We see many unexpected things happening to all of us in life. However, we cannot stop these events from occurring. But we can definitely provide some kind of protection when such unexpected events occur. Insurance is an essential component of a sound financial plan because it protects against catastrophic losses. This provides financial stability. The types of insurance policies and coverage will be covered in-depth in this article, along with some examples for your convenience.
Insurance policies are designed to give us some kind of financial protection if any unexpected event or disaster happens. Financial experts will suggest you many types of insurance policies but purchasing a right insurance policy will be determined by your specific situation.
Top 10 – Types Of Insurance Policies and Coverage
Insurance is a complicated subject with so many insurance companies competing with each other. Different types of insurance actuaries help these companies to develop affordable and competitive insurance policies. Let’s have a look at different types of insurance policies which should be on your radar.
The main objective of life insurance is to financially secure your family. This is critical if your family is dependent on your income to pay the bills. Industry experts recommend that a life insurance policy should cover at least 10 times your annual income.
Firstly, you should make a list of living expenses. This can include credit cards, loans, education fees, mortgage payments and taxes. Secondly, you should consult a financial expert to find out the best life insurance plan suitable for your needs.
Term life insurance is the simplest and most popular type of life insurance. However, it is not only option available. Today there is a wide variety of life insurance policies to choose from. Let’s have a look at different types of life insurance policies available.
- Term Life Insurance
- Permanent Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Survivorship Life Insurance
- Final Expense Life Insurance
- No Medical Exam Life Insurance
- Key Man Life Insurance
- Decreasing Term Life Insurance
- Guaranteed Issue Life Insurance
Term Life Insurance
Term life insurance is one of the most basic types of life insurance which offers only death benefit protection to your beneficiaries in an event of your death. Most people prefer to collect term life insurance claims as a lump sum. However, insurance claims can also be paid out as an annuity or a monthly payment.
Permanent Life Insurance
As the name suggests, permanent life insurance policy does not have a time limit and it lasts for as long as you are able to pay the premiums. Permanent life insurance policy offers both, a death benefit protection as well as a cash value component.
Whole Life Insurance
Whole life insurance policy allows you to pay the same amount of premium for the entire lifetime of the policy. Every month, a small portion of your premium will go into tax-deferred savings account. This is known as the cash value which grows over the whole life of the policy.
Universal Life Insurance
Universal life insurance policy is similar to whole life insurance as it provides a death benefit as well as a cash component. However, it is more flexible and allows the policy holder to decide how much premium will go towards the death benefit of the policy and how much will go towards the cash value of the policy.
Variable Life Insurance
Variable life insurance is one of the types of permanent life insurance policies which have a death benefit as well as a cash value component. But as a policy holder you can choose how the cash value will be invested among different investment options such as mutual funds and equities.
Survivorship Life Insurance
Survivorship life insurance policy covers more than one person and comes in two types. Joint life or first to die insurance pays the second person when the first person dies. Survivor or second to die insurance pays the survivors after both the people die. Survivorship life insurance policy will typically cost less than buying two separate life insurance policies.
Final Expense Life Insurance
Final expense insurance also known as burial insurance is issued only to people above a certain age. It covers all the costs which are associated with death like medical costs, funeral, cremation, headstone, memorial service or any other final expenses.
No Medical Exam Life Insurance
No medical exam life insurance allows you to skip medical exam which is required while buying term life or whole life insurance policies. By not requiring a medical exam, these types of insurance policies are very expensive as insurance companies have to assume all the risk. It is also known as simplified issue life insurance.
Key Man Life Insurance
Key man life insurance, also known as corporate owned life insurance helps the company to protect itself in an event of a death of a person who plays a significant role. This type of insurance policy covers executive officers and employees with specialized skills.
Decreasing Term Life Insurance
Decreasing term life insurance provides death benefit which decreases in proportion to your liabilities. Mortgage life insurance and credit life insurance policies are good examples where the death benefit follows the amortization schedule of a mortgage loan or a personal loan.
Guaranteed Issue Life Insurance
Guaranteed issue life insurance takes simplified issue life insurance a step further in which you don’t have to answer any questions about your health. The insurance company will cover you as long as you are able to pay the premium. This makes it appealing to older people who cannot afford other types of insurance policies.
One critical illness in your family can play havoc with your financial planning. Therefore, out of all the types of insurance policies, getting a health insurance policy or a medicare policy is second most important after life insurance.
Health insurance covers the whole or part of medical or surgical expenses occurring due to sickness or injury. In many cases, the least expensive option is your employer’s health insurance program. But many smaller businesses do not offer such benefits.
In such cases finding affordable health insurance policies becomes a challenging task. The key to finding a good health insurance policy is to look for the following parameters.
- Sum Assured
- Premium Amount
- Claim Settlement Ratio
- Tax Benefits
Before you buy any health insurance policy, you should compare various insurance policies that can fulfill your insurance needs. Nowadays many popular financial websites can provide you a quick comparison between policies of various insurance companies. There are four basic types of health insurance providers.
