Do you often get scared with the idea that what will happen if you get into some trouble and need a big amount of money urgently?. Or you may face some serious loss in business and want to get over it without taking heavy loans from banks?. Exactly at this time, you need some helping hand and this can be done by insurance. Now You often hear about insurance companies, health insurance, and more but never get a complete idea of what it is. You probably search for insurance definitions and meaning to know more about it. Here we simply summarized insurance definition and its types to five brief overviews to our readers. Give it a read.
Table of Contents
The term Insurance stands for “security from financial loss”. It is a type of risk management that prevents the risk of uncertain loss. The loss may or may not be financial, such as health loss, but it must be reducible to financial terms
In order to understand the general process of insurance, you need to be familiar with few more terms like
- Insurer/Insurance company: A person or entity which provides insurance is known as an insurer, an insurance company, an insurance carrier, or an underwriter.
- Insured/Policyholder: A person or entity who buys insurance is known as an insured or as a policyholder.
- Insurance transactions: insured handover some amount to ensure in exchange for the insurer’s promise to compensate the insured in the event of a covered loss.
- Insurance policy: It is a contract between an insurer and the insured. All the terms and conditions along with insurance transactions are mentioned in it.
- Insurance Premium: The amount of money required by the insurer to the policyholder for the coverage deposited ahead in the insurance policy is called the premium.
- Claim adjuster: the person who investigates insurance claims by interviewing the claimant and witnesses, consulting police and hospital records, and inspecting property damage to determine the extent of the insurance company’s liability.
Process Of Insurance
As the insurance definition mentions that insurance prevents the risk of uncertain loss and covers the loss financially by providing money. The process of insurance is complex and lengthy but we can simplify it in the following manner to make a good understanding of’
First of all, there is a contract between the insurer and the insured. This contract or insurance policy from a well-reputed insurance company has all the terms and conditions that how the company pays for loss, what is the exact amount? They will compensate for what type of loss? etc
Secondly, the insured hands over some insurance transactions to the insurance company. In case of any mishap, the insured submits a claim to the insurer. This claim will be investigated by the claim adjuster to find out if his loss is a reality. Following this, the insurer gets his financial aid from the insurance company as mentioned in the contract.
Types Of Insurance
- Auto Insurance
Auto insurance aims to protect the policyholders against economic loss in the case of an incident involving a vehicle they own, like in a traffic collision. It includes
- Property coverage, for loss to or robbery of the car
- Liability coverage, for the lawful duty to others for bodily injury or property damage
- Medical coverage, for the expense of treating wounds, restoration and sometimes lost payments, and burial expenses
- Gap Insurance
Gap insurance deals with the additional amount on your auto loan in the case where your insurance company does not cover the entire loan. Gap insurance is offered for those people who put low down payments and have high rates of interest on their loans. The finance company offers gap insurance when the vehicle owner purchases their vehicle. Sometimes gap insurance is also offered by auto insurance companies as additional coverage to their customers.
- Health Insurance
Health insurance provides the cost of medical treatments. It also includes dental coverage to protect policyholders from dental costs. The governments of almost all developed countries provide some health coverage to their citizens, paid through taxation. Common health insurance is a part of employees’ packages in developing countries.
- Income Protection Insurance
According to the situation and customers’ financial status, Income protection insurance is further categorized into the following subtypes according to the situation
- Disability insurance: It offers financial support to the policyholder in the situation when he becomes unable to work due to any disabling illness and injury.
- Long term disability insurance: It covers an individual expense for the long term to the time when they are declared as permanently disabled
- Total permanent disability insurance: This type of insurance gives benefits to a person when he is permanently disabled and cannot work to earn money. Mostly such individuals are taken as adjuncts in life insurance.
- Workers compensation insurance: It fulfills the medical expenses of workers during a job-related injury.
- Casualty insurance
Casualty insurance recovers the loss due to accidents. It is not specific to any property. It has a wide spectrum that covers other types of insurance also such as
- Crime insurance: It is the type of insurance that protects policyholders against loss from criminal acts of third parties. A company can benefit from crime insurance to compensate for the loss of theft.
- Terrorism insurance; gives protection against damage caused by terrorist activities.
- Kidnap and ransom insurance: It is aimed to protect the people against kidnapping, extortion, and hijacking
- Political risk insurance: It is somehow similar to casualty insurance with the difference that it can be taken out by businesses in countries having the probability of loss due to revolution or political conditions.
- Life Insurance
Life insurance provides a financial benefit to a decedent’s family and also gives income to the Insured’s family for burial and funeral. Life insurance contracts also give the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or in the form of a series of payments called an annuity. Annuities are classified as insurance because they are issued by insurance companies.
