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Insurance Category and Types: 5 Basic Types of Insurance

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Risk is almost everywhere and it mostly happens when it is least expected, such that when it occurs depending on the extent of the damage can leave one in debt. However, since we cannot stop such unexpected events from occurring we can sometimes get protection. Insurance protects us from unexpected costs, thereby minimizing the financial liability from such events. There is a wide range of insurance category and types, each of which covers a different area of one’s life.

Insurance Category and Types

However, these various insurance categories and types are important to our daily living. Some policies can cover almost everything, but depending on your needs there are ones that are more important than others. Moreover, not only your needs can determine the right insurance category with the right amount for you, but also your situation at the time of purchase. Which will be assessed with factors such as age, children, lifestyle, employment benefits, and more.

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Just we mentioned earlier, there are a number of different insurance categories and types, but some are more important than others depending on our most relevant needs. In this article, we will provide information in detail regarding the following 5 insurance category and types.

Now that you have seen the list of the most important of the insurance category and types, which most financial experts recommend is important for everyone. Let’s find out how each of these plans work as you might not be able to protect your finances without having an adequate knowledge about each of the aforementioned insurance category and types.

Read Also: Life Insurance (Definition), How it Works and Best Life Insurance Companies

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1. Health Insurance

Health insurance is a contract between an insurer and the policyholder, in which the insurer promises to pay for all or some portion of the insured’s medical costs in exchange for a small known fee. It is one of the most important insurance category and types. Just like the quote; health is wealth which simply connotes that your good health condition allows you to work and earn money.

The cost of purchasing a health insurance might be high, but the cost of not having coverage is much higher in the sense that you might develop a serious illness or involved in a fatal accident which can accumulate a large medical bill and may cause a lot of debt if you cannot afford to pay out of your pockets. Moreover, purchasing a health insurance should be put first. This is because it protects your health which allows you to work and earn money, therefore it is an essential part in minimizing financial risks.

However, the rising the cost of medical care has made buying health insurance a necessity. It covers health care expenses including medications, routine visits, serious injuries etc.

2. Life Insurance

Life insurance is a way to provide financial assistance to your loved ones or people that are financially dependent on you after your death. It is a contract that guarantees that the insurer pays your designated beneficiaries  a sum of money after you’ve passed away, in exchange for the regular premiums you paid overtime during your lifetime. A beneficiary is the person name appears in the insurance policy who receives benefits, it might be a spouse, adult child, sibling or charitable organization.

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Purchasing life insurance can help ease the financial burden placed on your dependents, it covers your funeral expenses and provide for the ones you leave behind. Life insurance is very important if you have a family that is dependent on your salary, and you want them to continue to live in the style they use to before your death. Even if you are single, it can be used to cover your funeral expenses and pay off your debts such as mortgage and loans.

Moreover, there are two main types of life insurance. Term life insurance, which only covers you for specific period such as 10, 20, 30 years. If you don’t die within the term, your beneficiaries won’t receive any benefit. They only receive money in the case of your death. Permanent or whole life insurance on the other hand covers you for a lifetime. Your beneficiaries receives a certain amount of money after your death. Furthermore, certain factors such as chronic or terminal illness can trigger payment while the policyholder still lives.

3. Home Insurance

Home insurance covers your residential home and any other associated structures. It protects you by giving you a financial safety when damage befalls your house. Home insurance does not only provide financial protection to your home, but also takes care of other structures and valuables inside the property but it all depends on the contract. Therefore, when purchasing a home insurance policy look for the one that covers the cost of where you stay while your home is being repaired. And also, where the replacement for the property and its contents. Some also protects you against liability for injuries and property damage to guests caused by you, your family, or your pets.

Check Also: Insurance Policy: Meaning and Types of Insurance-Policy

4. Disability Insurance

Disability insurance protects you from the risk of losing your income due injury, illness or medical condition that meets the definition of disability. It protects your ability to earn money which you will use to pay for other essential insurance category and types such as health insurance. Disability insurance is an income protection that pays you part of your monthly income if you are unable to work due to an injury or illness. It provides coverage that help you pay bills like tuition, car payments, and food, clothing, and utilities expenses until you are back on your feet or even if you can no longer continue working.

Moreover, most states require employers to offer their employees worker’s compensation for injuries that happen while they are on the job. But it is limited to only injuries that occur while working, in other words it does not cover off-work injuries and illness like cancer.

5. Auto Insurance

Auto insurance covers cars, motorcycles and other vehicles. It protects against physical or property damage, bodily injuries, medical payments that could occur from driving. Auto insurance is mandatory by law in most places, therefore driving without insurance is against the law and dangerous as well. This is because car accidents are expensive even without any injuries, they should be protected against accident, collision, theft or vandalism.

Read More: Disability Insurance: Meaning, Types and How Disability Insurance Works

Additional Notes

In conclusion, to ensure that you get the best insurance that is right for you, make a thorough comparison of rate quotes by several insurance companies and also the coverage they provide. However, there are several insurance categories and types but there ones that are rate at the top when it comes to importance.

Health, life, home, disability, and auto insurance are the top insurance category and types that everyone should have. Even most experts believe this, they are the most necessary types of insurance that will help protect you and your assets. You should always think about your needs when purchasing an insurance, seek advice from expert financial planners to find out the best policies that will work for you.

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