Types of Insurance
What are the basic types of insurance? What is their role in risk management? To know about the different types of insurance, read on…
| Life, today, is full of risks and adventures on every step. As man has started playing with nature, natural disasters have frequented. The speedy and stressful life in this competitive world of today has become a cause of the decline in the overall health of individuals. Loss of life and property has become a commonly occurring incidence today. With the changing times, the need of risk management has increased, thus elevating the requirement for the insurance of life and property and other needful resources.
Insurance is an effective way of risk management and is defined as an equitable transfer of the risk of a loss in exchange of a premium. Every quantifiable risk can be insured. Here is a look at the different types of insurance. |
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Basic Types of Insurance
Health: Health insurance policies cover the costs of medical treatments for various types of diseases that threaten human life. Disability insurance is considered as a different type of insurance that aims at providing financial support to the physically disabled individuals in society. Casualty insurance policies cover accidents.
Life: Life is priceless! However, there are measures to ‘insure’ it. Life insurance policies provide a monetary benefit to the descendants of the deceased individual. They also aim at providing the insured person’s family with burial and funeral expenses.
Property: Property insurance insures property, thus protecting it against threats like fire, theft or damage due to harsh weather conditions.
Credit: Credit insurance policies are meant for the repayment of loans in case of death, disability or unemployment of the borrower.
Take a look at the list of the different types of insurance.
Accidental death and dismemberment insurance: This insurance covers death and injury that results from accidents. Death that results from illness, suicide or natural reasons is not covered under this type of insurance.
Automobile insurance: Vehicle insurance as it is also called, is an insurance that covers the risk borne in traffic accidents and liabilities that can result from accidents.
- Guaranteed Asset Protection insurance (GAP) comes supplemented with automobile insurance policies. The losses that vehicle insurance policies do not cover are handled by the accompanying GAP insurances.
- Public auto insurance is an automobile insurance scheme owned by the government. It predominantly operates in British Colombia, Manitoba and Quebec.
- See more on Car Insurance, Motorcycle Insurance and Understanding Automobile Insurance
Boiler insurance: It indemnifies the insured against the expenses that may have to be borne for the repair or replacement of home boilers as well as the plumbing, heating and electric systems of the household.
Bond insurance: In this insurance service, the bond issuers can pay the premiums to a third party in case of failure on part of the issuer. In such cases, the third party provides the interest and capital repayments prescribed by the bond.
Business overhead expense disability insurance: The person who is insured by this type of insurance manages the risk of his/her disability by arranging the insurance authority to bear the business overhead expenses in case of the business entrepreneur’s disability. Business insurance is an excellent way to insure a business. Learn more about Business Insurance
Casualty insurance: It covers the loss that results from an accident. It may bear the expenses of the vehicle loss or the costs incurred in restoring the damages resulting from accident. Casualty insurance policies do not cover life, health and property losses.
Catastrophe bond: These bonds are meant to transfer the responsibility of a certain set of risks from the shoulders of the sponsors to the investors.
Chargeback insurance: This insurance is meant for the business merchants who accept credit cards. When accepting credit cards for purchases involving large money transactions, merchants risk their business. Fraudulent behavior on part of the credit cardholder or the use of unauthorized or invalid credit cards puts the merchant’s money at stake. Chargeback insurance policies protect the merchants from these risks.
Contents insurance: It covers the loss or damage to the personal possessions of an individual while they are located in one’s home. The insurance might also cover the possessions kept in the exterior of one’s household, such as things kept in one’s garden area. These insurance policies find utility for people renting houses. It is generally purchased in collaboration with a home insurance policy.
Corporate-owned life insurance: The employing companies hold this insurance for covering the sudden losses of their employees. Originally, these insurances were held by companies to cover the risk of the death of their key employees. This insurance insures the cost incurred on the recruitment and training arrangements that have to be made in case of an unexpected death of any of the company employees.
Credit insurance: Credit insurance policies are designed to compensate for credit risks in business.
Crime insurance: Employee thefts and offenses causing financial losses to a business are covered under crime insurance policies. Crime insurance can be used to cover the damage caused by crimes such as murders and rapes.
Critical illness insurance: Critical illness insurance policies prescribe a list of diseases to be grouped under the class of critical ones. The policyholders are insured in case of being afflicted by any of the diseases enlisted as critical in the policy. The policy may be structured to provide the insured individual with regular payments or a lump sum amount on being diagnosed for one of the critical illnesses.
Crop insurance: Agricultural producers purchase this insurance to protect themselves against a loss or damage to their crops on account of natural disasters or revenue losses.
Dental insurance: It is categorized under the class of health insurances and is meant to pay the costs incurred on dental care. Considering the increasingly expensive dental treatments, dental insurance policies form an important section of health insurances today.
Deposit insurance: These insurances protect the deposits in event of bank runs. A bank run is said to occur when a large number of customers of a bank withdraw their deposits from a bank. Deposit insurance aims at covering the risk of running into this kind of financial crisis.
