Series: Insurance

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Rest Assured: Insurance Concepts Terms of Use:

Thousands of years ago many ships were lost as they went down the dangerous Yangtze River in China. Merchants got together and put different parts of their loads on different ships so that if one ship went down, everyone lost a little and no one merchant lost everything. This was the first type of insurance.

Even today, the concept of insurance is still the same: a lot of us share a risk so if something bad happens, we all lose a little rather than one of us losing everything.

You can buy insurance on anything. A famous 1930s actress, Marlene Dietrich, insured her beautiful legs. There are even insurance policies against being captured by outer space aliens or being eaten by ghosts.

Most people buy or pay “premiums” for five kinds of insurance: life, health, property, casualty and liability. Let’s take a look at each:

Life insurance provides money when someone dies. People who are supporting a family need life insurance, although they can usually cut back on the amount they carry once their dependents no longer need support.

Some experts say that children or single people do not need life insurance except for “burial policies” covering funeral expenses.

Health insurance covers medical bills and other financial losses when you are sick or disabled. Many people do not have to buy health insurance because their employers provide it, or they are covered under government programs like Medicare or Medicaid.

Property insurance will replace things you own that get lost, stolen or damaged. There are many kinds of property insurance such as automobile, business and homeowner.

Casualty insurance protects you against sudden unexpected losses like accidents.

Liability insurance covers damages that are your fault. This kind of insurance often pays for your legal expenses, too, when someone sues you in court.

The more people who buy insurance, the less it costs. Also, in general, the less likely the bad thing is to happen to you, the less your insurance costs.

Series: Insurance

Page 2 of 2

Rest Assured: Insurance Concepts Terms of Use:

Actuaries are people who figure out how much to charge for insurance. They study statistics on things like the number of cars stolen in certain areas, the number of people who die from cigarette smoking, and so forth. Then they group people with others who have similar risks and charge that group a rate.

For example, teenagers as a group have more car accidents, and therefore they have to pay more money for automobile insurance. People who live in high crime areas have to pay more for homeowners' insurance.

No one likes to pay insurance premiums, but you don’t want to get stuck without insurance when you need it, either. Even so, there are good ways to save money on your insurance premiums.

You can prevent some risks yourself by taking precautions such as putting up smoke detectors in your home and using seatbelts in your car. Quitting smoking or losing weight can lower your health and life insurance premiums.

You can take on or “absorb” risk by simply not buying certain kinds of insurance. Most people do without nursing home insurance, pet care insurance, legal insurance, cancer insurance, and many others.

Another way to save money on your insurance premiums is to absorb some of the risk yourself by signing up for a higher deductible. This is the amount you must reach before your insurance company will pay out on a claim. If you raise a $500 deductible to $2000 or more, you are still covered in case of a major problem, but you could save as much as half on your insurance bills.

Many people pay less for health insurance by paying for their own drugs and doctor’s visits.

Insurance companies often offer a discount if you purchase multiple policies through them (auto, homeowners, health, etc.).

A bad way to save money on insurance is to sign up with companies that have no track records or that may go out of business when you need them.

To check out any company with your state insurance board, click here.

See what you learned.

 

Check out:

"Auto Insurance: Crash-Tested"

"Insurance in Sickness & in Health"

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