All You Need To Know About Insurance

Digital Concept || _7-July-2023 || _{Last Edited 7-July-2023}

If you’re reading this article, chances are you are considering obtaining an insurance package or researching for a presentation. Whichever the case, you’re here to get information about Insurance so lets get to it.

Insurance Definition:

The dictionary defines Insurance as; “a thing providing protection against a possible eventuality.” Industrially, A practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

This literally means, there’s a policy that helps you prepare for eventualities that will be beyond your control even before it happens. And that’s insurance. According to the Life Insurance Marketing and Research Association (LIMRA), approximately 54% of Americans had some form of life insurance coverage in 2020. The total amount of life insurance coverage in force in the United States was over $21.9 trillion. Eventualities come in different shades hence Insurance has to be flexible to better fit the market.

Types Of Insurance:

Lets take a quick look at the types of Insurance packages out there

Auto Insurance:

Protecting ourselves from unexpected accidents on the road is essential. Auto insurance ensures that we are prepared for those thrilling fender-benders and their consequences. Meaning this insurance type protects your car basically

Homeowners/Renters Insurance:

Safeguarding our precious possessions from mischievous burglars, sudden tornadoes, or random mishaps is a priority. Homeowners or renters insurance offers that much-needed protection.

Health Insurance:

Hospitals are surely a pain if you don’t have someone to help with those bills as most are aware dealing with hospital bills can and will be overwhelming without proper coverage. Health insurance takes care of mishaps related to our well-being, providing financial support during challenging times.

Life Insurance:

This Planning for the inevitable and ensuring the financial security of loved ones after we are gone can be both practical and exciting. Life insurance literally offers that peace of mind.

Disability Insurance:

Embracing the uncertainty of a disabling injury or illness seems unnecessary when a steady income is within reach. However, disability insurance provides support during times of temporary or permanent disability.

Business Insurance:

Running a business can be thrilling I assure you, but the constant fear of lawsuits and unexpected disasters may leave us helpless. Business insurance acts as a backup in such situations. Business Insurance keeps you covered through those law suits, Damaged goods, or whatever shade of damage to your business.

Liability Insurance:

Accidents happen, and when they do, they often result in financial obligations. Liability insurance is a type of insurance coverage that provides financial protection to individuals and businesses in the event they are held legally responsible for causing harm or damage to another person or their property. It is designed to cover the costs associated with legal defense, settlements, or judgments if the policyholder is found liable in a lawsuit.

Umbrella Insurance:

Umbrella insurance is a type of liability insurance that provides an additional layer of coverage beyond the limits of your primary insurance policies, such as auto, homeowners, or renters insurance. It is designed to protect you from major claims and lawsuits that exceed the liability limits of your underlying policies. See it as an additional topping to the cake.

There are terms that are also commonly heard in the Insurance space and you will also need to get familiar with a lot of them as you will be hearing them very often.

Commonly Used Terms In The Insurance Industry

Insurance Companies:

Starting with the very obvious, these are the companies that provide the insurance coverage in exchange for premium payment. They are the magical entities that take your hard-earned money and make you jump through hoops to get a claim approved. But hey, they’re here to help.

When you buy an insurance policy from a company, you enter into a contract with them. The policy outlines the terms and conditions of coverage, including what events or risks are covered, the amount of coverage provided, and any limitations or exclusions.

Insurance companies collect premiums from policyholders and pool the money together to create a fund called the “insurance pool.” This pool of money is used to pay out claims to policyholders who experience a covered event or loss. By spreading the risk among many policyholders, insurance companies can ensure that the cost of claims is manageable and affordable for everyone.

One might wonder how insurance companies maintain the circle of profit. Insurance companies also invest the money from the insurance pool to generate additional income. This helps them maintain financial stability and meet their obligations to policyholders.

Insurance Agents and Brokers:

These professionals help navigate the maze of insurance options. With their expertise, they offer deals that benefit both you and them. These friendly folks are there to guide you through the labyrinth of insurance options. we will mention a few types of insurance brokers based on their affiliation with companies:

Independent Insurance Brokers:

Independent brokers are not tied to any specific insurance company and have the flexibility to work with multiple insurers. They offer a wide range of insurance options from various companies and can provide unbiased advice and comparisons to their clients.