Disability insurance: Disability insurance covers the insured individual’s earnings against the risk that a disability can make working impossible for him/her. Disability insurance policies are arrangements to secure one’s future in case the individual is unable to work and earn. Learn about Short Term Disability Insurance.
Earthquake insurance: It is a type of property insurance, which covers the risks borne by houses on account of frequently occurring earthquakes. It insures the damage caused to property as a result of earthquakes. It is widely used in Japan and California.
Expatriate insurance: This insurance covers the losses that one may have to suffer from, while residing and working in a non-native country. An expatriate insurance policy has to be purchased before one relocates to another country. It covers the period of stay in the non-native country.
Fidelity bond: These bonds serve as a protection for businesses from the fraudulent behaviors of their employees.
Flood insurance: It covers the damages to property that result from floods. Around 20% of the households in the United States are insured for flood, as they are susceptible to them.
General insurance: General insurance schemes include policies for automobiles, homeowners and precisely any insurance that does not fall under life insurance. General insurance policies cover losses resulting from certain financial events.
Group Insurance: It covers the risks borne by a group of people. Group insurance policies are generally purchased for a group of members of a society or a group of professionals in an organization. It is less expensive than individual insurance policies.
Health insurance: The expenses incurred on treating physical disabilities, long-term nursing and custodial care are covered under health insurance schemes. Health insurance policies insure the payments for medical care. Know more about
- Corporate Health Insurance
- Family Health Insurance
- Health Insurance Coverage
- Health Insurance Plans
- Individual Health Insurance
- Long Term Care Insurance
- Major Medical Health Insurance
- Medical Insurance
- Short Term Health Insurance
Home insurance: It insures the losses incurred on restoring the damages resulting from hazards to households. Home insurance policies cover the losses of the personal possessions of the homeowners.
- Perpetual insurance is a form of home insurance in which the coverage is valid for perpetuity and that the policy does not have a designated date of expiry.
- Also see info on Second Home Insurance and Mobile Home Insurance
Injury cover: It includes the compensations for work-related injuries. It can be used along with health insurance, workers’ compensation or personal injury services.
Keyman insurance: Keyman insurance policy is the one purchased by a businessman to secure the potential losses of his resources and cover the incapacity or death of a key employee. Keyman insurance protects you from the greatest of business risks.
Landlords insurance: It is designed to cover the property owners from threats like fire, earthquake, and floods as also thefts that are potential dangers to their property.
Lenders mortgage insurance: It compensates for the losses incurred by the lender when the mortgager is unable to repay the loan or when the lender in unable to compensate for the lent amount even after sale of the mortgaged property. Know all about private mortgage insurance.
Liability insurance: It can be called a part of the general insurance system that deals with risk financing. It typically involves the payment to the third party suffering from a loss and not to the insured party.
Life insurance: Under life insurance schemes, the policyholder and the policy owner contract according to which the insurer is liable to pay a certain amount of money in case of death or terminal illness of the insured individual.
- Whole life insurance is a life insurance policy that remains in force throughout the life of the insured individual and requires him/her to pay premiums every year. More Whole Life Insurance explanation
- Pension term insurance is a type of life insurance that is popular is the United Kingdom. After 2006, when the policyholders were offered tax benefits on the premiums they paid, pension term insurance policies gained wide popularity.
- Permanent life insurance refers to a life insurance policy, which is for the life of the insured individual.
- Term life insurance policy is purchased for a specific period and the policy amount is paid to the beneficiary in event of the death of the insured during the specific period.
- Return of premium life insurance is a kind of term life insurance policy wherein the premiums are returned after a stipulated period of time in case the policyholder does not use the coverage during that period.
- Stranger originated life insurance is initiated by a person who bears no relation with the person for whom the policy is being taken out. The stranger offers to pay the premiums against the insured person’s life.
- Universal life insurance is a permanent life insurance that is based on cash value. It can be used for tax benefits. Variable Universal life insurance is a similar insurance scheme that builds cash value. It allows the policyholder to invest in different accounts.
- More on Life Insurance Policies
Loan protection insurance: It secures an individual in terms of his/her loan payments in case the individual has to go through a period of unemployment during the time of the payment of his dues.
Locked funds insurance: Banks and governments issue locked fund insurance policies in collaboration with each other. These policies protect public funds from being manipulated by unauthorized parties.
Long-term care insurance: It aims at providing the insured individuals for a long-term care and covers the expenses, which are not covered by health insurance policies or Medicare.
Marine insurance: It covers the losses incurred in damage to ships, terminals and any property that is transported through cargo. Inland marine insurance, which is closely associated with marine insurance, secures the moving or movable property of an individual.
Medigap: It comprises of private supplemental health insurance plans, which are purchased by people of the United States. It covers the expenses beyond those borne by Medicare.
