Do you know the different types of insurance policies? Life is exciting and fun until the unforeseeable happens. From flat tires, natural disasters, house repairs, medical conditions, school bills to failed business deals, many life challenges may lead us into expenses that we could have never predicted. For this reason, sometimes, it can be challenging to live a financially stable and independent life.
However, there is a solution, insurance policies. The security of insurance helps cushion any foreseeable and unforeseeable financial demands, a little secret among many wealthy individuals and organizations.
The Different Types Of Insurance Policies
There are two main types of insurance policies, namely life insurance and general insurance. By learning the categories and their subcategories, you can quickly identify suitable insurance policies for yourself, depending on your needs or assets. Read further to learn about them.
What Is Life Insurance?
When an insurance company establishes a legally binding contract between itself and a potential policyholder, the insurer (insuring company) guarantees that death benefit payment will be made to the identified beneficiaries when the insured passes away. In return, the policyholder needs to pay a premium upfront or over a specific period. Such a contract usually contains a full disclosure of the policyholder’s past and existing health conditions. Also, you may need to state any high-risk activity that you often pursue.
Two significant forms of life insurance are term life and permanent life. By choosing a term life insurance policy, the policy will expire after an agreed period. However, if the policyholder runs a permanent life insurance policy, it will remain active until he dies or discontinues the premium payment. An important tip to know is that the insurer’s financial strength determines how good a life insurance policy will be. So, endeavor to perform due diligence before collaborating with an insurance company.
What Is General Insurance?
Any insurance plan or contract that offers financial compensation for a loss incurred aside from death is general insurance. In other words, this insurance policy compensates the policyholder for any expenses or losses, which may include, but are not limited to, house damage, car repair, medical conditions, and failed trips.
Depending on the policy’s terms, the insurer will pay a certain amount to the insured when a relevant issue arises. In short, general insurance provides financial protection against any loss that might affect your assets. The loss may include theft, maintenance, damage, repair, or liabilities.
As the case with life insurance, the policyholder has to pay a premium monthly or annually, depending on your agreement. The insurer will then combine all the premiums of every insurer into a pool of funds. So, when the insurer suffers any asset damage or loss (aside from death), the insurance company will cover the cost, replace the item or repair the asset, according to your policy terms. Alternatively, you may receive a cash settlement for the loss incurred.
Types Of Life Insurance
Depending on policyholder’s needs and preferences, life insurance exists in different forms. Below are the most common plans worth considering.
· Term Life
In this case, the insurance remains active for a specific number of years. Once the period ends, the insurance company is not obligated to pay the death benefit. People often choose ten, twenty, or thirty years as their term life insurance. Advisably, balancing affordability and long-term financial capability helps get the best term life insurance policy.
· Increasing Term
Here is a plan that increases as you continue to grow. It is also known as the yearly renewable term.
· Level Term
This form of insurance policy requires paying the same premium every year to keep the insurance active.
· Permanent Life Insurance
As stated earlier, this policy remains active for the insured’s entire life unless the policyholder chooses to surrender the policy or stop paying premiums. Ideally, it is more expensive compared to a term insurance policy.
· Single Premium
Here, insurers pay the whole premium once – rather than paying monthly, quarterly, or annually.
· Whole Life
Whole life is a form of permanent life insurance that features an increasing cash value.
· Universal Life
It’s a form of permanent life insurance. However, this policy comes with a cash value component that accrues interest. Compared to term life insurance, universal life insurance features a more significant premium.
· Guaranteed Universal
This form of life insurance doesn’t accrue cash value. More importantly, it features a lesser premium compared to whole life insurance.
· Indexed Universal
Here is a kind of universal life insurance that enables the insured to earn a fixed return rate on the cash value. Alternatively, the rate of return may base on the equity index.
· Variable Universal
In this case, the insured can invest the cash value of the policy.
Types Of General Insurance
General insurance is available in the following forms.
· Health insurance
As the name suggests, this policy covers any cost incurred due to medical care. The insured may receive a cash settlement for treatment, hospitalization, daycare procedures, maternity cover, injuries, or pre-existing diseases. Alternatively, the insurance company may pay the hospital directly.
· Car Insurance
Here is general insurance that provides financial protection for your vehicles. If the insured’s vehicle suffers damage, accidents, or sustain dent due to natural calamities, the insurance company is liable to cover the cost. Also, the insurer will cover the car’s worth if stolen, depending on your policy terms. Car insurance is available for personal and commercial vehicles.
· Travel insurance
Travel insurance will cover any expenses incurred due to emergencies during your trip within or out of the country. Such costs may stem from the loss of baggage, loss of passport, medical emergencies, delayed flights, hijacking, or accidental death. Usually, travel insurance exists in two forms, including a single trip policy and an annual multi-trip.
· Home insurance
With this plan, the insurance company compensates the insured for any damage that occurs in your home. Such damages may result from flood, earthquake, theft, fire, sabotage, or burglary. Also, home insurance usually covers valuables within the insured home.
· Fire insurance
This general insurance policy ensures your properties against fire. It often covers the repair, reconstruction, and replacement of insured property and related structures. Also, fire insurance may help compensate a third party property destroyed by fire or expenses of people affected by the fire incident.
The Bottom Line
With insurance policies, it becomes less challenging to handle unwanted situations in life. More importantly, it helps stick to your planned budget and stabilize your finances. Advisably, you should get an insurance policy for your treasured assets today and if it is your life, feel free to insure it!
