Insurance Basics: Understanding the Industry and Types of Insurance

You can’t escape a radio or TV commercial run without hearing at least one commercial for insurance.

While there’s no shortage of insurance companies, it can sometimes feel like there’s a lack of information about insurance. The lingo used to describe insurance can be pretty complex, so how can you know what to apply for?

We’re here to help you out! Keep reading below to learn about the insurance basics!

Understanding the Insurance Basics

Insurance plays a critical role in protecting us in the event of a dangerous or unfortunate event.

An insurance company functions by pooling collections to cover a loss should one occur.

For example, a collection of low-risk drivers will pay a certain amount each month, and the money collected is used to pay for damages if an accident occurs. This is referred to as risk pooling.

Each month you pay a set rate, which is known as a premium. Your insurance policy will also specify how much your deductible will be. The deductible is how much money you have to pay out of pocket to the company before they will provide coverage.

There are different types of insurance companies as well. Some provide policies for businesses, such as a captive insurance company, while others specialize in providing insurance for individuals.

The Most Common Types of Insurance

Insurance comes in many shapes and sizes. Not everyone needs every type of insurance, but it’s wise to know the insurance basics, what’s offered, and what may be required of you.

Homeowners and Renters Insurance

Not only is homeowners insurance a wise thing to have in general, but many mortgage companies require you have insurance before they will extend you a loan.

The same goes for renters insurance—many landlords will require tenants to have renters insurance, especially if the rental is a large property with more square footage open to damage.

Homeowners and renters insurance provides coverage for similar things. Property coverage will cover costs if your home or possessions inside your home are damaged, stolen, etc. Liability coverage covers costs related to injuries, should they occur on your property.

Auto Insurance

If you plan on owning a vehicle, you’re required by law to have auto insurance.

Like homeowners insurance, auto insurance provides coverage against accidental damage caused to your car.

Auto insurance also provides coverage in the event that you get an accident. Different will have different policies regarding how much is covered depending on who is at fault.

Health Insurance

Most people have some sort of health insurance plan, regardless of their health status.

If you attend regular visits, health insurance is worth considering because your monthly premium combined with a copay may still fall under the amount you’d pay out of pocket for a doctor’s visit.

Health insurance is typically divided between low and high deductible programs. Higher deductibles are ideal for those who don’t mind paying out of pocket for occasional visits. Lower deductible plans have higher premiums, but you won’t pay as much out of pocket for standard visits.

Choosing a Provider

There’s insurance for just about everything, so it can be hard to know where to look for coverage. The information above should give you a good idea of the insurance basics and what you can expect from providers!

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