When you purchase insurance, you are making a contractual agreement with an insurance company to compensate you for the losses outlined in your policy. Although you may not be the actual insured, you are always the one who pays the monthly premium. When choosing the right insurance policy, be sure to read it thoroughly. The most common insurance policies are home, auto, and life insurance. But they also come in business and health insurance varieties. Here’s a quick primer on each of these types of insurance.
Individual health insurance policies cover the person and their dependents. Individual health insurance policies are sometimes self-insured, or excess/stop-loss insurance. They cover the cost of bodily injury or illness, plus medical expenses. Some types of individual health insurance include individual disability insurance and individual credit life insurance. Individual credit life insurance is sold in connection with a loan or credit transaction, and does not cover an amount or duration that exceeds the loan or credit transaction. These policies also cover the costs of an individual’s death.
The term “premium” refers to the money charged for insurance coverage. Premiums are based on the risk a company perceives will be incurred by the insured. Premiums earned by insurers reflect the amount of protection they believe they will incur. Consequently, the premiums earned reflect a portion of the amount of risk covered by the policy. The net value of premiums is calculated by using a statutory mortality table. These reserves are necessary to cover unexpected expenses.
Traditionally, insurance was not regulated by the government. However, this was not the case until 1944, when a Supreme Court case called United States v. South-Eastern Underwriters Association determined that Congress could regulate insurance transactions interstate. This resulted in the McCarran-Ferguson Act, which required insurers to follow the laws of several states. The law also applied the Sherman Act and the Clayton Act to the insurance industry.
In the modern era, governments play an increasingly important role in the insurance industry. In addition to subsidizing insurance premiums, the government is actively involved in the industry, either as a direct provider or rate setter. For example, it subsidizes terrorism reinsurance. However, these efforts do not always promote sound insurance principles, because political forces sometimes prevail over rational thinking. To maintain a stable insurance market, government agencies must recognize the costs of providing insurance.
The cost of insurance depends on the amount insured. Insurance policies usually provide compensation in the form of dollars. During a financial crisis, this money is available to policyholders. It also gives them peace of mind. In addition to reducing financial stress, insurance also protects policyholders from exposure to risky conditions. While policyholders pay a small percentage of their income to purchase insurance, the money they are paying goes towards boosting the economy.
The insurance contract between the insured and insuring party specifies the type and amount of risk each party is willing to assume. It is called an insurance policy, and it includes information about the participants involved, the period of coverage, the types of losses covered, and exclusions. The insurer compensates the insured based on the amount of risk represented by the insured. The policy can also include additional insureds such as a hired driver. Insuring these individuals is a good idea for all businesses.