Insurance is a tool used to help manage financial risk. Financial risk can take many forms. There are risks to our investments, liabilities for our actions, and risks to our ability to earn income. Insurance was created to manage all these risks. This article provides a broad overview of the various classes of insurance. 

Property and casualty insurance protects specific assets from many forms of loss. It also insures the property owner against liability for damages resulting from the asset’s use.

Investments in real property and hard assets are at risk for theft or destruction by natural causes, accident, or mischief (generally, acts of war and terrorism are not covered by property and casualty insurance). Property and casualty insurance helps manage these risks. This type of insurance is available in the form of home insurance, automobile insurance, boat insurance, business property insurance, etc. It protects specific assets from many forms of loss and insures the property owner against liability for damages resulting from the asset’s use.

The cost of property and casualty insurance is based upon the value of the insured assets and the environment in which the assets are located. For example, auto insurance rates vary depending on the area where the automobile is located. Communities with high rates of auto theft and accidents have higher auto insurance rates. Auto insurance also takes driving records and the insured’s age into consideration when pricing policies. Some of the types of auto insurance coverage include liability, medical payments coverage (or personal injury protection), comprehensive physical damage, and uninsured/underinsured motorists’ collision.

Many occupations and professions risk causing damage to others that can result in financial awards against them. If one were sued for malpractice, this would cause financial hardship when one had to liquidate assets or assign future income to pay the awards. Doctors, lawyers, accountants, financial advisors, construction workers, and anyone else whose occupation can inadvertently cause harm to others or others’ property may be liable for financial damages. Financial damages, whether paid from assets, future income, or both, can be daunting and pose a severe financial hardship. There is specific insurance that helps manage these risks arising from one’s occupation. Premiums for such insurance are based upon industry statistics and the history of the insured person.

Sometimes claims against a person may not be made for years after the occurrence of the action causing the claim, so it is important to know the conditions under which the policy covers claims.

We all know people who have high medical care costs. Often paid by employer contributions, healthcare insurance is essential to assure an adequate level of medical care. Yet, there are many Americans who have inadequate or no health care insurance at all. There are many forms of health care insurance programs available, including fee-for-services plans, hospital and medical service plans, and managed care plans (prepaid health plans that provide comprehensive health to members, health maintenance organizations, preferred provider organizations, exclusive provider organizations, and point-of-service plans). Premiums are based upon group statistics and levels of care provided. For eligible individuals, federal Medicare and state-sponsored Medicaid insurance help defray the high cost of medical care. The Affordable Care Act was put in place in 2010. The goal of the ACA is to make health insurance affordable and available to more people, expand the Medicaid program, and encourage innovative medical care delivery methods to lower the cost of health care.

With the aging of America, there is a strong need for long-term health care insurance to cover costs of nursing homes and assisted living care for the elderly. Long-term care insurance helps provide for the cost of long-term care for a predetermined period. This type of insurance is designed to cover long-term services and supports including personal and custodial care. It is generally not covered by health insurance, Medicare, or Medicaid. 

If a family were to lose its income due to the death or disability of the principal earners, it would face financial hardship. While no one can put a monetary value on human life, one can put a value on his or her earning ability. Life insurance and disability insurance pay benefits to replace lost earnings due to death or disability. The premiums for this insurance are based upon statistics for the age, health, and occupation of the insured, as well as the amount of benefits to be paid. While both life and disability insurance are available through groups, such as employer plans, individuals can buy policies tailored to their specific needs. Life insurance is so versatile that many individuals use it for advanced financial planning purposes, such as retirement planning and savings, as well as for death benefits.

Special forms of insurance are available to cover almost any other financial risks. For example, there is unemployment insurance, investment insurance, and dismemberment insurance (for loss of a body part). Some high-fashion models are even insured against loss of income due to loss of their good looks. Premiums for such insurance are also based upon the likelihood of an event occurring and the amount of benefits to be paid.

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