There are three main types of insurance: property insurance, health insurance, and life insurance. Property insurance protects you from losses if you own a piece of property that gets damaged – for instance, if your house burns down or your land becomes flooded. Health insurance covers your medical bills if you become sick or suffer an injury. Life insurance takes care of your family, if you die and they depend on you. A blanket term for any other type of insurance that doesn’t fall under these three categories is casualty insurance; examples of which are insurance to cover liability for negligence or losses that occur after a disaster. To qualify as something that can be insured, the thing you want insurance for must meet certain criteria. For starters, it must be an asset that you can demonstrate you have and that it has worth. You can’t demonstrate that you will become a pop superstar, so your future career is not something that you can insure. Next, it must be something you can express in financial terms. Granted it is awful to hear a loved one’s life reduced to a dollar amount, but unfortunately money is the only thing we have with which to transfer their worth.

 

You don’t buy insurance, per say, instead you buy a policy. A policy is a contract between you and whichever insurance carrier you choose which outlines your mutual agreement. Every policy has a shared element, a premium, which is an agreed-upon amount that you must pay the carrier each month. Usually when people go shopping for insurance policies they start by calculating how large a premium they can afford. Depending on the policy, there may be stipulations such as timeframes and add-ons. The policy may only be good for a certain amount of time, or the premium may change after a certain date. Add-ons are either special privileges that you have as a policyholder or additional assets you want the policy to cover. Health insurance policies usually consist of a deductible, which is a set amount of money that you must pay each year before your insurance carrier starts footing the bill. In order to get your insurance carrier to pay for something, you must first file a claim. After an adjuster investigates your claim, the carrier will decide if it is valid or not. If during the claim investigation the adjuster discovers that the asset in question is actually worth more than what is stated in the policy, the carrier will only pay based on the amount that is stated in the policy. This occurrence is called underinsurance.

 

Insurance companies invest the money they receive through premiums, however there is a required amount of liquidity they must have. In the event that many of their policyholders file claims, they need to be able to pay out claims quickly. Some US states require drivers to have auto-insurance, since there is a chance they will crash and do damage to someone else’s property. There are exclusions to policies, usually, including nuclear and radiation accidents (nuclear power plants must pay for third-party liability coverage). Often insurance carriers are themselves insured against losses caused by having to fulfill too many claims – this practice is called reinsurance. The net premiums for all insurance policies held in the US exceed $1 trillion each year, with a small majority going towards life/health insurance. Over 5,000 insurance companies exist in the US. When you speak to an insurance agent, they might only be able to sell you policies from one carrier or they may sell policies from multiple carriers. Similarly, some adjusters are independent. You credit score, gender, occupation, general health, marital status, family history, education, and other factors are all used to calculate your premium rate. Certain styles of insurance policies are protected by patents.