Types of Insurance and Their Importance

Insurance is a financial risk management instrument. By definition insurance is a legal contract between the insured and the insurer, where abiding by the contract the insured pays a fixed amount of premium to the insurer, who in exchange has agreed to pay the insurer or their beneficiaries a certain fixed compensation amount, in case any misfortune happens.

It is prudent for everyone to have some basic cover against the potential risks in life. Ultimately, most of these risks convert into financial losses. Thus to ensure financial security and your mental peace, you must buy at least some insurance cover.

Over the time, insurance market has grown manifolds and complex like a spiderís web. The policies, premiums and situations covered have all become very specific. Insurance companies have even started providing insurance against niche risks. Few types of insurance are discussed here.

Health Insurance
Everyone falls ill at some point in their lives. Minor niggles donít bother but conditions like arthritis, cancer, heart attack or other injuries can wreck you financially. The rising cost of medical services in America further hastens the need to buy cover against unexpected medical situations. Health insurance pays for your medical bills and other expenses. Various types of plans with specified coverage are available.

Life Insurance
In simple terms, life insurance guarantees financial protection to your family, in case of your sudden or accidental death. Most young people find it a useless cover to have, however it is better to start young. Two basic types of plans are present, term insurance that is cheapest providing cover for a definite period after which the policy lapses and the other is investment type, where the cover lasts till the insured person is alive.

Auto Insurance
Insurance that protects you, your family and other fellow passengers in case of an accident involving your car is known as auto insurance. In many American states, you are required to carry some minimum liability insurance cover as a driver, otherwise you can be booked under law. The auto insurance provides cover against situations like theft, burglary, vandalism, fire, natural calamity and accident thus paying for the financial loss.

Home Insurance
If you own or are planning to buy a home, then you must consider buying a cover for you home against potential risks. The home insurance covers situations like damage from fire, snowfall, wind, storm, earthquakes, riots, explosion, floods and theft depending on the coverage you choose to buy.

Pet Insurance
If you own a pet, you know the value of having that loyal friend. Although pets canít speak but it is your responsibility to take care of them. The regular vet visits, checkups, advanced medical care and cure of any chronic disease or injury of pets tends to get very expensive. Thus having a pet insurance would cover you financially, in case any injury or sudden medical situation arises with your pet.

There are other types of insurance like business insurance, which covers the small and medium scale businesses for the risks involved in the business. Dental insurance covers the costs of dental surgeries and other treatments, as the cost of the services of dentist have gone over the sky.

Five Tips

  • Don't trust your agent 100%, he sometimes has to make choice between your best inertest and his commison.
  • A policy blended with term and whole life coverage, may not be right for you.
  • If your employer provides both HMO and PPO, choosing for you and your family is a critical decision.
  • Buying term insurance, paying down debt is a smart move.
  • Use a fee-only insurnace advisor, not a agent if you can afford it.