Life is full of risks. Full stop. From the moment we wake up, to the moment we step out of our houses – we are faced with risks both obvious and unforeseeable, both serious and trivial. To minimize the effects of the risk, in the event that it does occur, is the least that we can do. This is the reason why we all need an insurance.
What is an insurance and how does it work?
Insurance is a form of risk management primarily used to protect against the danger of a contingent, uncertain loss. When you buy an insurance, you transfer the cost of a potential loss to the insurance company in exchange for a fee, known as the premium. For this payment, the insurer (the company) promises to “indemnify” or compensate you in the case of a loss covered by your contract.
The premiums paid are then pooled together, and since not all insured individuals will suffer losses at the same time or at all, the insurance company has time to invest the funds securely, so it can grow and pay out when there’s a claim.
The contract mentioned earlier is what we call the insurance policy. It details the conditions and circumstances under which the insured will be financially compensated.
What are the different types of insurance?
There are numerous types of insurance available, each covering a different kind of loss a person could be worried about. A single policy may cover one or several related risks, depending on the insurance provider of your choice.
Here, we have outlined for you the basic types of insurance that a person should have:
• Health Insurance
Health insurance covers the cost of medical treatments. It is an important policy to invest in, as you’ll never stop needing it. The ever-increasing cost of healthcare nowadays makes even a simple check-up and hospital stay amount to a pretty penny – especially when you’re not prepared.
It could mean a matter of life and death if you happen to get a serious injury or a sudden illness and not have enough in the bank for treatment.
• Life Insurance
Life insurance gives monetary benefit to the people that are financially dependent on you if you pass away. The policy often allows the option of having the proceeds be paid to the beneficiary either in a lump sum cash payment or an annuity.
It also provides for burial, funeral and other final expenses on your part. If you have minor children, a stay-at-home spouse, or out of work parents that may face financial hardship if you died, this type of insurance should be high on your priority list.
• Auto Insurance
If you have a car or any other similar vehicle, you need an auto insurance. It protects you against financial loss in case you get into vehicle-related accidents. If you happen to injure someone or damage their property, it could potentially cost you everything you own. These things happen quickly and it is best to be prepared for them, even if you’re a careful driver.
Aside from accidents, auto insurance may also cover for the event your vehicle gets stolen or damaged.
• Travel Insurance
Travel insurance is a policy for those who travel abroad. You don’t necessarily need to be a frequent flyer to avail the peace of mind it delivers. It covers risks such as travel delay or flight cancellations and loss of personal belongings.
Medical expenses and having your body returned home in case you pass away abroad are also included in travel insurance.
• Property Insurance
Property insurance is a broad category which has various subtypes. Basically, it gives protection to your property against risks, such as fire, theft, or damage caused by natural calamities (earthquakes, typhoons, flooding, etc.).
Home insurance, or homeowners’ insurance, is included under this category.
• Disability Insurance
Should you be disabled and unable to work, disability insurance is meant to provide income. It is often automatically provided by one’s employer, especially if the type of work an individual has is hazardous.
There is a short-term disability insurance which covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities. There is also a long-term disability insurance, that covers an individual's expenses up until they are considered permanently disabled and thereafter.
At the end of the day, we all want some form of peace of mind. Having an insurance affords us that, as we go along our daily lives.