Insurance is a simple way to ensure that you live your life anxiety free. Whether it is your life or health you are insuring, or a valuable asset, it is not the costs of insuring that are the most important, but the peace of mind that you are covered in case something untoward and unexpected happens. The insurance coverage allows you or the beneficiary of the plan to pick up the pieces and move on after the event has occurred without having to bear the financial burden of the loss.
Navigation of the Different Types of Insurance
1. Home Insurance
2. Health Insurance
3. Life Insurance
- 3.1 Term Policy
- 3.2 Whole Life Policy
- 3.3 Variable Life Policy
- 3.4 Universal Life Policy
- 3.5 Endowment Policy
4. Auto Insurance
- 4.1 Liability Insurance
- 4.2 Collision Insurance
- 4.3 Comprehensive Insurance
1. Home Insurance
Insuring the home has many advantages in addition to the peace of mind that it grants to the homeowner. The insurance will allow you to cover the losses arising from damage to the home. In case a natural calamity strikes the home, the homeowner faces huge costs to repair and renovate the home to make it suitable for living in again. In meantime, the owner will also need to spend on alternative accommodation until the home is livable. Home insurance helps the owner meet these unexpected and often large expenses.
The homeowner has a choice of the kind of policy he can sign up for. Different policies cover different mishaps and varying extents of damage to the house. A homeowner has to decide on the type of coverage depending on the location of the house, the potential risks that could arise, the cost of insurance and his / her ability to absorb the losses in case a calamity strikes.
In the US, home insurance is mandatory if you wish to take a mortgage loan. This insurance protects the lender in case your house is damaged during the term of the mortgage. However, the value of the underlying land influences the lender’s insistence on insurance for the home. In areas where land value is at a premium, a home loan with a low balance due may not require a home insurance. The lender can simply sell the land and cover the balance loan amount in case of default.
Before you take a policy on your home, you must understand the purpose of the insurance. The insurance policy must cover the cost of replacing the house. The land on which the house is built is not likely to be destroyed. So it is important to keep in mind the actual cost of rebuilding a livable structure rather than the home’s market value when determining the right insurance amount for your home. Remember that larger the insurance coverage the bigger your premiums will be.
Home owner policies are categorized into different types ranging from HO1 to HO8. Each of these plans caters to a specific insurance need and covers different perils. The HO4 is the renter’s policy against the same perils that the homeowners are likely to face. The HO8 is for old houses, which will entail disproportionately huge costs to replace, when compared to the structure’s actual prevailing market value.
The HO3 is the most popular form of homeowner’s insurance. This is called a ‘special’ insurance and gives comprehensive coverage to your home and its contents from all the dangers, which are not mentioned in the ‘exclusions’ clause. This insurance covers separate structures also, which form part of your property, e.g.: garage, tool shed. If this is the insurance you want, double check the exclusions clause to see if there are any risks that you want to cover separately through another plan.
Ask your insurance advisor to explain the various components of the policy to make sure you are not stranded without insurance money when your home’s damaged. Understand all the terms and conditions before you sign the documents. It is essential to have a clear idea of what will be covered and what not, so that you can start the rebuilding work quickly in case of a mishap.
2. Health Insurance
Health insurance provides a lifeline when medical emergencies threaten you or your loved ones. It facilitates quick treatment at the best medical establishments without the hassle or delay. As delays in times of medical emergencies can turn life threatening, it is important to get adequate health coverage. You can easily find some economical health insurance plans with some research, but remember that health insurance needs to be comprehensive, effective and practical rather than cheap.
Your health is not a matter you can take lightly. If your medical condition prevents you from going to work, your regular income will cease. These are the kind of costs you will have to factor in before you make the final decision.
Government sponsored health insurance like Medicare and Medicaid offer medical benefits to certain groups of individuals. Medicare is aimed at servicing retirees while Medicaid caters to low income, low salary families. Despite the existence of these plans, it is necessary for you to take some definite steps towards making yourself self sufficient as far as managing the medical bills goes. This is where your health insurance will help you.
There are many options you can choose from when it comes to signing up for a comprehensive health coverage plan.
For employed persons, opting for their employer’s managed healthcare plan is the best bet. Employers may opt for one of different health care plans, which may involve a tie up with a particular medical establishment, an agreement with some health care professionals or an understanding with a health maintenance organization or HMO. It is important to understand the working of your specific employer sponsored scheme and fulfill the required formalities accurately so that your medical expenses are covered to the maximum by the plan.
The COBRA health insurance plan covers your medical costs in the event of a sudden change in your employment status. COBRA stands for Consolidated Omnibus Budget Reconciliation Act of 1985. If your employer has downsized, leaving you without a job, you have quit or the company has closed down, then the COBRA extends the previously existing medical benefits to you for a limited time. The goal of this insurance is to give you some coverage until you can get back on your feet again.
Before you sign up for an insurance plan, take a close look at the insurer too. Opt for a well established insurer who is not likely to close shop within your lifetime. Fly by night operators are not a good choice, no matter how low the costs and premiums are. Make sure your insurer has comprehensive coverage plans, and the plans encompass skilled medical professionals and renowned medical facilities.
