What is insurance coverage?
Insurance coverage is the amount of risk or liability that is covered for an individual or entity through insurance services. Insurance coverage, like auto insurance, life insurance—or more exotic forms, like hole-in-one insurance—is issued by insurance companies in the event of an unexpected event.
- Insurance coverage refers to the amount of risk or liability assumed for an individual or entity through insurance services.
- The most common types of insurance include auto insurance, life insurance, and homeowners insurance.
- Insurance coverage helps consumers recover financially from unexpected events, such as a car accident or the loss of an income-producing adult who supports a family.
- In exchange for coverage, the insured is responsible for paying premiums to the insurance company.
Learn about insurance coverage
Insurance coverage helps consumers recover financially from unexpected events, such as a car accident or the loss of an income-producing adult who supports a family. In exchange for this coverage, the insured pays a premium to the insurance company. Insurance coverage and its cost are often determined by a variety of factors.
Premiums are one way insurance companies manage risk. When there is an increased likelihood that insurers may have to pay for claims, they can offset this risk by charging higher premiums.
For example, most insurance companies charge higher premiums for young male drivers because they think young men are more likely to be involved in an accident than middle-aged married men with many years of driving experience.
Insurance companies use underwriting processes to assess your risk and use the information they collect to set your premiums.
Main types of insurance
Someone may need a different type of insurance. Below are some of the most common options for insuring yourself and your property.
car insurance coverage
Car insurance can protect you in the event of an accident. In all 50 states except New Hampshire, drivers are required to have a minimum amount of liability insurance. This includes personal injury liability coverage and property damage liability coverage. Personal injury liability insurance pays for the medical expenses of others injured in an accident for which you are at fault. Property damage liability insurance pays for damage to someone else’s property when you are at fault in an accident.
Depending on where you live, you may also need to have:
Auto insurance premiums usually depend on the insured’s driving record. A record of no accidents or serious traffic violations may result in lower premiums. Drivers with a history of accidents or serious traffic violations may pay higher premiums. Likewise, because mature drivers tend to have fewer accidents than inexperienced drivers, insurance companies often charge more for drivers under the age of 25.
If a person drives to work or usually drives long distances, he will usually pay more for car insurance because the additional mileage he has will also increase his chances of getting into an accident. People who drive infrequently pay less.
Due to higher vandalism, theft and accident rates, urban drivers pay higher premiums than drivers living in small towns or rural areas. Other factors that vary by state include the cost and frequency of lawsuits, health care and repair costs, the prevalence of auto insurance fraud, and weather trends.
Options for saving on auto insurance premiums include asking about safety driver discounts and bundling coverage with homeowners or other types of insurance.
life insurance coverage
Life insurance is designed to provide a certain level of financial protection for your loved ones in the event of your death. These policies allow you to designate a primary beneficiary and one or more potential beneficiaries to receive a death benefit upon your death.
Term life insurance provides you with a fixed period of time. For example, you can choose a 20-year or 25-year term policy. Permanent life insurance covers you as long as you pay your premiums, which effectively translates into lifetime coverage. Permanent life insurance also allows you to accumulate cash value over time, which you can borrow if necessary.
Types of permanent life insurance include:
For any type of life insurance (ie term or permanent), you can choose the amount of death benefit you want your beneficiary to receive, ie $500,000, $1 million or more. Between term life insurance and permanent life insurance, term life tends to offer lower premium costs because you are only covered for a certain period of time.
Premiums may depend on the age of the insured and its gender. Because younger people are less likely to die than older people, younger people generally pay lower life insurance costs. And because women tend to live longer than men, women tend to pay lower premiums.
Engaging in risky behaviors, such as potentially dangerous hobbies or using drugs and alcohol, may result in higher life insurance premiums.
Health is another important factor in determining the cost of life insurance. People who are in good health generally pay lower life insurance premiums. For example, someone with a 30-year policy has a greater risk of dying than someone with a 10-year policy.
A personal or family history of chronic medical conditions or other underlying health problems, such as heart disease or cancer, may result in higher premiums. Obesity, alcohol consumption, or smoking can also affect the incidence. The applicant will usually have a medical examination to determine if he has high blood pressure or other signs of an underlying health problem that could cause the applicant to die prematurely and increase the insurance company’s risk.
Homeowners insurance is designed to protect against financial loss related to covered events involving your home. For example, a typical homeowners insurance policy covers the home and its contents when:
Your policy can cover the cost of repairing your home, or in extreme cases rebuilding it. Homeowners insurance can also cover the cost of replacing lost or damaged items and replacing or repairing related structures, such as garages or storage rooms.
Homeowners’ insurance premiums may depend on the value of the home, the amount covered by the policy, and where the home is located. For example, you might pay more to insure a home located in an area prone to hurricanes or tornadoes.