Some life insurance policies add cash rates, which may be picked up by the insured if the policy is abandoned or which may be rented against. Some policies, such as stocks and subsidy policies, are financial tools to add to or liquidate wealth when it is required.
- Burial Insurance
It is the old type of insurance that aims to cover final expenses upon death. Now life insurance is its modified form, which gives a more broad program that covers not only the funeral expenses but also gives the rest of the family a specified amount for living expenses.
- Property Insurance
It provides protection against risks to property like theft, fire, or weather damage. It may have specific types of insurance like fire insurance, flood insurance, earthquake insurance. Boiler insurance or inland marine insurance. Just like casualty insurance, term property insurance served as a broad category of various subtypes of insurance. It includes
- Aviation insurance: It protects aircraft frames and spares. It is linked with liability risks, such as passenger and third-party liability. Airports may likewise show up under this subcategory, having air traffic management and refueling services for foreign airports through to smaller private vulnerabilities.
- Boiler insurance/machinery insurance; It covers the damage to equipment, boilers, or machinery. protects a person’s or organization’s insurable interest in goods, pieces of equipment, or machinery being used in the construction or restoration of a building or structure should those items sustain physical loss or damage from a covered hazard.
- Builders risk insurance: it covers for physical loss or damage to property during construction.
- Crop insurance: This type of insurance is for farmers to protect them against crop loss or damage. Crop loss can be caused by weather, hail, drought, frost damage, pests.
- Earthquake insurance: It is a form of property coverage that pays off the policyholder in the case of an earthquake that causes destruction to the property. Ordinary home insurance policies do not deal with earthquake damage. Earthquake insurance policies typically present a high deductible. Costs depend on location, the probability of an earthquake, and the construction of the home.
- Fidelity bond: It is a design of casualty insurance that protects policyholders for losses provoked as an end of dishonest actions by specified people. It generally guarantees a business for losses caused by the fraudulent acts of its employees.
- Flood insurance: It protects against property loss because of flooding
- Home insurance/hazard insurance/House owners’ insurance: It pays for the loss or destruction of the insured home. It may not include other types of risk like flood, earthquake, etc. It only covers the maintenance issue of the house. For tenants, there is a separate or combined policy of inventory also. Policyholders in some countries also get a package that includes liability and legal responsibility for injuries and property damage caused by members of the household, including pets
- Landlord insurance: It covers commercial or residential property that is rented to tenants. It also covers the property owner’s duty for the residents at the estate. Most homeowners’ allowance, meanwhile, comprise particularly owner-occupied homes and not liability or harms linked to tenants
- Marine insurance/marine cargo insurance: it covers the damage of vessels in the sea and of cargo at transit, no matter what is the method of transit. The holder of the cargo and the shipper are separate companies, marine cargo insurance often repays the holder of cargo for losses suffered from fire, shipwreck, etc., but omits losses that can be overcome from the shipper or the carrier’s insurance.
- Renters insurance/tenants insurance: It is an insurance contract that offers some advantages of homeowners’ insurance. But it does not cover expenses for dwelling, or structure, with the exception of minor alterations that a tenant makes to the structure.
- Supplemental natural disaster insurance: It covers particular expenses after a natural disaster damages the house of the policyholder. They made payments in episodes to the insured till the home is rebuilt or a specified time period has elapsed.
- Surety bond: It is the third party insurance that gives a guarantee for the performance of the principal
- Volcano insurance: It covers the damage caused by volcanic eruptions
- Windstorm insurance: It covers the damage caused by wind such as hurricanes
Liability insurance has vast coverage that covers legal claims against the insured. Other types of insurance also include the aspects of liability. It protects the policyholder in the situation when someone claims on his property. Liability insurance has the following subtypes
- Public liability: it covers a business or organization against claims like its operations injure a member of the public or damage their property in some way
- Officers and directors liability insurance: It protects a corporation from costs associated with prosecution arising from blunders created by directors and officers for which they are susceptible.
- Environmental liability insurance: It protects the insured from physical injury, property destruction, and cleanup costs due to dispersion, or liberation of pollutants
- Errors and omissions insurance: It is business liability insurance that is designed for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators (TPAs), and other business professionals.
- Prize indemnity insurance: It covers the policy owner from giving away a huge prize at a special event.
- Professional liability insurance: It is designed to protect the insured professional such as medical practitioners and architectural organizations against claims made by their patients/clients Professional liability insurance may pick up on various names depending on the occupation or profession.
- Cyberattack insurance
Cyberattack insurance aims to provide coverage to corporations from internet-based risks. It also deals with the risks related to information technology, information privacy, information governance liability, and related activity.
Starting from insurance definition and touching its specific type along with facts and uses.
Here we finally come to an end. We sum up all the brief information about insurance and insurance types. Insurance is a farsighted step to combat the unpredicted incidents of life and secure the future of your family.