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Insurance cuts across many aspects of individual life, businesses, and the government. Covers provided by insurance companies are crucial for the safety and perpetual life of both individuals and artificial persons.
Two main types of insurance
- Life Insurance
- General insurance
A. Life types of insurance
Life insurance is a contract between the insurance company and the insured to pay a certain amount called the sum insured upon the death of the insured or maturity of the policy in consideration of periodic payments called premiums by the insured. Life assurance policy benefits normally go to beneficiaries. The five types of life insurance are:
1. Term life insurance
A term life insurance policy is an insurance policy that runs for a certain period and then ends. The period maybe 5,10,15,20 years with annual, biannual, or quarterly payments of premiums. The sum assured in this case is normally given to the insured. The best life insurance policies incorporate a balance between the long-term benefits and affordability.
2. Whole life insurance
A whole life insurance cover lasts until the insured dies. The death benefit and the sum assured goes to the beneficiaries or nominees. Although it is more expensive than the typical term insurance, it covers the insured until death and builds upon the policy’s cash value.
3. Universal life insurance
In this type of life insurance, the death benefits are always guaranteed, and the amount of premiums to be paid does not change. A prospective insured can choose at what age they want the death benefits to be guaranteed. Since there is little or no cash value, defaulting from payment of premiums could lead to a policy discharge.
4. Group life insurance
Employers usually offer these if a company covers the employees while at work. Decisions on premiums are usually set on the composition and number in the group as a unit and not individual basis.
5. Mortgage life insurance
This covers the current account balance of the mortgage and payments to the lender in case of the insured’s death.
All life insurance policies fall under a term or permanent life and have the following advantages:
- The death benefits of life insurance policies are not considered an income to beneficiaries; hence they are not taxed. They are usually paid out to nominees as a lump sum amount.
- Life insurance policies help cover funeral costs of the insured as per the terms of the policy.
- Life insurance policies have other endorsements. These are termed as riders that may help cover certain chronic illnesses.
- Life insurance policies accumulate a certain cash value benefit that can secure the insured financially, together with retirement benefits.
B. General types of insurance
General insurance is any insurance not deemed to be under life insurance. General life insurance covers assets that do not pertain to life. In other words, it deals with any insurance not related to the life of the insured.
Three types of general insurance
These are:
- Health insurance
- Motor insurance
- Homeowners insurance
1. Health insurance
Health insurance is among types of general insurance and it covers a part of or whole medical expenses of the person or group holding the policy. It provides cover for periodic care, chronic diseases, and emergencies.
Health insurance may provide covers for individuals, families, specific critical illnesses, and senior citizens.
Types of health insurance
a. Private Health insurance
Private companies provide health insurance policies. These may cover an individual or group with certain considerations to premiums.
b. Government health insurance
The government subsidizes the healthcare policies for a premium. These are usually the cheapest health care plans to purchase and, in some states, are mandatory for workers.
c. Health maintenance organization plans
These organizations provide healthcare to the insured directly and usually have a designated primary care doctor or physician coordinating all care.
d. Preferred provider organization plans
These allow the insured to visit any physician of choice for their health care needs. There is usually a network of healthcare providers with different rates that are negotiable.
e. Point of service plan
This is a combination of health maintenance organization plans and preferred provider organization plans.
Why Would You Consider Taking a Health Insurance Plan?
The following reasons are some of the advantages of a health insurance plan:
- It provides essential health covers necessary to maintain a good Health.
- It greatly subsidizes medical bills for chronic diseases, which can sometimes be hefty if one pays from their pocket.
- Health insurance has riders that benefit the riders and the general public, like free health care checks for the masses.
- Health insurance ensures continuity of normal operations with employees knowing they are safe in the workplace.
2. Motor insurance
Motor insurance as the second among the three types of general insurance is also called automotive insurance. This is a contract where insurer accepts to cover the risk of any damage to a car, property, and any third party due to the risk I’m exchanging for a premium.
The following insurance policies are available under motor insurance:
a. Third-party car insurance
The car owner takes this insurance to safeguard other road users from accidents caused by the insured. Simply put, it covers any injuries resulting in death from the injuries caused by the insured to any third party.
b. Own Damage Car insurance
In case of any damage to the car owned by the insured, this policy covers repairs or replacements of parts damaged during the accident.
c. Comprehensive car insurance
A comprehensive car insurance policy covers third parties and the insured’s car. It may also cover the theft of the car According to the contract terms. In this policy,
Generally, auto insurance helps cover third parties and the automobile from injuries to third parties.
3. Homeowners types of insurance
This is a form of property insurance that aims to cover losses and any damages sustained by an individual owning a home and assets in the property in exchange for premiums to the insurance company. The property to be insured may include furniture and fittings, garages, solar panels, jewellery, and other valuables. Some of the risks available under this include fire, floods, hailstorms, strong winds, hurricanes, or other natural disasters covered by the policy.
Covers provided under home insurance
a. Home structure coverage
This policy covers the owner’s home and may take up repairs and rebuilding of the structure after a hurricane or a fire, or any other peril insured against. However, this policy does not cover wear and tear and any catastrophic natural disaster.
b. Personal belongings coverage
This provides cover for the owner’s valuables and belongings against theft or any other risks specified in the policy. Trees and plants may be covered against natural disasters except for those deemed catastrophic or damaged by wind or diseases.
c. Liability protects third parties.
If anyone files a lawsuit against the homeowner due to bodily injuries and even death, this cover protects them against such. It may also provide cover for fines and expenses in court proceedings.
Advantages of Homeowners Insurance
1. Offering alternative accommodation
Homeowners insurance provides homeowners with a place to stay comfortably and covers the costs while making repairs or rebuilding their homes in case of damage by a peril covered against.
2. Liability protection
Homeowners insurance provides cover against lawsuits in case of accidents and bodily injuries on their premises.
3. Structural coverage
Homeowners insurance covers other instalments within the home like garages, gazebos, and solar panels detached from the main building. It may cover repairs of the same structures when damaged.
Fire Insurance
This type of property insurance under homeowners insurance that provides insurance cover against losses and damages caused by fire. Other available policies come with some form of fire protection, but homeowners especially need this policy as the main one.
Fire insurance requires fire to be the immediate cause of loss. The burden of proof lies with the policyholder to provide proof of the same. Fires brought about by faulty electrical wires, lightning, and explosions from gas may be Generally covered under this.
Covers under fire insurance
1. Valued insurance policy
The value of the property is ascertained during the purchase of the policy. In any case, the risk insured against occurs, and the policyholder is paid the total amount calculated during the contract’s inception, not considering the current value of the property. This amount is usually greater or less than the current market price.
2. Valuable insurance policy
In this case, the insured is compensated concerning the property’s current market price. This means the property’s original value at the inception of the contract is void.
3. Specific insurance policy
Here, the property’s value is set beforehand, and if the risk insured against occurs, the policyholder is compensated to a tune of the amount agreed on before. The highest limit to be compensated is set and cannot be exceeded in the event of loss by fire.
4. Floating policy
This policy covers a single or more type of goods for a single period under a single sum assured for a single premium. This is usually taken to cover fluctuations in stocks available in different areas.
Generally, the advantages of fire insurance are to safeguard the policyholder’s property and provide compensation upon the occurrence of the type of fire peril insured against.
