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Personal Insurance

Insurance is protection against unexpected financial losses. The act of purchasing insurance is an agreement between the insured and the insurance company and as long as the insured pays the premiums and abides by the terms of the contract the insurance company is obligated to pay the claim of financial loss stipulated in the insurance contract or policy. Insurance is pure risk.

Types of Insurance Companies

Insurance companies can be for-profit stock companies or mutual companies. Mutual companies can offer a dividend to their policyholders. When mutual companies convert to a stock company, policyholders can get a special dividend or stock in the new company or both.

There are different types of insurance offered by insurance companies.

Life Insurance

A life insurance policy basically insures a person’s life. If the person or insured dies while the policy is in effect, the insurance company will pay the beneficiary or beneficiaries the face amount of the policy. All Life Insurance policies have three components: owner, insured, and beneficiary.

  • Insured

    The insured is the person the insurance contract insures. This component must be a living person. At the time of application, the insurance company will underwrite this person to determine the insurance rating. The rating is determined by age, sex, mental and physical health, and familiar disease history. Depending on the rating, an insurance rate will be determined, which correlates to the premium paid.
  • Owner

    The owner of the policy can be the insured, an entity, or another live person who has a financial interest in the insured. The owner of a policy can change. Depending on who or what becomes the owner of an insurance policy, there may be tax consequences.
  • Beneficiary or Beneficiaries

    The beneficiary or beneficiaries can be the insured, another live person, an estate, or an entity. There are no tax consequences for changing the beneficiary or beneficiaries.

There are 3 major types of life insurance and subgroups of types of life insurance. Life insurance is considered to be an essential part of long-term financial planning. A life insurance policy is not only a means of protecting your family from uncertainties that may lead to financial insecurity in the future, but it also offers maturity benefits that can function as a savings component.

Term Insurance

Term Insurance is a contract between the insured and insurance company for a certain amount of time. The time period can be any time period, generally 5, 10, 15, 20, or 30 years. If the insured dies during that period and the premiums are all paid to that date, the insurance company will pay the face amount of the policy. At the time period ends, the owner of the policy has a choice:

  • The insurance company will extend the period year by year, but the premium determined by the insurance company must be paid.
  • The insurance policy can be converted to a form of permanent insurance (whole life or universal life) and the insurance company will provide you with a level premium for the time period that you choose.
  • The policy terminates, which means no more insurance.

Whole Life

Whole Life insurance is a contract between the insured and the insurance company for the rest of the insured's life. The insured must pay the premiums for the entirety of their life. A whole life policy has two components: Savings account and life insurance. When the policy starts most of the premium goes to the savings account and some it pays for insurance. As the insured ages, the portion of premiums going to saving drops, and more of the premium goes to pay for insurance. The savings account earns interest, and the policy states what the minimum interest the insurance company will pay. At a certain time of the person’s life, the savings account will exceed the face amount. At that time, if the person dies, the face amount will be paid, and the insurance company will keep the savings account.

Universal Life

Universal Life is a combination of Term and Whole Life. There is a savings account and a life insurance component. Universal Life works like a Whole Life Policy, but it has a time limit like a term. The Insurance company will determine the premium based on the insured’s age, sex, face amount, and the term of the policy. The term of the policy can be any number, and the insurance company will determine a level premium. If the policy expires, the term can be extended for any amount of time, and a new level premium will be determined.

Health Insurance is insurance that pays if the insured is sick or injured.

Heath Insurance is heavily regulated by State and Federal laws.  Health Insurance does not cover dental work or eyeglasses or hearing aids; you must buy separate insurance for these. Health insurance requires the insured to pay the monthly premium, and if the monthly premiums are not paid, the policy terminates after a short period and can only be reinstated during the annual enrollment period. Every health insurance policy has deductibles and co-pays. A deductible is the amount of money that must be paid for a service or services, and then when it is met, the insurance starts. The insurance company will then only pay a portion of the insurance, and the insured must pay the other portion; this is called the co-pay or co-insurance.  The Co-pay is a set amount, and the co-insurance is a percentage. There is also a maximum out-of-pocket, which is the maximum amount of money an insured has to pay, and then all services are free. Some policies include the deductible, and some do not. Most health insurance policies are purchased through an employer and are known as group health insurance.

Senior Health or Medicare Insurance

Medicare is a Federal Insurance program for people who are at least 65 years of age or with certain disabilities. Medicare Insurance is made up of parts, Part A, Part B, Part C, and Part D. Part A is hospital insurance, Part B is medical insurance, Part D is prescription drug insurance administered by private insurance companies, and Part C is a combination of Part A, Part B and Part D administered by private insurance companies. People are eligible for Medicare if they have worked in the United States for 40 quarters and paid Medicare Tax during those quarters. Medicare is not free: Part A has a per occurrence deductible, Part B has a premium, an annual deductible, and co-insurance. For more information, please to our page on ElderCare.

Long Term Care

Long Term Care insurance protects the insured if the insured needs to go to a nursing home or stay at home for end-of-life care. This insurance will pay when a certain number of activities of daily living (ADLs) cannot be performed as determined by a medical professional. The policy premium is determined by insured’s medical status, age, number of days covered, and the number of costs per day. The premium is also determined by how the owner pays the premium: annual, semi-annual, quarterly, monthly, ten pay, or lump sum premium. Ten pay and lump sum premium guarantee no rate increases on premiums.

Disability Insurance

Disability Insurance insures the loss of income due to a disability, and the payout and payout period is based on your income at the time of application. The disability is determined by a medical professional, and the payout, which is an income stream, starts after a period of time which can be anywhere from immediately to up to 1 year. The payout time period usually ends at age 65, but some policies will go to 70. Most policies have riders that allow the insured to work while getting the payout, but it cannot be the same occupation.

Your Future

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