Understanding insurance can be confusing, but understanding its fundamentals will help you select a policy tailored specifically for you. Here are some key terms: All-risk coverage (property) — This policy insures against all possible risks except those specified in its language, making it a smart option for homeowners and auto insurers alike.
1. Liability
Liability insurance is a broad form of risk financing designed to cover an insured’s legal liability for bodily injury or property damage to others, typically with regard to doctrines such as proximate cause and statutes of limitation, but can also be limited by coverage limits, deductibles, or self-insured retentions.
Liability coverage is essential for homeowners, automobile owners, and business owners. This coverage can cover accidents such as falls down stairs as well as incidents like customers being injured by dangerous products or company directors being sued by other employees. Furthermore, product liability covers claims regarding faulty products.
2. Property
Property insurance is one of the more versatile types of protection available to policyholders. As with any form of coverage, however, property policies have specific coverage restrictions and exclusions that should be understood fully for maximum asset protection.
Actual Cash Value, also referred to as Replacement Cost, is the cost associated with replacing damaged or destroyed property with similar goods and services at their current prices minus depreciation. Nonrenewal is when an insurer refuses to renew an insurance policy after providing proper notice—usually because there has been a breach in contract or fraud involved.
3. Medical Payments
General insurance that reimburses others for medical and funeral expenses incurred by an insured. Policies may have coverage restrictions or exclude certain forms of care services. Providers with whom your health plan has entered into contracts to provide services for payment (other than copayments, deductibles, and coinsurance). Before they can be used by your plan, they must first be credentialed as eligible providers.
Your deductible is the maximum out-of-pocket cost you pay before your health plan begins to cover costs for covered services during a benefit period. Some plans provide for one deductible, while others may specify individual services or categories of services as having their own individual deductibles.
4. Indemnity
Indemnity refers to the practice of making someone whole after suffering an economic loss. Business owners and property managers should understand this principle in order to effectively mitigate losses.
Indemnification is an integral concept in insurance, as it ensures policies are reimbursed according to actual losses suffered while also protecting insurers against financial gain or exploitation. For instance, contractors filing indemnity claims due to property damage due to their work will typically receive reimbursement of repair costs rather than an amount decided by an insurer. Professionals such as doctors, lawyers, and contractors often purchase indemnity insurance as a safeguard against malpractice lawsuits. Such policies cover legal fees and damages associated with any such legal actions brought against them.
5. Long-Term Care
Long-term care insurance provides coverage for extended care costs when daily tasks such as bathing, dressing, and eating become too challenging to do alone. With such protection in place, long-term care insurance ensures you receive the help you need without draining savings or burdening family.
Many insurers require stringent underwriting for standalone long-term care policies and may refuse to insure applicants with certain health conditions. However, certain long-term care insurance plans are available as riders on existing life policies; their underwriting standards tend to be less stringent.
Before purchasing any policy, read and understand its illustration and outline carefully to get a full grasp on which services and limits are covered, along with any possible inflation protection plans that might apply. Also make sure you ask about inflation protection options!
6. Life Insurance
Legal documents outlining coverage details, including any limitations or exclusions. A policyholder is expected to give accurate and honest answers on their application; any misrepresentation can have serious repercussions. Beneficiaries are the recipients of benefits under life insurance policies. Policyholders may change beneficiaries according to their lifestyle needs or to take advantage of discounts available.
Dividends are partial refunds of premiums on permanent life insurance policies based on profits generated by the insurance company and can be used to generate interest, reduce premium payments, purchase additional paid-up policies, or be taken as a cash payout.
7. Disability
Many workplaces provide short-term disability coverage as either part of a package or on a voluntary basis, replacing income for periods less than one year as a result of injury or illness.
In general, an insurer defines disability as any condition that prevents you from engaging in your usual occupation. Some policies provide for an ambiguous definition of usual occupation that requires them to look through your medical history for clues as to your disability status. Most disability policies exclude pre-existing conditions from underwriting consideration, yet guidelines vary between insurers, potentially creating complications even when taken with extreme care.
8. Critical Illness
An illness can be both emotionally and financially draining. While health insurance helps cover some medical costs, copays and deductibles may not cover everything. Critical Illness Insurance (CI) provides a cash benefit in a single payment upon diagnosis of one of its covered conditions, helping offset out-of-pocket costs and lifestyle adjustments resulting from illness or injury. While intended as an adjunct to health insurance policies, CI typically does not cover preexisting conditions.
Employer-provided critical illness (CI) coverage may be offered during open enrollment or following an event that qualifies, while it can also be purchased individually through an insurance provider, and its premiums are usually taken out through payroll deduction.
9. Accident Insurance
Sports and recreation organizations frequently provide this form of insurance to protect participants in case of injuries, providing financial security after existing family health plans have paid their claims. It typically operates as “excess” coverage; that is, it only becomes active after any existing policy has paid its claims.
Accident insurance provides a set amount to assist with out-of-pocket costs such as copays, deductibles, transportation, and child care expenses that might otherwise be incurred as a result of injury. As with most insurance policies, life policies contain limitations and exclusions (such as preexisting conditions or self-inflicted injuries). Care should be taken when reviewing policy details prior to purchase, as premiums can become expensive over time.
