Types of insurance
Any risk that can be quantified can potentially be insured.
Specific kinds of risk that may give rise to claims are known as perils. An
insurance policy will set out in detail which perils are covered by the policy
and which are not. Below are non-exhaustive lists of the many different types
of insurance that exist. A single policy may cover risks in one or more of the
categories set out below. For example, vehicle insurance would typically cover
both the property risk (theft or damage to the vehicle) and the liability risk
(legal claims arising from an accident). A home insurance policy in the US typically
includes coverage for damage to the home and the owner's belongings, certain
legal claims against the owner, and even a small amount of coverage for medical
expenses of guests who are injured on the owner's property.
Business insurance
can take a number of different forms, such as the various kinds of professional
liability insurance, also called professional indemnity (PI), which are
discussed below under that name; and the business owner's policy (BOP), which
packages into one policy many of the kinds of coverage that a business owner
needs, in a way analogous to how homeowners' insurance packages the coverages
that a homeowner needs.
Auto insurance
Coverage typically includes:
1. Property
coverage, for damage to or theft of the car;
2. Liability
coverage, for the legal responsibility to others for bodily injury or property
damage;
3. Medical
coverage, for the cost of treating injuries, rehabilitation and sometimes lost
wages and funeral expenses.
Most countries, such as the United Kingdom, require drivers to buy some,
but not all, of these coverages. When a car is used as collateral for a loan
the lender usually requires specific coverage.
Gap insurance
Gap insurance covers the excess amount on your auto loan in
an instance where your insurance company does not cover the entire loan.
Depending on the companies specific policies it might or might not cover the
deductible as well. This coverage is marketed for those who put low down payments, have high interest rates on
their loans, and those with 60 month or longer terms. Gap insurance is
typically offered by your finance company when you first purchase your vehicle.
Most auto insurance companies offer this coverage to consumers as well. If you
are unsure if GAP coverage had been purchased, you should check your vehicle
lease or purchase documentation.
Health insurance
Health insurance policies cover the cost of medical
treatments. Dental insurance, like medical insurance protects policyholders for
dental costs. In the US and Canada, dental insurance is often part of an
employer's benefits package, along with health insurance.
Accident, sickness and unemployment insurance
· Disability insurance policies
provide financial support in the event of the policyholder becoming unable to
work because of disabling illness or injury. It provides monthly support to
help pay such obligations as mortgage loans and credit cards. Short-term and long-term disability
policies are available to individuals, but considering the expense, long-term
policies are generally obtained only by those with at least six-figure incomes,
such as doctors, lawyers, etc. Short-term disability insurance covers a person
for a period typically up to six months, paying a stipend each month to cover
medical bills and other necessities.
· Long-term disability insurance covers an individual's expenses for the
long term, up until such time as they are considered permanently disabled and
thereafter. Insurance companies will often try to encourage the person back
into employment in preference to and before declaring them unable to work at
all and therefore totally disabled.
· Disability
overhead insurance allows business owners to cover the overhead
expenses of their business while they are unable to work.
· Total
permanent disability insurance provides benefits when a person
is permanently disabled and can no longer work in their profession, often taken
as an adjunct to life insurance.
· Workers' compensation insurance
replaces all or part of a worker's wages lost
and accompanying medical expenses incurred because of a job-related injury.
Casualty
Casualty insurance insures against accidents, not necessarily
tied to any specific property. It is a broad spectrum of insurance that a
number of other types of insurance could be classified, such as auto, workers
compensation, and some liability insurances.
· Crime insurance is
a form of casualty insurance that covers the policyholder against losses
arising from the criminal acts of
third parties. For example, a company can obtain crime insurance to cover
losses arising from theft or embezzlement.
· Political risk
insurance is a form of casualty insurance that can be taken out
by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a
loss.
Life
Life insurance provides a monetary benefit to a decedent's
family or other designated beneficiary, and may specifically provide for income
to an insured person's family, burial, funeral and other final expenses. Life
insurance policies often allow the option of having the proceeds paid to the
beneficiary either in a lump sum cash payment or an annuity.
In most states, a person cannot purchase a policy on another person without
their knowledge.
Annuities provide a stream of payments and are generally
classified as insurance because they are issued by insurance companies, are
regulated as insurance, and require the same kinds of actuarial and investment
management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are
sometimes regarded as insurance against the possibility that aretiree will outlive his or her financial
resources. In that sense, they are the complement of life insurance and, from
an underwriting perspective, are the mirror image of life insurance.
Certain life insurance contracts accumulate cash values,
which may be taken by the insured if the policy is surrendered or which may be
borrowed against. Some policies, such as annuities andendowment policies, are financial instruments
to accumulate or liquidate wealth when it is needed.
In many countries, such as the US and the UK, the tax law provides that the interest on
this cash value is not taxable under certain circumstances. This leads to
widespread use of life insurance as a tax-efficient method of saving as well as protection in the event
of early death.
In the US, the tax on interest income on life insurance
policies and annuities is generally deferred. However, in some cases the
benefit derived from tax deferral may
be offset by a low return. This depends upon the insuring company, the type of
policy and other variables (mortality, market return, etc.). Moreover, other
income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better
alternatives for value accumulation.
