deducted from your paychecks.

As for the other type of health insurance which you can seek directly from the insurance company, things have changed for the better in recent years. Namely, in the United States, the government has introduced the highly-reputable Affordable Healthcare Act back in 2010, better known as Obamacare. According to this Act, insurance companies are not allowed to refuse to provide health insurance for people with preexisting medical conditions. Also, it allows the children to stay on their parents’ health care plans until they turn 26.

How Does Health Insurance Work?

Health insurance is somewhat more difficult to navigate than the other types of insurance since there are quite a lot of features to consider here. The medical system is not that simple in any country, so there are a lot of levels of structure and internal organization that should be covered. 

Each medical situation requires a different type of care, which brings a different amount of expenses, of course. It can also be different depending on the employment status of the insurer, as well as their previous medical history. This is why health care plans and insurance are usually managed by specialized organizations dealing with this area, aside from the insurance giver.

Also, there are specific situations where the insurer can still refuse to provide this service for the client. For example, they can refuse to cover treatment using the big-name, expensive drug if there is another one available at a lower cost that is equally effective.

Aside from this standard type of health insurance, there are some other types available for special conditions including disability insurance, critical illness insurance, and long-term care insurance.

Car Insurance

This type of insurance is highly recommended for all vehicle owners, no matter the type. It protects the policyholder from paying the expensive damages in case of a car accident. When deciding on this policy, the insurer takes into consideration unique features that are important here and usually not researched with other types of insurance. They include age, gender, years of driving experience, previous history of car accidents, and other information. Accordingly, a poor driving record, for example, will draw greater premiums in your insurance policy.

How Does Car Insurance Work?

The car insurance coverage takes into consideration different features than you might have grown accustomed to with other types of policies. Here, the following are covered:

  • Property – The car insurance giver will cover all the damage inflicted on your vehicle, including theft.
  • Liability – This covers the legal responsibility for bodily injuries or property damages.
  • Medical – This covers a wide variety of expenses such as medical treatment, rehabilitation, or funeral expenses.

The car insurance policy usually expires after six months or a year, after which it can be renewed. It applies to all the policyholder family members or other people who drive their car with their consent.

Education Insurance

Education is key for realizing your dreams and achieving everything you’ve ever wanted. However, lately, education can only remain a dream for a lot of people who do not have enough funds to cover it. The costs of attending a school or university have become increasingly difficult to pay in any country, especially since the wage gap is only growing bigger. So, education insurance might be the best idea when it comes to ensuring that your children are able to have as many choices as possible when it’s time to choose the school of their dreams.

In order to avoid taking out extra loans, mortgages, or other types of financial burden when this time comes, it is smart to start saving for your kids’ college early. The education insurance policy can typically be started as early as 14 years old, and this commitment lasts from 18 to 23 years, depending on the type and the level of education your child wishes to apply for.

The education insurance policies are quite appealing and have many benefits for the policy holders. One of the most attractive ones is the bonus that a holder can get after 60 months of holding the policy, as well as tax reliefs in most countries.

Umbrella Insurance

This type of insurance is crucial and unique since it covers unusual situations that could lead to you being sued and losing more money than you care to give. Though this is a nightmare scenario, it is not so rare today, and it covers a wide variety of possible situations you might not have ever thought of—until they happen to you, of course. Here are some of them:

  • Your dog attacks someone on the street resulting in an injury and a lawsuit.
  • Your child gets into a fight at school and hurts another student, so their parents sue you.
  • You cause a car accident including several vehicles, and your car insurance is not enough to cover all the damages.

Umbrella insurance can also protect you from malicious prosecution, invasion of privacy, wrongful entry, and other activities that are damaging to you and your rights. The costs of umbrella insurance, like all other types, depends on many things—mostly on the area and the number of people whom you wish to protect with it. Mainly, umbrella insurance is important because it protects you in situations where you’re not directly responsible for the damage but are still liable and can be sued.

Closing Notes

Having insurance of any kind has quite a lot of benefits for a policyholder. From business and vehicle insurance to life insurance and everything in between, you can use this binding contract to ensure not only your own future but also the future of your children or other beneficiaries. Luckily, the choice is wider than ever before in this are., All you need to do is research until you find the perfect fit.

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