What Is Insurance And What Are The Different Types?
Insurance is there to help you financially when you suffer a loss. Insurance will pay your hospital bills after an accident, for example.
There are several types of insurance, including life, health, and property insurance.
Life insurance pays out when the insured party dies. The money helps families to cover expenses, handle debt, and potentially replace the income that the policyholder would’ve received.
Life insurance falls under term or permanent insurance.
Term insurance is generally cheaper but has an expiry date. The policy will be valid for the agreed-upon term. If the policyholder lives beyond that term, they’ll need to make new arrangements for cover.
Getting cover when you’re older is expensive, so term policies are not ideal.
Permanent insurance looks more expensive at first, but the benefit is that there’s no expiry date. It doesn’t matter if you live to sixty or eighty years old, as long as you pay the premiums, the cover remains intact.
Health insurance pays for medical expenses if you’re ill or injured. Whole cover is pricier but covers you for both hospital and day-to-day medical expenses. A hospital plan is cheaper but only covers you for care in the hospital, and it is more limited.
Property insurance covers your home and personal property. If your house burns down, for example, you’ll claim against this type of insurance policy.
Property insurance also often includes personal liability insurance. If someone is injured on your property, or because of something you did, liability insurance will pay for the damage.
Importance Of Insurance
Insurance is often seen as something of a grudge purchase. It’s also usually one of the first expenses that people drop when times are tough.
Cutting your insurance is a short-sighted move, though. It’s far better to economize by reducing your other costs. For example, you could find great ppl electricity rates or reduce your insurance cover to the bare essentials.
Why keep the insurance going?
With health insurance, it’s easy to understand the benefit. Even if you’re not someone who’s sick often, you could be involved in an accident or have another medical emergency. The same logic applies to your home and its contents.
Life insurance seems less critical, especially if you’re young. If you’re in your twenties, your death seems a long way off.
The reason that insurance is so important is that anything can happen. Think about 9/11—no one envisaged both towers going down at the same time. It happened, though.
Think about the COVID-19 crisis. In December 2019, who could’ve predicted that most countries in the world would be in lockdown less than four months later?
The point is that the future is never assured. Insurance remains an integral part of responsible financial planning for young and old.
Ask yourself a few questions. If your home burns down, do you have the funds to rebuild it? If you die tomorrow, will your family be able to cope financially? If you’re injured and unable to work, can you afford to take time off to recover? For how long?
Most of us are living paycheck to paycheck, and the answer is that a severe financial loss would ruin us.
How To Choose The Policies That Are Right For You
Before you rush out to get the whole package of insurance products, take a step back. You need some insurance, but you might not need all types of insurance.
Read through our insurance tips first to see how to get the best deals from insurance companies.
Start by consulting an independent financial planner to assess your current situation. Be prepared to pay for this service.
Why pay when most consultants offer free advice, though? By paying for the consultation, you’re reducing the pressure on the broker. Free consultations take up a broker’s time and divide their attention. To make up for this, they’re going to have to sell you something.
Why use an independent broker? An independent broker works with more than one company. They offer a wider range of products and have less commitment to a particular product.
Make sure that the broker is well-established and reputable. Before signing any documents, do your research into the companies that the broker recommends. They must have the resources to pay out claims and the staying power to ensure that they’re still around in twenty to forty years.
Be completely honest about your application. It’s tempting to fudge the lines a little to reduce your premium. The little white lie will cost when you need to claim. Most insurance companies look for reasons to decline claims, so don’t give them a foothold.
If you lie on your application, the company will be entitled to decline the claim outright.
Finally, consider your needs carefully. Being over-insured means that you’re paying for something you’ll never use. If you’re renting a one-bedroomed apartment, for example, you probably don’t need a million dollars in content cover.
