The Basics of Insurance
Property & Casualty Insurance
Protecting What You’ve Worked For and Those You Love
What is Insurance?
Think about the things you’ve worked for in your life – your home, condominium or apartment, your car, boat, motorcycle or motor home. For most of us, these aren’t luxuries; they’re necessities - and we work hard to earn and keep them. And when it comes to the things we love – family, friends, even our pets, well, there’s no replacing them, is there? But we do all we can to protect them.
Insurance, in all its forms, provides protection against the everyday risks of life – the “what-ifs.” What if you’re in an auto accident or your car is stolen? What if your house burns down or a tree falls on your roof?
Insurance won’t prevent the accident or put out the fire. But with insurance, your investment in your car or home is protected. With the right insurance, you can recover – whether that means a paid hotel room while your home is repaired, a rental car while yours is in the shop, or paying to replace your entire home after a total loss. If people in your life are injured, the right insurance will help pay for their recovery, too. And if someone files a claim against you, liability insurance will provide a legal defense and pay claims so that your assets are protected.
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. It can come in many forms but is typically purchased by home buyers (Homeowners Insurance), renters (Renters Insurance) or business owners (Business Owners Insurance).
Casualty Insurance is made up primarily of liability coverages, which protect an insured person or business against injury or damage claims made by other parties. Automobile insurance, general liability insurance and workers compensation are examples of liability insurance. Casualty insurance also refers to coverage against crime (burglary and robbery), and coverage found in commercial (business) policies, like 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.
(NW Insurance Council focuses on providing information about Property and Casualty insurance. Contact us to connect you to other resources for more information about Life Insurance, Annuities or Health Insurance.)
Types of Insurers
Stock Companies With roughly 70 percent of all property and liability insurance policy premiums in the United States - and about 50 percent of life insurance premiums, publicly-traded stock companies are the leading type of insurer in the U.S. today. Stockholders own these companies and share the losses and profits.
Mutual Companies In a mutual insurance company, policyholders are the owners of the company. Annually, about 30 percent of the property and liability insurance business and about 50 percent of the life insurance business is made up of mutual companies.
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. In Washington and three other states, workers’ compensation is provided by state agencies and not by privately-owned insurers.
How Insurance is Sold
There are four basic “platforms” through which most consumer and business insurance policies are sold. Captive (or Exclusive) agents, independent agents, direct writers, brokers and excess/surplus/specialty lines companies/brokers. In the insurance world, agents and brokers are also referred to as “producers,” since they produce business for the companies whose policies they sell. Under the law, producers must pass an examination and be licensed in the state in which they are selling insurance.
Captive or “exclusive” agents represent one company and are paid a salary, commission, or a combination of both. A company that uses captive agents owns and controls its accounts, policy records and renewals, even if the agent is considered an “independent contractor.”
Independent agents are appointed by, and 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.
Direct writers are typically companies that sell policies directly to consumers online or by phone. They are often large insurers that write in many or all US states. In most states, the sales people who finalize the sale of a policy must be licensed as an agent in the state where the policy is sold, but they do not need to be physically located in that state. These employee-agents usually receive a salary, or a salary plus commission. A direct writing company has complete control and ownership of its policies 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 (or “specialty lines”) refers to non-typical coverage that standard home, auto, personal or business insurers may not offer. Examples include “Difference in Conditions” policies that cover sinkholes, landslides and mud flow, or damage to uniquely expensive personal or business properties. These unique policies are purchased through a licensed surplus lines broker.
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. You can even compare customer satisfaction or complaint ratios by checking with your state’s Insurance Department.
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