Burial insurance
Burial insurance is a very old type of life insurance which
is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance circa
600 CE when they organized guilds called
"benevolent societies" which cared for the surviving families and
paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose, as
did friendly societies during Victorian times.
Property
Property insurance provides protection against risks to
property, such as fire, theft or weather damage. This may include
specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance
or boiler insurance.
The term property insurance may, like casualty insurance, be
used as a broad category of various subtypes of insurance, some of which are
listed below:
· Aviation insurance protects aircraft hulls and spares, and associated
liability risks, such as passenger and third-party liability. Airports may also appear under this
subcategory, including air traffic control and refuelling operations for
international airports through to smaller domestic exposures.
· Boiler insurance (also
known as boiler and machinery insurance, or equipment breakdown insurance)
insures against accidental physical damage to boilers, equipment or machinery.
· Builder's risk
insurance insures against the risk of physical loss or damage
to property during construction. Builder's risk insurance is typically written
on an "all risk" basis covering damage arising from any cause
(including the negligence of the insured) not otherwise expressly excluded.
Builder's risk insurance is coverage that protects a person's or organization's
insurable interest in materials, fixtures and/or equipment being used in the
construction or renovation of a building or structure should those items
sustain physical loss or damage from an insured peril.[22]
· Crop insurance may
be purchased by farmers to reduce or manage various risks associated with
growing crops. Such risks include crop loss or damage caused by weather, hail,
drought, frost damage, insects, or disease.[23]
· Earthquake insurance is
a form of property insurance that pays the policyholder in the event of
an earthquake that causes damage to the
property. Most ordinary home insurance policies do not cover earthquake damage.
Earthquake insurance policies generally feature a high deductible. Rates depend on location and hence
the likelihood of an earthquake, as well as the construction of the
home.
· Fidelity bond is
a form of casualty insurance that covers policyholders for losses incurred as a
result of fraudulent acts by specified individuals. It usually insures a
business for losses caused by the dishonest acts of its employees.
· Flood insurance protects
against property loss due to flooding. Many insurers in the US do not provide
flood insurance in some parts of the country. In response to this, the federal
government created the National
Flood Insurance Program which serves as the insurer of last
resort.
· Home insurance,
also commonly called hazard insurance or homeowners insurance (often
abbreviated in the real estate industry as HOI), provides coverage for damage
or destruction of the policyholder's home. In some geographical areas, the
policy may exclude certain types of risks, such as flood or earthquake, that
require additional coverage. Maintenance-related issues are typically the
homeowner's responsibility. The policy may include inventory, or this can be
bought as a separate policy, especially for people who rent housing. In some
countries, insurers offer a package which may include liability and legal
responsibility for injuries and property damage caused by members of the
household, including pets.[24]
· Landlord insurance covers
residential and commercial properties which are rented to others. Most
homeowners' insurance covers only owner-occupied homes.
· Marine insurance and
marine cargo insurance cover the loss or damage of vessels at sea or on inland
waterways, and of cargo in transit, regardless of the method of transit. When
the owner of the cargo and the carrier are separate corporations, marine cargo
insurance typically compensates the owner of cargo for losses sustained from
fire, shipwreck, etc., but excludes losses that can be recovered from the
carrier or the carrier's insurance. Many marine insurance underwriters will
include "time element" coverage in such policies, which extends the indemnity
to cover loss of profit and other business expenses attributable to the delay
caused by a covered loss.
· Supplemental natural disaster insurance covers specified expenses after
a natural disaster renders the policyholder's home uninhabitable. Periodic
payments are made directly to the insured until the home is rebuilt or a
specified time period has elapsed.
· Terrorism insurance provides
protection against any loss or damage caused by terrorist activities. In the US in the
wake of 9/11,
the Terrorism Risk
Insurance Act 2002 (TRIA) set up a federal Program providing a
transparent system of shared public and private compensation for insured losses
resulting from acts of terrorism. The program was extended until the end of
2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).
· Volcano insurance is a specialized insurance protecting against damage
arising specifically from volcanic eruptions.
· Windstorm insurance is an insurance covering the damage that can be
caused by wind events such as hurricanes.
Liability
Liability insurance is a very broad superset that covers
legal claims against the insured. Many types of insurance include an aspect of
liability coverage. For example, a homeowner's insurance policy will normally
include liability coverage which protects the insured in the event of a claim
brought by someone who slips and falls on the property; automobile insurance
also includes an aspect of liability insurance that indemnifies against the
harm that a crashing car can cause to others' lives, health, or property. The
protection offered by a liability insurance policy is twofold: a legal defense
in the event of a lawsuit commenced against the policyholder and
indemnification (payment on behalf of the insured) with respect to a settlement
or court verdict. Liability policies typically cover only the negligence of the
insured, and will not apply to results of wilful or intentional acts by the
insured.
· Public liability insurance
covers a business or organization against claims should its operations injure a
member of the public or damage their property in some way.
