Types of Insurance: Understanding the Differences

Auto Insurance:

Virtually all Americans become first acquainted with auto insurance when they reach the age of sixteen or a little before, as it is a requirement for driving. More specifically, insurance is a requirement for registering a vehicle. Without proof of insurance, or proof of $40,000 in disposable savings, the DMV will not grant a registration for a $5,000 vehicle.

Car insurance generally covers damage to the vehicle, damage to another vehicle and sometimes injury that is incurred in case of an accident. These are broken down into several sub-categories. Damage to the vehicle caused by collision is designated “collision” and is differentiated from damage from other sources such as a fire, hail, volcano, or hitting an elk, which would be designated “comprehensive”. We have many more Insurance Help Articles Now Available.

Other things often covered by auto insurance include emergency roadside assistance, such as tow truck fees, or lock-pick services. These are not usually expensive compared to the other items covered and can give peace of mind, especially for owners of older vehicles.

Life Insurance:

There are several forms of life insurance, all of which have their unique pros and cons. Term life insurance is the simplest and cheapest form. Essentially, term life insurance guarantees that if a person passes away within a certain number of years of opening the policy, their dependents will be covered for a certain amount. Standard lengths for terms are 10, 20, or 30 years. Often terms are guaranteed to be renewable up to age 95, with premiums increasing with age. The main advantage for this type of insurance is that because terms expire, they are far cheaper than other types of life insurance.

One might wonder how a term that expires could possibly be a good thing. Wouldn’t an expiring life insurance policy be somewhat useless, just when it would be needed most? In fact, many people have more of a need for life insurance when they are young to middle-aged. This is a time when people are often less well off in terms of savings and have more obligations, such as dependents. Older individuals often have more savings accumulated, their dependents have grown up and become independent, and their house is probably paid for, and so life insurance is not really needed any more.

Permanent life insurance works similarly to an investment account. Money is put in; it accumulates and compounds, and later is withdrawn. Permanent life insurance is much more expensive, and is probably more than most people really need. However, it can be ideal for people who have assets that cannot be easily liquidated, such as a business, and want to be able to easily leave something to their children.

Health Insurance:

This is a policy that covers medical expenses, after a deductible has been paid by the policy holder. Often provided by employers, especially in jobs between the 1950s and 2000s, health insurance is probably the most hotly debated topic in this list. Government programs such as Medicare or Medicaid attempt to provide coverage for those who cannot pay for it, but often fall short. Much of the debate lies in determining exactly what people ought to receive. On the one side are those who believe that people should receive only what they pay for themselves. On the other are those who believe that everyone deserves medical care, even if they cannot pay for it.

Home Insurance:

Home insurance is a necessary part of owning a home, since most homes cost far more than the average person is able to pay for. Even people who are firmly opposed to personal debt will often take out a mortgage, simply because they need to live somewhere, and do not have a couple hundred thousand dollars of disposable cash. Home insurance often covers things such as fires, floods or burglary, but it is important to determine exactly what the policy covers, since such things vary widely.

Disability insurance:

Falling somewhere between health and life insurance, disability insurance covers health changes that are permanent but not fatal. That is, circumstances that would irreversibly change a life, but not end it would fall into this category. Usually the payout is determined by the level of irreversible incapacitation. For example, losing both hands or the sight in both eyes would be considered worse than losing the leg below the knee, and would result in a larger compensation. We have many more Insurance Help Articles Now Available.