- Traditional Indemnity Or Fee-For-Service
- PPO – Preferred Provider Organizations
- HMO – Health Maintenance Organizations
- POS – Point-Of-Service
Traditional Indemnity Or Fee-For-Service
Fee for service health insurance policies provide you traditional indemnity coverage where you pay a certain amount of medical expense up front as a deductible and later on the insurance company pays the majority of the bill.
PPO – Preferred Provider Organizations
PPO plan is a group health insurance policy which encourages employees to use the network of preferred hospitals and doctors. These preferred providers provide insurance policies at discounted or negotiated rate to the members of PPO group health insurance.
HMO – Health Maintenance Organizations
Health Maintenance Organizations (HMO) plan is a group health insurance policy where employees have low out of pocket expenses but they also have less flexibility in choosing hospitals or doctors. HMO policies provide broader coverage than other types of insurance policies.
POS – Point-Of-Service
POS plan is a group health insurance policy which combines the features of HMO and PPO. If employees utilize the services of the preferred network provider, they may get a higher level of coverage. But if the employees choose a non-network provider, they may be subjected to a deductible and a lower level of coverage.
There is no other place like home in this entire world. Many of us put our entire savings while buying or constructing a home. But very few of us think about buying a good home insurance policy. Homeowners insurance is a type of property insurance that covers your residence.
There are various homeowners insurance providers that offer different policies as per your individual needs. A standard homeowners insurance policy covers the structure of your house as well as your belongings in case of a destructive event. The overall coverage includes.
- Coverage For The Structure Of The Home
- Coverage For Personal Belongings
- Liability Protection
- Additional Living Expenses
Coverage For The Structure Of The Home
This part of the policy will pay you to repair or rebuild your home damage by fire, hurricane or any other disaster listed in the policy. It will not pay you for the damages caused due to earthquake, flood or routine wear and tear.
Coverage For Personal Belongings
This part of the policy covers personal belongings like jewels, silverware, clothes, furniture, sports equipment, etc if they are stolen or damaged due to fire, hurricane or any other disaster listed in the policy.
Liability protection covers lawsuits due to bodily injury or property damage caused by policy holder to other people. Liability portion of the policy covers both, the cost of defending the policy holder in the court as well as any other damages ordered by the court.
Additional Living Expenses
When your home becomes inhabitable due to damage caused by fire or any other disaster, this part of the policy covers hotel bills, restaurant meals and all other living expenses incurred while your home is being rebuilt.
A business can protect itself from losses to its property and assets as well as litigation by purchasing commercial insurance. The financial security of a company is of the utmost importance in the event of a litigation, a natural disaster, or any other unplanned event, and insurance plays a significant role in ensuring this. Here is a list of the various types of commercial insurance
Commercial Property Insurance
Commercial property insurance safeguards the physical assets of a business against risks such as larceny, fire, and other natural disasters.
Liability insurance is a form of business insurance that protects a company from financial loss resulting from injuries or property damage to third parties.
Workers Compensation Insurance
Workers’ compensation insurance is a type of business insurance that provides financial assistance to employees who are injured or become ill on the job and require funds for medical bills or other expenses.
Business Interruption Insurance
If something beyond your control, such as a natural calamity or a fire, causes your business to cease operations, business interruption insurance can help you cover lost income and ongoing expenses.
Damage to your vehicle caused due to accident, riots, theft, weather or any other natural disaster is covered by car insurance policies. It is also known as auto insurance or vehicle insurance or motor insurance. The premium is dependent on various parameters. Few of them are listed below.
- Value Of The Car
- Types Of Coverage
- Vehicle Classification
Car insurance gives you the confidence to drive your car peacefully. During emergency situations, it acts as a boon to the insurance holder. Choosing a right policy may seem complex but it can save you a fortune later. Below are the most common coverage options for car insurance policies.
- Liability Coverage
- Motorist Coverage
- Comprehensive Coverage
- Collision Coverage
- Medical Payments Coverage
- Personal Injury Protection
Liability coverage covers bodily injury as well as the property damage caused due to accident. Bodily injury liability covers injuries to other people, including their medical expenses whereas property damage liability covers any damage to other people’s property in case of an accident.
Uninsured and underinsured motorist coverage helps you if other person is liable and does not have the liability coverage. If you, your driver or your family member gets hit by an uninsured or underinsured motorist, this type of insurance policy will cover the respective damages.
Comprehensive coverage will cover all the damages which are not related to collision. For example, such policies will cover damages due to fire, earthquakes, flood, falling objects, vandalism or explosions and glass breakage. If you have a new or expensive car, you should consider adding comprehensive coverage along with collision coverage.