· Directors
and officers liability insurance (D&O) protects an
organization (usually a corporation) from costs associated with litigation
resulting from errors made by directors and officers for which they are liable.
· Environmental liability insurance protects the insured from bodily
injury, property damage and cleanup costs as a result of the dispersal, release
or escape of pollutants.
· Errors and
omissions insurance (E&O) is business liability insurance
for professionals such as insurance agents, real estate agents and brokers,
architects, third-party administrators (TPAs) and other business professionals.
· Prize indemnity
insurance protects the insured from giving away a large prize
at a specific event. Examples would include offering prizes to contestants who
can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
· Professional
liability insurance, also called professional
indemnity insurance (PI), protects insured professionals such
as architectural corporations and medical practitioners against potential
negligence claims made by their patients/clients. Professional liability insurance
may take on different names depending on the profession. For example,
professional liability insurance in reference to the medical profession may be
called medical malpractice insurance.
Credit
Credit insurance repays some or all of a loan when
certain circumstances arise to the borrower such as unemployment, disability, or death.
· Mortgage insurance insures
the lender against default by the borrower. Mortgage insurance is a form of
credit insurance, although the name "credit insurance" more often is
used to refer to policies that cover other kinds of debt.
· Many credit cards offer payment protection plans which are a form of
credit insurance.
· Trade credit
insurance is business insurance over the accounts receivable of
the insured. The policy pays the policy holder for covered accounts receivable
if the debtor defaults on payment.
Other types
· All-risk insurance is an insurance that covers a wide range of incidents
and perils, except those noted in the policy. All-risk insurance is different
from peril-specific insurance that cover losses from only those perils listed
in the policy. In car insurance, all-risk policy includes also
the damages caused by the own driver.
· Bloodstock insurance covers individual horses or
a number of horses under common ownership. Coverage is typically for mortality
as a result of accident, illness or disease but may extend to include
infertility, in-transit loss, veterinary fees, and prospective foal.
· Business
interruption insurance covers the loss of income, and the
expenses incurred, after a covered peril interrupts normal business operations.
· Collateral
protection insurance (CPI) insures property (primarily
vehicles) held as collateral for loans made by lending institutions.
· Defense Base Act (DBA)
insurance provides coverage for civilian workers hired by the government to
perform contracts outside the US and Canada. DBA is required for all US
citizens, US residents, US Green Card holders, and all employees or
subcontractors hired on overseas government contracts. Depending on the country,
foreign nationals must also be covered under DBA. This coverage typically
includes expenses related to medical treatment and loss of wages, as well as
disability and death benefits.
· Expatriate insurance provides
individuals and organizations operating outside of their home country with
protection for automobiles, property, health, liability and business pursuits.
· Kidnap and
ransom insurance is designed to protect individuals and
corporations operating in high-risk areas around the world against the perils
of kidnap, extortion, wrongful detention and hijacking.
· Legal expenses
insurance covers policyholders for the potential costs of legal
action against an institution or an individual. When something happens which
triggers the need for legal action, it is known as "the event". There
are two main types of legal expenses insurance: before the event
insurance and after the event
insurance.
· Livestock insurance is a specialist
policy provided to, for example, commercial or hobby farms, aquariums, fish
farms or any other animal holding. Cover is available for mortality or economic
slaughter as a result of accident, illness or disease but can extend to include
destruction by government order.
· Media liability insurance is designed to cover professionals that engage
in film and television production and print, against risks such as defamation.
· Nuclear incident insurance covers damages resulting from an incident
involving radioactive materials and is generally arranged at
the national level. (See the nuclear exclusion
clause and for the US the Price-Anderson Nuclear Industries Indemnity Act.)
· Pet insurance insures
pets against accidents and illnesses; some companies cover routine/wellness
care and burial, as well.
· Pollution insurance usually takes the form of first-party coverage for
contamination of insured property either by external or on-site sources.
Coverage is also afforded for liability to third parties arising from
contamination of air, water, or land due to the sudden and accidental release
of hazardous materials from the insured site. The policy usually covers the
costs of cleanup and may include coverage for releases from underground storage
tanks. Intentional acts are specifically excluded.
· Purchase insurance is aimed at providing protection on the products
people purchase. Purchase insurance can cover individual purchase
protection, warranties, guarantees, care plans and even mobile phone
insurance. Such insurance is normally very limited in the scope of problems
that are covered by the policy.
· Title insurance provides
a guarantee that title to real property is vested in the purchaser
and/or mortgagee, free and
clear of liens or encumbrances. It is usually
issued in conjunction with a search of the public records performed at the time
of a real estate transaction.
· Travel insurance is
an insurance cover taken by those who travel abroad, which covers certain
losses such as medical expenses, loss of personal belongings, travel delay, and
personal liabilities.
· Tuition insurance insures
students against involuntary withdrawal from cost-intensive educational
institutions
· Interest rate
insurance protects the holder from adverse changes in interest
rates, for instance for those with a variable rate loan or mortgage
· Divorce insurance is
a form of contractual liability insurance that pays the insured a cash benefit
if their marriage ends in divorce.
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