Captive Insurance Brokers:

Captive brokers work exclusively with one insurance company or a group of affiliated insurers. They have in-depth knowledge of the products and policies offered by their associated companies and can provide specialized expertise in those specific offerings.

Broker Networks:

Broker networks are associations of independent brokers who come together to leverage their collective resources and capabilities. They may have shared services, marketing support, and access to exclusive insurance programs, which can benefit both the brokers and their clients.

Direct Writers:

Direct writers, also known as insurance agents, represent and sell insurance products on behalf of a specific insurance company. They are typically employees or contracted agents of the company and can provide information and assistance with the insurer’s specific policies and offerings.

Wholesale Brokers:

Wholesale brokers act as intermediaries between retail brokers or agents and insurance carriers. They have access to specialized insurance markets and products that may not be easily available to the general market. Wholesale brokers often handle unique or complex risks and work with retail brokers to secure coverage for their clients.

Premiums and Deductibles:

Most basically, Premiums also called Rates are regular payments made to the insurance company in exchange for coverage. Deductibles, on the other hand, are amounts that policyholders must pay out of pocket before insurance coverage begins to cover the rest of the cost. It’s like paying for something you hope you’ll never need!. Premiums are typically paid on a regular basis, monthly, quarterly, or annually depending on your agreement with your dear insurer.

Lets break it down. Take for instance you have an auto insurance policy with a $1000 deductible, and you’re involved in a covered accident resulting in $2,000 cost in damages. In this case, you would be responsible for paying the first $1000 (the deductible), and the insurance company would cover the remaining $1,500.

However, Just like the price of gas affects the cost of transportation, there are some obvious factors that will affect the cost of insurance. Some of them will be Age and Gender, Driving or Medical History(Depending on the insurance type in question), Deductibles, Location, Credit History. Insurance companies ascertain your Creditworthiness by putting these factors into consideration.

Deductibles Serve a few purposes

1. They help prevent small and frequent claims from you the policy holder, which can be administratively costly for insurance companies.

2. They encourage policyholders to share in the financial responsibility for losses and discourage frivolous or unnecessary claims.

3. By having a deductible, policyholders can choose a higher deductible to reduce their premium costs or a lower deductible for greater immediate coverage.

Policy Terms and Conditions:

Be ready to dive into the riveting world of policy jargon in fine print. Did you know that reading all the privacy policies you encounter in a year could take you an estimated 76 workdays? Every company has its terms and conditions and as much as we hate to go through the painful process of reading, you should scan a few pages so you are not caught off guard. It’s like reading a thrilling novel, but instead of plot twists and adventure, you get exclusions, limitations, and legal language that makes your head spin. Advice would be to get your Finance Lawyer involved.

State Insurance Regulation:

Insurance in the US is primarily regulated by at the state level. State regulations are there to keep things exciting and ensure that insurance companies don’t have too much fun at your expense. They’re like the referees in this wild insurance game regulating and checkmating the actions of the insurance industry within individual states in the United States. Each state has its own insurance department or regulatory body responsible for enforcing insurance laws, protecting consumers, and ensuring the stability and solvency of insurance companies operating within their jurisdiction

Affordable Care Act (ACA):

This was an Act or policy that was put together and brought to live by the Famous Barack Obama the 44th President of the United States. It aimed to improve access to healthcare, enhance the quality of healthcare services, and reduce healthcare costs for individuals and families. Its safe to say the ACA, the gift that keeps on giving. It revolutionized the healthcare system and made everyone a fan of mandatory insurance. Enacted in 2010 and often referred to as Obamacare, the Affordable Care Act (ACA) is a comprehensive healthcare reform law in the United States. While the ACA was a product of extensive negotiations and discussions within the U.S. Congress, the Obama administration played a significant role in advocating for and shaping the legislation.

Claims Process:

This is the entire process of reporting your loss to your Insurer (The Insurance company). Filing an insurance claim is like a rollercoaster ride of paperwork, phone calls, and endless back-and-forth. Just sit back and enjoy the journey of proving your loss while hoping the insurance company doesn’t find a reason to deny your claim.

Insurance Fraud:

As we all know, fraud is an evitable factor that ensues at the mention of any form of digital transaction. People pride in manipulating a complex system which can be sometimes commendable as it would take a lot of understanding of the system to be able to manipulate it. However efforts of that magnitude can be put to better use. There are a few ways Fraud plays out in our current society today especially on the table of the insurance holder. It could involves making false claims, misrepresenting information, or engaging in illegal activities to obtain insurance benefits. And on the part of the Insurer, I will outline a few very basic and most common situations.

