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How Insurance Works Made Easy

Everything you ever wanted to know about insurance. Well, maybe not everything, and maybe more than you really ever wanted to know, but with the articles ahead we will endeavor to impart some knowledge about what most people think is important to them about insurance.

Click Below To Read The Different Types of Insurance Made Easy:

1. Insurance Made Easy

2. Rates For Auto Insurance Made Easy

3. Car Insurance Cheaper Made Easy

4. Liability Insurance For Auto, Home, Business Made Easy

5. Auto Insurance Coverage In Texas Made Easy

6. Home Insurance Coverage In Texas Made Easy

7. Business Insurance Coverage In Texas Made Easy

8. Life Insurance Made Easy

9. Specialty Insurance:

Texas Insurance Made Easy

So let’s get the ball rolling with that all-important burning insurance question: HOW DOES INSURANCE WORK?

The insurance industry safeguards the assets of its policyholders by transferring what is know as ‘Risk’ (exposure to the hazard or chance of loss), from an individual or business to an insurance company for home insurance, renter’s insurance, auto insurance, boat insurance, motorcycle insurance, life insurance, health insurance, and business insurance for the most part.

They also purchase ‘Reinsurance’ (they buy insurance from other bigger insurance companies that specialize in certain types of insurance risk) to lower their exposure to ‘Loss.’ It’s how the insurance industry spreads risk exposure, reduces loss, and controls their overall cost of doing business.

If insurance companies didn’t do this, insurance over time would become exorbitant. Insurance is a necessary evil in today’s society, as stated here very simply it protects you against Loss.

The Three Main Insurance Sectors

  • Property and Casualty (know as P&C) consists mainly of auto insurance, home insurance, and business insurance
  • Life consists mainly of life insurance and annuity products
  • Health Insurance is offered by private health insurance companies and some P&C and Life Insurance Companies, as well as by Government Programs such as Medicare

Auto Insurance

Auto Insurance is offered by an insurance company and protects against financial loss in the event of an accident. It is a contract between the policyholder (you) and the insurance company.

The policyholder agrees to pay the premium and the insurance company agrees to pay losses as defined in the policy because of an accident.

Home Insurance or Renter’s Insurance

Home Insurance or Renter’s Insurance, offered by an insurance company, provides financial protection against disasters (causes of loss).

They are typically package policies, which means that they can cover both damage to property as well as liability, your legal responsibility for bodily injury, or property damage to a policyholder or family member living with them cause to other people. (Property damage to others in liability only is typically covered up to $250 to $500 unless negligence can be proven.)

Business Insurance

Business Insurance requires most businesses to purchase at least the following four types of business insurance:

  1. Commercial Property Insurance
  2. General Liability Insurance
  3. Commercial Auto Insurance
  4. Workers Compensation Insurance

These are business basics; businesses should always consult a business insurance agent to review other forms of specific coverage as well.

Some small to medium businesses can purchase what is called a Business Owner Policy (BOP), it is a form of a packaged policy that is cost-effective and offers a variety of valuable coverages that a small or medium business would find hard to purchase separately as some larger businesses must do because of the type of business they are or because of their risk exposure.

Life Insurance

Life Insurance can be the cornerstone of sound financial planning. Did you know it can be an important tool in the following situations?

  • You can use it to replace income
  • Pay final expenses
  • Create an inheritance
  • Pay what are called “Death” Taxes for Federal and State “Estate” Settlements
  • Create a source of savings (Whole Life Insurance or Permanent Insurance only)

There are two types of Life Insurance: Term Life, or Term Insurance, is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from 1 to 30 years. Whole Life or Permanent Insurance pays ‘death benefits’ when the policyholder dies or prior to ‘Maturity’ (that may occur at age 120 for example).

So if you live longer than lets say 120 you would only receive back the ‘cash value’ of your particular policy type (for example), not the death benefit portion from that particular insurance company. You should review these important factors with your life insurance professional.

Disclaimer: Content and illustrations represented and provided here-in are for informational purposes only. This information should not be misconstrued to be considered Insurance or Binder Coverage for Insurance. Always consult a licensed insurance agent in the state of Texas for specific insurance coverage types and needs analysis as insurance policies in Texas vary.

Sources used to gather content for this Article and all Articles provided in this Series include:

Costlow Insurance / www.costlowinsurance.com
a. The Insurance Information Institute / http://www.iii.org
b. The Texas Department of Insurance / https://www.tdi.texas.gov/

Insurance Texans Trust

For more information about Insurance Made Easy, call 972-463-8043.