INSURANCE TYPES
AND LEVELS
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 is 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 coverage
that a homeowner needs.
AUTO INSURANCE
A wrecked vehicle in
Copenhagen
Auto insurance
protects the policyholder against financial loss in the event of an incident
involving a vehicle they own, such as in a traffic collision.
Coverage typically
includes:
Property coverage, for damage to or theft
of the car;
Liability coverage, for the legal
responsibility to others for bodily injury or property damage;
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
Workers'
compensation, or employers' liability insurance, is compulsory in some
countries
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 INSURANCE
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 INSURANCE
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 a retiree will outlive his
or her financial resources. In that sense, they are the complement of life
insurance and, fro m 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 and endowment 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 INSURANCE
This tornado damage
to an Illinois home would be considered an "Act of God" for insurance
purposes
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:
US Airways Flight
1549 was written off after ditching into the Hudson River
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 refueling 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.
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.
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.
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.
Hurricane Katrina
caused over $80 billion of storm and flood damage
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.
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.
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.
LANDLORD INSURANCE covers residential and commercial properties
which are rented to others. Most homeowners' insurance covers only
owner-occupied homes.
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.
SURETY BOND INSURANCE is a three-party insurance guaranteeing the
performance of the principal.
The demand for
terrorism insurance surged after 9/11
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 INSURANCE
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.
The subprime mortgage
crisis was the source of many liability insurance losses
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.
PAYMENT PROTECTION 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.[25] In car insurance, all-risk
policy includes also the damages caused by the own driver.
High-value horses may
be insured under a bloodstock policy
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 cash benefit if their marriage ends in divorce.
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