Ask your insurer if they comply with the HIPAA regulations. These regulations protect your privacy by restricting access to your medical records. Smaller insurers may not fall within the purview of this act. Check if these insurers have other norms or checks to ensure your complete privacy.
Other than the formal insurance plans, you can also set aside funds to meet your medical needs. With proper investment, you can find the right balance between liquidity and higher gains from a long term lock in of your funds. For savvy investors, who are familiar with the markets, creating medical emergency nest egg is not an impossible task.
Life insurance is a contract with an insurer wherein a sum will be paid to you or your beneficiaries in case of occurrence of any event specified in the agreement. The event could be serious illnesses or even death. When this event happens, the insurer pays the amount he agreed to disburse in the insurance agreement. In the US, the life insurance policy is usually paid as a lump sum amount when the intimation of the event is given to the insurer. Terminal illness policies are generally available only as add-ons to life policies in the US. In case the insured is diagnosed with one of specified terminal illnesses, the insurance amount is paid out immediately, instead of after the death of the person.
The primary aim of insuring life is to guarantee some financial aid to the beneficiaries in the event of the holder’s death. Although the holder does not stand to benefit personally from such policies, he does gain the peace of mind of knowing that his loved ones will have the policy to fall back on to manage expenses after his death.
When calculating the amount of insurance that you need, it is essential to take into account all the possible expenses that your family may incur immediately after your death. The premise is that the insurance amount must allow your family to continue life at a reasonable standard of living until one of them can establish a regular income. In addition, mortgage payments, other loans, education, and other major future expenses should be taken care of by your insurance coverage.
The major types of life insurance are term, whole life, variable, universal and endowment insurance.
3.1 Term Policy
The term insurance is a pure insurance product, which covers you for a specified number of years and pays out the insurance amount in case of death within this period. The premiums are fixed at the time of commencement of the policy and are typically lower than the other investment type insurance policies.
The other types are classified as permanent insurance policies as they cover your entire life and are not restricted to a pre-specified period. The earnings in these insurance plans are tax deferred, which is why they are favored by investors as well as insurance seekers. However, it is essential to remember that the returns will not be at par with the market rates.
3.2 Whole Life Policy
This insurance covers your entire life time and also gives you some cash value benefit. In event of your death, the insurance amount is paid to your beneficiaries.
A part of the fixed premium you pay is invested by the insurer and you may get dividends from this investment. In effect, you can make up a part of your premium payment with these dividends and reduce your costs. Else you can use the dividends to increase your premiums and thus your death benefit. Loans can be taken against this cash value in your policy. Although the yields generated by the investment are lower than market investments, the premiums are utilized in a more productive way than in a term insurance plan.
3.3 Variable Life Policy
A variable life policy gives you much more control over how your premiums are invested and how they should perform. Although minimum payable premiums do guarantee a certain death benefit for your beneficiaries, this amount can be enhanced by savvy investment decisions to improve your cash value. Of course, if your investments turn out to be poorly judged and the cash value is depleted, you may end up paying additional premiums to keep the policy alive.
3.4 Universal Life Policy
This policy also builds a cash value in your account but is more flexible than the other two permanent insurance plans. The cash value in the universal insurance plan can be used to back your premiums. You can vary the premium amounts you pay subject to a pre determined minimum, so that with higher premiums the death benefit increases.
3.5 Endowment Policy
This policy is like a term insurance and it covers risk for a specified period only. The insurance amount is paid back to the insured individual or beneficiaries at the end of the term along with bonuses, irrespective of whether the insured individual is living or dead at the time of disbursement. This bonus is what makes this kind of policy very attractive to the insured and the beneficiaries.
4. Auto Insurance
Auto insurance covers you in case of damage to your vehicle or if you run up a liability in a motor accident. In the US, this coverage is compulsory for all vehicle owners and it must cover damage to property and physical injury to others. Some different kinds of auto insurance policies are:
4.1 Liability Insurance
This insurance is the most critical one for the insured, as it covers his/ her liabilities in any accident where a third party gets injured or suffers loss. Minimum liability cover requirements are specified by most states for the vehicle owner, but considering the usefulness of this insurance, many opt for more than the minimum required. In event of an accident, replacement or repair of any damaged third party property will be paid for by the insurance company. In case a third party is injured, his/ her medical treatment costs and loss of wages will also be paid by the insurance.
4.2 Collision Insurance
A collision insurance cover will pay for all the repairs needed on your vehicle when it is damaged in an accident deemed your fault. Given the unpredictable nature of the expenses, this coverage and cost is often quite high. When the vehicle is damaged beyond repair, the actual cash value in the policy is paid back. This coverage is especially critical for new cars or those on which you have huge outstanding loans to pay back.
4.3 Comprehensive Insurance
This insurance takes care of damage to your vehicle from causes other than the ones covered by the collision insurance. In case of damage by fire, theft, vandalism, natural disasters like floods, earthquakes and others, the comprehensive insurance covers the cost of getting your vehicle repaired.
Understanding the components, terms and conditions and the benefits that can be derived from your insurance policy ensures that you face minimum anxiety and financial loss in case of unforeseen tragic events. With the right insurance policies covering you and your assets, you can leave the worries behind and lead a stress free life.