1. False Policy Sales: A fraudulent insurance company may sell policies that do not exist or that provide little to no coverage. They may collect premiums from policyholders but fail to fulfill their obligations when it comes to paying claims. Be careful to ensure you are purchasing insurance from a trusted insurance company.
2. Premium Theft: In this scenario, an agent or employee of an insurance company may collect premiums from policyholders but instead pocket the funds for personal gain, leaving the policyholders without valid coverage.
3. Misrepresentation of Policies: Insurance companies can misrepresent policy terms, conditions, or coverage details to potential customers. This can involve intentionally omitting important information or making false statements to deceive policyholders.
4. Fake Claims: An insurance company might deny or delay legitimate claims or use unethical tactics to avoid paying them. They may impose unreasonable burdens of proof, make misleading interpretations of policy terms, or misrepresent facts to reject valid claims.
5. Churning: Churning occurs when an insurance agent or company induces policyholders to switch policies unnecessarily, resulting in additional commissions or fees for the agent. This practice can be harmful to policyholders, as they may incur higher costs or lose valuable policy benefits.
6. Forging Documents: Insurance companies engaging in fraud may forge or alter policy documents, applications, endorsements, or other paperwork. This can be done to manipulate coverage terms or deceive policyholders and regulators.
7. Premium Overcharging: Fraudulent insurance companies might overcharge policyholders for premiums, often based on false justifications or misrepresentations of risk factors. This can result in policyholders paying significantly more than they should for coverage.

Here’s a list of trusted insurance companies you should consider if you are afraid of falling in the wrong hands

1. Allstate
2. State Farm
3. Geico
4. Progressive
5. Liberty Mutual
6. Nationwide
7. USAA (United Services Automobile Association)

Insurance Cost:

Cost is a very important topic should be considered especially when you are paying to get paid in the future. The cost of insurance varies depending on the type of insurance, the amount of coverage you want, and your personal risk factors. You can shop for insurance online or through an insurance agent or compare rates from different companies and pic which ones best.

Quotes:

In insurance, a quote refers to an estimate or proposal provided by an insurance company to a potential policyholder. It outlines the cost of a specific insurance policy based on the coverage options and details provided by the individual seeking insurance.

When a person is interested in purchasing insurance, they typically request a quote from one or multiple insurance providers. To generate a quote, the insurance company considers various factors such as the type of coverage requested, the insured’s personal information (e.g., age, location, driving history, health condition), the value of the insured assets, and any additional optional coverages or riders.

The quote will typically include details such as the premium amount (the cost of the insurance policy), the coverage limits, any applicable deductibles, and the terms and conditions of the policy. It is important to note that a quote is an estimation and may be subject to change based on further underwriting or adjustments to the policy details.

Coverage Gaps:

Note!! A coverage gap is not implemented by the insurance company to punish the policyholder for defaulting on premium payments. Instead, a coverage gap is a natural consequence of the policyholder’s failure to maintain continuous coverage by not paying their insurance premiums on time. Policy lapses can lead to gaps in coverage, leaving you unprotected during the period when the policy is not in force. If an incident occurs during this gap, you may be responsible for all the costs.

Credit Score:

A credit score is a matrix that is used to measure an individual’s creditworthiness, which ascertains for any financial institution the individuals ability to repay debts. It is a three-digit number that is used by lenders, banks, credit card issuers, and other financial institutions to assess the risk of lending money or extending credit to a person.

Credit scores are calculated by looking at various information in an individual’s credit report. This includes their credit history, payment history, outstanding debts, how long they’ve had credit, and other relevant factors. The most commonly used credit scoring models are created by companies like FICO and VantageScore. These scores help lenders and institutions assess how reliable and responsible a person is with their credit and financial obligations.

Conclusion

In conclusion, insurance offers us an opportunity to face uncertain events head-on. However, it is important to approach it with caution and understanding. Making informed decisions and being aware of the terms and conditions will ensure that you are adequately protected. Remember, insurance is a tool to beat fate at its own game, but playing the game wisely is crucial to avoid potential pitfalls.