We have published numerous articles on the types of commercial insurance that are relevant to the tourism industry (see the end of this article for post links) but have barely covered personal insurance. This article, therefore, aims to expand on the topic by covering the main types of personal insurance and how they benefit our lives.
Hundreds of years ago, the concept of personal insurance didn’t exist. As a result, people simply hoped that a catastrophic event would not affect them. If their houses burned down, they either had enough money to rebuild or they were left homeless and destitute. Back then, plagues and life-threatening illnesses were rampant. If they became sick, couldn’t work and had no savings to fall back on, it was simply tough luck.
Gradually, people began to realize that it was possible to transfer the risks inherent in life-changing events at an affordable small monthly or annual premium payment. In the 1700s, the concept of modern insurance started to spread. Risk underwriting businesses flourished, spurned on by broker representatives who educated and convinced the masses on the basic principle of insurance; that the premiums of many would fund the losses of the few.
Here, then, are the main types of personal insurance, and how they benefit our lives.
Let’s start with one of the most fundamental insurance forms of all – Life insurance. Usually, a person takes out life insurance on themselves, but this is not always the case as the life of another person can also be insured. The main benefit of life insurance is to provide for loved ones and family if the person should die prematurely.
If that person is the family breadwinner and unexpectedly dies at a relatively young age, what would happen to the rest of the family? They would probably inherit a home mortgage, car payments, property taxes and other costs. With the breadwinner’s income gone, they likely would be out in the street. Life insurance makes sure this doesn’t happen. Upon the death of the insured, the family would receive a large payment, sufficient to cover their immediate expenses and allow them to transition into a life without their loved one. Before the advent of life insurance, the untimely death of someone in their prime years has frequently been a double tragedy, both robbing a family of a loved one and destroying a family financially. Life insurance provides a safety net when the worst happens.
In any person’s life, there’s a pretty good chance that the biggest investment they make, and the most valuable thing they own, is their home. Mortgages usually run for 30 years, and home values easily run into hundreds of thousands, if not millions.
Owning a home is considered the bare minimum of having a fulfilling life. As such, the destruction of one’s home is about as bad as it can get. And there are many ways in which a home can be destroyed, especially depending on the area in which you live.
Earthquakes, hurricanes, tornadoes, wildfires and floods are some of the natural disasters that can devastate certain regions, destroying dozens or even hundreds of residences. And more local disasters can occur as well, such as a fire, a chemical or gas leak, infestation or any of a number of problems. None of them is particularly likely to happen, but when they do, the effect on your life is terrible. Homeowner’s insurance covers against these disasters occurring. If they should happen, and your home is covered by a homeowner’s insurance policy, you will be reimbursed the cost to rebuild or repair your home.
It’s worth noting that some homeowner’s insurance policies do or don’t cover certain types of disasters that can ruin a home. It’s important when taking out a policy to make sure you’re covered for whatever disasters you fear or anticipate. For instance, it might be more difficult to get a policy that covers flooding in an area near a river known for flooding. Or to get insurance against hurricanes in a coastal region where they’re common.
Renter’s insurance is very similar to homeowner’s insurance but deals with situations where one person is renting a property from another. The concept is very similar but also deals with the damage caused by people. With homeowner’s insurance, you are usually not covered if you destroy your own home. But with renter’s insurance, you as a renter can be covered if the people who are renting your property do damage.
Health insurance has become so fundamental to the model of health care that most people think the two are one and the same. If you need to get medical care of any kind, you need health insurance. When you pay for health insurance, you’re essentially paying for health care.
The idea of health insurance is protecting a person against catastrophic illness or injury, the treatment of which would cost far more money than they can reasonably afford. These kinds of illnesses and injuries are rare, but they cost huge sums of money to treat. Think of cancer or degenerative diseases like ALS, or being involved in a car accident in which you fracture your spine.
In the less expensive model of health insurance, you’re taking out the policy to cover you against the event of illness or injury costing tens or even hundreds of thousands of dollars to treat. Under normal circumstances, there’s no way most people could pay those sums, especially when the illness or injury is unexpected. Health insurance covers that risk. The expanded version of health insurance goes far beyond that. In this model, most payments to medical professionals and health care organizations and institutions come from health insurance companies. Every person has health insurance (in theory), and negotiations on pricing are between the insurance provider and the medical provider.
In this model, even routine and minor medical costs are covered by insurance, although the concepts of deductible and copay come into play. Deductibles are an amount of money you must cover out-of-pocket before the insurance policy kicks in. Usually, deductibles are factored on a yearly basis. So, you might have a yearly health insurance deductible of say 2,000, you would have to pay 2,000 of your own money, and the insurer would cover the rest. The idea of copay is that every time you seek a certain medical attention, you pay some sum (usually a small one) and the insurance policy pays the rest. For example, each time you buy prescription medication, you might have a copay of 15 and the policy covers the remaining cost.
Aside from deductibles and copays, the insurance model has insurance policies covering the rest of the cost of health care. Further, a majority of people get their health insurance provided by their employer. The cost of health insurance is therefore somewhat internally incorporated into the salaries of employees. In other words, they are getting ‘paid’ in health insurance.
Subsets of Health Insurance
Within the overall umbrella of health insurance, there are a couple of subcategories which tend to be treated differently enough that they deserve specific mention. These are dental insurance and vision insurance.
Dental insurance specifically refers to a policy covering only medical costs associated with maintaining your teeth. The dentistry profession is separated from much of the rest of the medical world, and so too with insurance.
This means that most people have a separate dental insurance policy from their more general health insurance policy. This can even come from different providers. Every dentist prefers that their patients pay the same day they receive their treatment, and Diana Lobdell from BetterPracticeSolutionsLLC.com says this can be achieved by working with a dental insurance billing company. While sometimes having to track and deal with multiple health-based insurance policies can be a hassle, splitting out dental and general health insurance makes sense in many cases. Vision insurance policies are popular because many people wear glasses or contacts. These tend to be expensive, and furthermore, people with vision problems will often times find their vision worsens over time. As a result, they require semi-frequent checkups with a vision specialist.
Aside from a house or condominium, the most valuable piece of property most people own is their automobile. And many people use their car for at least an hour on a daily basis. All that driving around in congested conditions means that auto accidents are bound to happen. Car accidents are especially significant from an insurance perspective because there are two components to them. First of all, there’s the property damage to automobiles, which can cost tens of thousands. Then, there’s the potential harm that can be inflicted on the people involved in car accidents.
There’s also an element of responsibility in a car accident In most cases, one of the participants is at fault, and therefore liable. Without auto insurance, dealing with car accidents would be even more of a nightmare than it is. But with the existence of auto insurance, we can drive around safe in the knowledge that should we get into an auto accident, there’s an insurance policy guaranteeing coverage for damage and injury caused. In fact, auto insurance is deemed so necessary that most governments mandate all drivers to have it. Life, home, health and auto insurance are the four pillars of the insurance industry. That’s not to say that other forms of insurance don’t exist – in fact, you can get insurance for just about anything. But these are the four types of insurance fundamental to how our society functions.
At its core, personal insurance is about taking the financial risk out of life. We can’t prevent awful events from occurring. The world is often unpredictable and cruel. But insurance gives that surety that even if something terrible happens, it’s not going to cause financial ruin in addition to the already unpleasant consequences suffered.