What is Insurance?
Insurance is a financial protection that allows us to take risks.
If you have ever purchased a home, the lender probably required
that you purchase insurance. This is intended to protect the interests
of all parties in the transaction. Imagine what would happen if
you didn't have insurance and your house caught fire and burned
to the ground. All of a sudden you would have no place to live.
It wouldn't be easy to find a suitable place to live on your new
budget, which now includes a rental payment in addition to the old
mortgage payment. The house may be gone, but the debt isn't;
the lender will expect you to continue to make your mortgage payments
for the duration of the loan period. Most of us can't afford to
do this, that's why we purchase insurance. Insurance allows us to
do what we need to do without worrying about the "what if's".
Types of Insurance
Property Insurance
covers the risk of property loss in a variety of personal and
commercial situations. It protects private homes and their contents,
commercial buildings, equipment, furniture, business records,
supplies and other physical items.
Casualty Insurance is
made up primarily of liability coverages, which protect an insured
against injury or damage claims made by other parties. Legal liability
arises through negligence, or the operation of law or due to contract
obligations. Automobile insurance, general liability insurance
and workers compensation are examples of liability insurance.
Casualty insurance also embraces crime (burglary and robbery)
insurance, fidelity bonds, surety bonds, boiler and machinery
coverages, plate glass insurance, and aviation insurance.
Life Insurance and Annuities
help provide economic security for survivors when someone dies.
Life insurance is often used to pay funeral costs and debts.
It is available on an individual and a group basis. Annuity
contracts guarantee to make payments to a certain party for a
specific period of time or for life.
Health Insurance includes
accident coverage, medical, dental and disability insurance. Various
forms reimburse people for medical expenses, pay the providers
of health care, or provide health services on a pre-paid basis.
Types of Insurers
Stock Companies
These are the leading type of insurers in the United
States. They control almost 70 percent of all property and liability
insurance premiums and about 50 percent of life insurance premiums.
Stockholders own these companies and share the losses and profits.
Mutual Companies
Policyholders are the owners of these companies,
which control about 30 percent of the property and liability insurance
business and about 50 percent of the life insurance business.
Other Private Insurers
Many health associations and health service plans
provide pre-paid hospital, medical and surgical care to subscribers.
Fraternal benefit societies provide some insurance for their members.
Government Insurers
The federal government provides insurance for certain
catastrophic risks, such as in the National Flood Insurance Program,
as well as life insurance for veterans, survivors benefits under
Social Security, and health care under Medicare and Medicaid.
How Insurance Is Sold
Agents represent insurance
companies and must pass an examination to obtain a state license.
Direct writers are hired by individual companies. These agents
usually receive a salary, or a salary plus commission. A direct
writing company has complete control and ownership of its policies
and renewals. Captive or exclusive agents represent one company
and are paid a salary, commission, or a combination of both. A
company who uses captive agents owns and controls its accounts,
policy records and renewals.
Independent agents
represent more than one company and work on a commission or a
fee basis. They are independent contractors who own a right to
their accounts, policy records and renewals.
Brokers represent
policyholders, not insurance companies. Brokers are independent
contractors who examine the insurance needs of their clients and
then shop around for the best coverages. They work for commission,
mostly in the property casualty insurance business. They must
also pass an examination to obtain a state license.
Excess and Surplus
Lines is the name given to insurance for which
there is no market through the agent or broker. Such business
is placed through a licensed surplus lines broker.
Buying Insurance
It's important to shop around if you're thinking about purchasing
insurance for yourself, your home, car or business. Like any other
product or service, insurance varies from company to company.
You should compare service, price and the company's financial
rating when deciding which company and product are right for you.
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