Collision coverage will cover all the costs that are required to repair or fix your car in case of a collision. It also covers damage due to potholes. Collision coverage does not cover the damage due to routine wear and tear or the mechanical failure of your car.
Medical Payments Coverage
If you or any other person driving your car gets injured due to an accident, medical payments coverage will cover all the hospitalization claims, lost wages or any other medical expenses. In some cases it can also cover you if you are a pedestrian hit by a car.
Personal Injury Protection
Personal injury protection is not available in all the states. But it is similar to medical payments coverage which can cover all the medical expenses for you or the passengers, irrespective of who is at fault for an accident.
Compulsory Third Party
CTP insurance, or Green Slip insurance in some regions, provides coverage for personal injuries resulting from motor vehicle accidents. It’s typically a requirement for vehicle registration and covers compensation for those injured or killed in accidents where the insured vehicle is at fault. The compensation includes medical expenses, rehabilitation costs, lost income, and pain and suffering.
Coverage limits, requirements, and regulations vary by jurisdiction. CTP insurance generally does not cover vehicle or property damage, which is typically covered by comprehensive or third-party property insurance.
Choosing the right car insurance coverage involves assessing your individual needs, considering legal requirements, and evaluating potential risks. Every state has minimum requirements, so make sure you know what these are, as you must meet or exceed them.
Consider the value of your car and its susceptibility to damage or theft. If you drive frequently or have a long commute, you might want higher coverage limits to protect yourself in case of an accident. Remember that higher-deductible insurance policies have lower premiums, but you’ll pay more out of pocket when filing a claim. Life circumstances and vehicle usage can change, so it’s essential to review your coverage periodically and adjust as needed.
Travel insurance can be useful in a variety of situations, such as if you need to cancel your trip, have a medical emergency, misplace or have your luggage stolen, or experience a loss of luggage. If you don’t want to place yourself in a difficult financial situation if something unexpected happens while you’re on vacation, you must purchase travel insurance. There are numerous varieties of vacation insurance, including
Cancellation Protection for Travel Costs
Unforeseen circumstances such as illness, an accident, or the death of a loved one could necessitate the cancellation or shortening of a voyage.
If the policyholder becomes ill or injured while traveling, medical evacuation insurance will cover the costs associated with transporting the policyholder to a hospital.
Lost-luggage insurance is a form of travel insurance that covers the expense of replacing a lost or stolen suitcase and its contents.
Auto rental insurance
Auto rental insurance is a form of trip insurance that covers the cost of repairing a damaged rental car in the event of an accident.
Accidents can happen. You can trip on an object or you can slip on a wet surface or you can get in a car accident. Luckily, most of them are minor incidents.
But what happens in the case of not-so-minor incidents. This is where accident insurance policies can help you. A good accident insurance policy covers major as well as minor accidents.
Basic accident insurance policy covers fatality as well as total or partial disability. However, you can also opt for the protection against temporary disability by paying extra premium.
You should not ignore the possibility of temporary disabilities because it can restrict you from doing your job and earning a regular income.
Disability insurance provides clients with compensation if they are unable to work due to illness or injury. A person is considered disabled if their mental or physical condition makes it difficult for them to labor or earn a living. Disability insurance can help a person replenish a portion of the income they would have earned if they were unable to work due to an illness or injury.
This could assist with meeting basic requirements, such as housing, food, and utility bills. There are two methods to obtain disability insurance: through your employer or independently. The following are the most prevalent varieties of disability insurance
A short-term disability insurance policy may provide assistance to individuals who are temporarily unable to work due to a disability. The benefits can be used to replace a portion of the lost income for a specified period of time, typically between a few months and a year.
Policyholders who qualify for long-term disability insurance benefits may receive payments if they become ill or injured and are unable to work for an extended period of time. If the individual is unable to return to work for an extended period of time, the benefits could last forever. In addition, it may compensate for some of the individual’s lost income.
Nowadays, technology, social media and digital banking transactions play a key role in how you conduct your business.
But this has also increased cyber attacks which are launched by hackers, criminals or insiders. Cyber insurance policies are designed to help you cover any damages caused by cyber crimes.
Cyber crimes include malware, denial of service attacks or any other method which can compromise your personal or sensitive data. Although there are no standard rules for writing such policies, below are the examples of common expenses covered.
- Business Losses
- Privacy And Notification
- Lawsuits And Extortion
A typical cyber insurance policy covers the expenses claimed by first parties as well as third parties. Among different types of insurance policies, cyber insurance is a new inclusion.
Fire insurance is a type of property insurance which covers losses and damages due to fire. While homeowners insurance covers fire damage, fire insurance also covers the cost of repair, replacement or reconstruction of property.
Fire insurance policy specifies the maximum amount which can be claimed in case of loss due to fire. However, the actual loss can be estimated only after the incident has occurred.
Fire insurance policy covers the loss occurred due to electricity such as faulty wiring or explosion of gas. It also covers losses caused by lightning or other natural disasters.