Topics: Insurance, Disability insurance, Damage waiver Pages: 6 (1818 words) Published: January 27, 2013
Intro To Insurance: Introduction
Filed Under » Auto Insurance, Casualty Insurance, Health Insurance, Life Insurance, Property Insurance By Cathy Pareto

In one form or another, we all own insurance. Whether it's auto, medical, liability, disability or life, insurance serves as an excellent risk-management and wealth-preservation tool. Having the right kind of insurance is a critical component of any good financial plan. While most of us own insurance, many of us don't understand what it is or how it works. In this tutorial, we'll review the basics of insurance and how it works, then take you through the main types of insurance out there. (To read more about insurance, see our Special Insurance Feature.)

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Intro To Insurance: What Is Insurance?
Filed Under » Auto Insurance, Casualty Insurance, Health Insurance, Life Insurance, Property Insurance By Cathy Pareto

Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. (For background reading, see The History Of Insurance In America.)

Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate. We say "significant" because if the potential loss is small, then it doesn't make sense to pay a premium to protect against the loss. After all, you would not pay a monthly premium to protect against a $50 loss because this would not be considered a financial hardship for most.

Insurance is appropriate when you want to protect against a significant monetary loss. Take life insurance as an example. If you are the primary breadwinner in your home, the loss of income that your family would experience as a result of our premature death is considered a significant loss and hardship that you should protect them against. It would be very difficult for your family to replace your income, so the monthly premiums ensure that if you die, your income will be replaced by the insured amount. The same principle applies to many other forms of insurance. If the potential loss will have a detrimental effect on the person or entity, insurance makes sense. (For more insight, see 15 Insurance Policies You Don't Need.) Everyone that wants to protect themselves or someone else against financial hardship should consider insurance. This may include: Protecting family after one's death from loss of income

Ensuring debt repayment after death
Covering contingent liabilities
Protecting against the death of a key employee or person in your business Buying out a partner or co-shareholder after his or her death Protecting your business from business interruption and loss of income Protecting yourself against unforeseeable health expenses

Protecting your home against theft, fire, flood and other hazards Protecting yourself against lawsuits
Protecting yourself in the event of disability
Protecting your car against theft or losses incurred because of accidents And many more

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A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car...
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