Mortgage life insurance: This covers repayment mortgage, referring to a mortgage in which monthly repayments imply the repayment of the capital along with the accumulated interest.
Mutual insurance: The mutual insurance policyholders have a certain amount of ownership rights in the organization. Those protected by the insurance possess the rights to elect the organization management and take part in the distribution of net assets in case the organization stops doing business.
No-fault insurance: In this form of an insurance contract, the insurance covers the losses by the insurance company irrespective of the party responsible for the losses.
Parametric insurance: Parametric insurance policies define a contract between the policyholder and the issuer according to which the issuer agrees to pay a certain amount of money to the insured in the event of a natural disaster.
Payment protection insurance: These policies insure the repayment of debts in case the insured suffers from unemployment on account of an accident or illness and fails to repay his/her loan.
Pet insurance: Pet insurance policies cover the costs incurred in treating a pet’s illness. Some of the pet insurance policies also cover the losses borne by the pet owner in event of the death or the theft of the pet. Learn about Pet Health Insurance
Political risk insurance: Political risk insurance policies cover the political risks to businesses. Political violence like riots, terrorism and war and governmental arrogation are classified as political risks to business.
Pre-paid legal services: It refers to a scheme wherein a person pays a monthly fee and is entitled to access a number of legal services on call. Individuals are charged for certain services like monthly legal advice and consultation. As the insurance commission looks after the pre-paid legal services, they are classified under the different types of insurance.
Professional indemnity insurance: It secures the policyholder against losses incurred as a result of a negligent act in the policyholder’s business. Professional indemnity insurance also covers the loss that can result from claims for the policyholder’s breach of duty and also indemnifies the policyholder against the policyholder’s civil liability. It is also known as professional liability insurance.
Property insurance: It indemnifies the policyholder against the risks to his/her property. Insurances covering fire, flood and earthquake threats as also home insurances are special forms of property insurance.
Protection and indemnity insurance: It is a marine insurance that protects the insured from third party liabilities arising from owning ships.
Reinsurance: Reinsurance is not exactly a type of insurance but is rather a means by which insurance companies safeguard themselves from the risk of losses with other insurance companies. Reinsurers provide the insurance companies with insurance. Even insurances need to be insured!
Rent guarantee: Landlord rent guarantee insurance and legal assistance insurance together cover the costs incurred by the landlords in recovering their rent or in taking legal action against the tenants failing to pay their rents. Also see Renters Insurance
Self-insurance: It is a way of risk management wherein a certain amount of money is set aside to safeguard one’s future. Self-insurance involves setting aside an amount that can cover for the unexpected losses in future.
- Self-funded health care refers to a self-insurance that is provided by an employer to his/her employees in assumption of a risk in paying their claims for benefits.
Terrorism insurance: The potential looses that can be caused as a result of terrorist activities are covered under terrorism insurance. Terrorist attacks are almost unpredictable and perilous. This has led the people in some parts of the world to secure themselves against terrorism.
Title insurance in the United States: It indemnifies a person against financial losses that may result from defects in title to real property. The losses incurred from invalid mortgages are also covered under title insurance policies. Title insurance is a type of insurance that protects the owner or lender. Commonly associated with closing costs on the settlement of a house or piece of property, real estate title insurance consists of two distinct phases. During the first phase, the title company works to define the boundaries of the real estate being purchased and also conducts a search that determines the status of the property in terms of unpaid real estate taxes and other claims. In the second phase, during the term of the mortgage, the title company protects both the owner and the lender from financial loss resulting from problems with the title that may arise due to unexpected property claims that are not excluded by the policy.
Travel insurance: Long journeys are accompanied by a certain amount of risk. The insurance purchased to compensate for the losses during a travel is known as travel insurance. It covers medical expenses and financial losses and applies to journeys within one’s country and abroad. Read info on Traveler’s Insurance and Trip Cancellation Insurance.
Vision insurance: On lines similar to dental insurance, vision insurance covers the expenses one may have to bear in eye treatments and services given by ophthalmologists.
Wage insurance: This is a proposed form of insurance, which is intended to provide workers with compensation in case they are compelled to move to jobs with lower salaries.
War risk insurance: War risk insurance policies cover the losses one may have to incur in the event of war. The war risks include invasion, rebellion, hijacking and may also include the threats from weapons that cause massive destruction of life and property.
Workers’ compensation: It is intended to provide the company employees with monetary compensations in case they are injured at the workplace. Workers’ compensation can be given in the form of reimbursement of medical bills, weekly wages or benefits to the employee’s dependents.
Insurance is after all an attempt to compensate for grave losses in and of life. But can anything be ‘insured’ in the real sense? Can compensations heal the grief of loss? Surely, compensations cannot substitute life.
More insurance information:
- Insurance Terminology
- Insurance Companies
- Insurance Agents and Brokers
- Life Settlements
- Personal Insurance
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