Types of Insurance

The world of insurance can be confusing. There are so many aspects of it that are difficult to wrap your brain around. However, it’s important that you understand how your policy works and what it entails. Doing so can help you get the most coverage for your money. The following is a basic overview of how insurance works.

types of insurance
Types of Insurance

There are quite a few different types of insurance. The basic policies everyone should consider purchasing are homeowners/ renters insurance, life insurance, liability insurance, car/boat insurance, disability insurance and health insurance. Each offers a specific and unique type of protection.

How does it Work?

How does an insurance company afford to stay in business? Mila Araujo who writes for thebalance.com explains, “When you buy insurance, you make payments to the company. These payments are called “premiums.” In exchange, you are covered from certain risks. The company agrees to pay you for losses if they occur. Insurance is based on the idea that spreading the risk of a loss, such as a fire or theft, among many people makes the risk lower for all.” The idea is that every client is putting money into a big pot. Not everyone will have a claim at the same time. This means that as people keep paying, there should be money in the pot for each person when they need to file a claim.


Before your insurance company with pay out any claims, you typically have to meet a deductible. This number can vary wildly depending on the type of insurance you have. For example, your car insurance deductible might only be $250, but your deductible for your health insurance could be $5000. You are responsible for paying your deductible. That means if the damage to your car will cost $350 to repair, you would be responsible for paying your $250 deductible and your insurance would then cover the remaining $100.

Paying Claims

After you file your claim, your insurance company will review the information and determine whether or not you have coverage for that specific incident. If you do, they will process your claim and send you a check or to a repair shop (for auto accidents). The amount of the check will cover all of your losses with your deductible taken out if you haven’t met it yet.

The Fine Print

Before you sign up for an insurance policy, make sure you read the fine print. There’s something called a declaration page that will help explain everything that’s covered in your specific policy. This might be one of the most important documents related to your insurance. It’s the standard by which all claims will be measured against. Understanding this information will ensure there’s no confusion about your coverage in the event you need to file a claim.

When you’re paying for an insurance policy, it’s essential that you understand how it works. Make sure your getting the coverage you need for the right price.

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Life Insurance

With so many options for life insurance, it can be a challenge to make a decision.

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Home Insurance

Make sure your getting the coverage you need for the right price.

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Health Insurance

The United States spends more on healthcare per person than any other country.

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