This article is a guest post by Nicole So, a freelance writer, regular runner and a former backpacker. Her hobbies are writing, photography and traveling. Follow her escapades in google+.
One trending privilege that almost all individuals have is insurance. But what are the factors we should take note of prior to getting one? But before that, let us take a good look of what insurance really is.
What is Insurance?
Insurance is a form of risk management which is mainly used to hedge against the risk of a contingent or uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
An insurance holder will periodically pay insurance fees or premiums to the insurance company to remain covered, depending on the policy or the coverage he or she chooses. The insurance policy comes in the form of a contract, where the premium and coverage information can be seen.
Types of Insurance
To better understand insurance, let us dive into some major types that all of us can consider getting.
- Auto Insurance. This protects the policyholder’s automobile against financial loss in the event of a vehicular accident or damage.
- Gap Insurance. This covers the excess amount on your auto loan when your insurance company does not cover the entire loan.
- Home Insurance. This provides coverage for damage or destruction of the policyholder’s home.
- Health Insurance. Health insurance policies cover the cost of medical treatments. Similar to health insurance is dental insurance, which protects policyholders for dental costs.
- Casualty Insurance. This insures against accidents, not necessarily tied to any specific property.
- Life Insurance. This 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.
Importance of Insurance
For those who don’t see the value of insurance, here are some benefits.
- Removal of uncertainties and fear. Insurance company takes the risks of large but uncertain losses in exchange for small premium. So it gives a sense of security.
- Stimulant of business enterprise. Insurance facilitates to maintain the large size commercial and industrial organizations.
- Promotion of saving or investment. Saving is a device of preparing for the bad consequences of the future and also insurance policy is often very suitable way of providing for the future as again, it can earn interest over time.
- Correct distribution of cost. Insurance helps to maintain correct distribution of cost.
- Source of credit. A life insurance policy increases the credit worthiness of the insured person because it can provide funds for repayment if he dies.
- Reduction of the chances of loss. Insurance companies spend large sums of money with a view to finding out the reasons of fire accidents, theft and robbery and suggest some measures to prevent them.
Factors to Consider before choosing an Insurance
Before getting an insurance policy, consider first these factors. It will be a hassle to make a mistake in choosing so plan first then choose wisely.
- Age. This is the most common factor for most life and health insurance packages. Premiums will depend on your life expectancy based on age at time of insurance application. Higher age results to higher premium due to high chances of paying out soon.
- Income. Your income is most likely your source of premium to be paid so it is advisable to stay away from policies that increase the premium over time because they end up been too costly in the long run.
- Purpose (of the person). As mentioned, there are lots of types of insurance and types of coverage so it is up to the person which one to get to fulfill specific goals.
- Lifestyle (Job). Your job or occupation and the way you live your life will be a huge factor on the amount of premium to be paid. The higher risk you are, the higher the premium. A stunt man that smokes ten packs a day will have extremely high premium than a chess player who does not smoke or drink.
Wrapping things up, stay wise and choose the appropriate insurance for you! Balance out your financial goals, lifestyle and whatever purpose you might have and get that insurance. Remember, insurance removes a huge part of fear and secures you throughout your life so insure yourself!