Insurance Basics
There are many forms of insurance available to consumers today, offering protection for everything from our health, vehicles, and homes, even our pets and travel plans.1,2 Most Americans have at least one of these coverages, with health, life, homeowners, and auto among the most common. Insurance is purchased with the hope that it might never be needed. However, those with a policy have peace of mind knowing that during unexpected and challenging circumstances they have the financial support they need to manage certain risks and protect themselves, their families, and their assets.1
Generally speaking, insurance is “a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company.” In exchange for regularly paid premiums, the policyholder and any covered family members are safeguarded financially (in full or in part) during a policy term for certain covered incidents or unforeseen circumstances. These may include an accident, theft, adverse weather, or a natural disaster resulting in bodily injury, illness, or damage to personal assets or property. The cost of a policy can depend on multiple factors, including age, sex, and perceived level of risk. The policyholder may be required to pay a specific amount “out of pocket” in the form of a deductible before the policy coverage kicks in and the insurance company begins paying the claim.1
It would be outside the scope of this article to cover the nuances of every known insurance plan. However, it is worth taking a look at some of the policy types that may be mentioned in discussions around healthcare and medical practice but that each serve distinct purposes: health, life, and property & casualty.
Health Insurance
Health insurance helps cover medical-related expenses, such as routine office visits, medications, procedures, and hospitalizations.3 A health insurance policy can be purchased through the private insurance market or the federal government (Healthcare.gov, Medicare, or Medicaid) during open enrollment periods or for a qualifying life event, like a pregnancy or marriage.1,3 Many companies offer employees health insurance plan options for free or at discounted rates (in addition to dental and vision plans) as part of their benefits packages.1,2 Individuals may also be covered under a family member’s plan or by purchasing a floater plan.4
In a health insurance policy, the policyholder (insured) pays a regular premium, and the insurance company (insurer) covers some or all of their medical expenses related to an illness, condition, or injury.4 Premium costs vary depending on the individual insurance company, the potential insured’s age and health status, and the type of coverage options or levels available. An insured may also be responsible for copays and an annual deductible to pay for covered services, though some preventive care services may be available for free.1
Life Insurance
While a health insurance policy helps protect the well-being of a living person, a life insurance policy offers financial support for family members or loved ones left behind after that person dies. The insured pays premiums for this coverage while they are living, and chosen beneficiaries are awarded a benefit payment after the insured’s death.1 This payment can replace the deceased’s salary and cover the beneficiaries’ various financial obligations including funeral and burial costs, mortgage payments, outstanding debt, future college tuition, and everyday living expenses like groceries or childcare.5
Two common types of life insurance policies are term and whole, though there are other options. A term life policy, typically the most affordable, covers a specific period, like 10 years or 20 years, and the premiums remain the same. A whole life policy includes a death benefit and cash value component. As the value increases, the money may be accessed by taking out a loan or withdrawing the funds. The policyholder may choose to end the policy during their lifetime by taking its cash value.5
Property & Casualty (P&C)
This is an umbrella term for several types of insurance policies including homeowners, renters, auto, and business insurance, to name a few.6 These policies provide protection for individuals or businesses for covered events such as accidents, theft, natural disasters, or other unexpected circumstances.7 The property portion of this insurance typically covers commercial assets or personal assets like the home, cars, or valuables and helps pay for any repairs or replacements if these items are lost, damaged, or stolen. The casualty portion covers liability, including legal fees or medical expenses associated with bodily injury to another person or damage to their possessions.6
One P&C category, business insurance, helps cover both large and small businesses from a variety of industry-specific risks including worker accidents, business interruption due to a covered event, and cybersecurity threats. Policies might protect commercial buildings, equipment, inventory, and technology from potential loss or damage. Business insurance is broken down further to include business liability insurance and professional liability insurance.7
Medical professional liability, or medical malpractice insurance, is one type of professional liability insurance. Its purpose is to protect physicians and other licensed healthcare providers (like nurses or dentists) from certain practice-related risks. In the event of a liability claim or lawsuit alleging an adverse outcome, such as a patient injury, a medical liability policy will help cover the costs of the provider’s defense, including legal fees. The two basic types of medical liability policies are claims-made and occurrence. For the former, an insured provider would need to have an effective policy during the time a claim is reported. In an occurrence policy, the provider is protected against losses that occur during the policy period.8
Resources
- Julia Kagan, “Insurance: Definition, How It Works, and Main Types of Policies,” Investopedia, February 28, 2024, https://www.investopedia.com/terms/i/insurance.asp
- Adam Carpenter, “Insurance Glossary: Insurance,” S. News & World Report, February 15, 2024, https://www.usnews.com/insurance/glossary/what-is-insurance
- Mandy Sleight and Heidi Gollub, “8 Types of Insurance Policies and Coverage You Need in 2024,” USA Today, August 4, 2024, https://www.usatoday.com/money/blueprint/insurance/types-of-insurance-policies/#health
- Rashi Maheshwari, “What Is Health Insurance: Meaning, Benefits & Types,” Forbes, December 27, 2023, https://www.forbes.com/advisor/in/health-insurance/what-is-health-insurance/
- Linda McMaken, “4 Types of Insurance Policies and Coverage You Need,” Investopedia, December 20, 2023, https://www.investopedia.com/financial-edge/0212/4-types-of-insurance-everyone-needs.aspx
- Rick Hoel, “What is Property and Casualty Insurance?,” Bankrate, May 8, 2023, https://www.bankrate.com/insurance/car/property-and-casualty/
- “What Types of Property and Casualty Insurance Are There?,” Guidewire, accessed September 3, 2024, https://www.guidewire.com/resources/insurance-technology-faq/what-types-of-property-and-casualty-insurance-are-there
- “Medical Malpractice Insurance,” National Association of Insurance Commissioners (NAIC), last updated May 9, 2024, https://content.naic.org/insurance-topics/medical-malpractice-insurance