1. Intro
Before I introduce this month's insurance topic, I need to point out a bit of irony that took place at the end of last month. After writing an article about what to do in the event of a winter auto accident, I found myself slipping on ice, heading slow-motion toward another car at an intersection. I was driving at the right speed for the conditions. Sometimes however, events are just out of your control. As I slid slowly toward the other car that day, I was glad of two things, I was sliding SLOWLY and that both I and the other driver were protected against the financial loss that was quite literally coming our way. We've all been there; writing the monthly check for the auto or home insurance, thinking to yourself, why do I have to pay money to a company for the promise that they'll pay out when I need it. That day, I was glad I had it, but rest assured there are many days I don't feel those same emotions. My goal in this month's article is to provide you with basic differences between the main varieties of insurance and some reasons for its existence.
2. What is Insurance
Put simply, "Insurance" is the payment of a small predictable amount of money ("premium") to protect against a larger unpredictable expense ("loss/claim").This transfers the risk from you to the insurance company for a fee. This protection comes in several ways.
Liability Insurance:
Everyone talks about our "litigious society". We all know people who are sue-happy. You could say that liability protection is for other people. Liability insurance is the protection afforded to you by the insurance company, telling you that they'll pay the amount you become legally obligated to pay. Sometimes this could mean a court case but more often the issue is "settled" for you by the insurance company. Imagine that your houseguest trips and falls on the ice on your walkway, and blames you for not putting out sand or salt. Your insurance company responds by paying for her medical bills, lost wages and maybe pain and suffering because of the accident.
Property Insurance:
This kind of insurance protection is more tangible than liability. Property insurance protects physical stuff against damage or loss of use. Most policies will include and exclude certain kinds of events, called "perils". For example War is excluded on almost every policy; which is why on 9/11, when President Bush declared war, he simultaneously voided coverage for all of lower Manhattan. Fire on the other hand is included on almost every insurance policy because fire insurance is historically where property insurance has its roots.
Professional Insurance:
You can think of this kind of insurance as liability insurance for specific professions. Doctors, Lawyers and Engineers have to have this kind of insurance in case they make a bad decision or give poor advice. This kind of insurance is expensive, especially in areas like the medical field where professionals are making judgment calls many times a day.
3. Why Do We Need Insurance?
Many of us have never had to make a claim on our insurance. Therefore when we continue to write the check month after month, we feel as if we are pouring money right down the drain. Even though you've never had to make a claim on your insurance, there is a good reason that its there. Naturally insurance is there to protect yourself and your investment, but let's face it; many of us wouldn't bother with insurance if it wasn't required by law or the bank.
Not only does insurance protect you and those around you, it is an unsung hero of America's economic success. Think about it for a second, who else has a stake in protecting your property; if you lease your car or mortgage your house, then the bank does. They want to make sure that their investment is protected. Banks wouldn't want to lend out money unless they knew that there was a really good chance that they'll get their money back. Consequently, insurance provides protection for the consumer lending process which is the backbone of the American economy. You might say that insurance greases the wheels enterprise.
Before I introduce this month's insurance topic, I need to point out a bit of irony that took place at the end of last month. After writing an article about what to do in the event of a winter auto accident, I found myself slipping on ice, heading slow-motion toward another car at an intersection. I was driving at the right speed for the conditions. Sometimes however, events are just out of your control. As I slid slowly toward the other car that day, I was glad of two things, I was sliding SLOWLY and that both I and the other driver were protected against the financial loss that was quite literally coming our way. We've all been there; writing the monthly check for the auto or home insurance, thinking to yourself, why do I have to pay money to a company for the promise that they'll pay out when I need it. That day, I was glad I had it, but rest assured there are many days I don't feel those same emotions. My goal in this month's article is to provide you with basic differences between the main varieties of insurance and some reasons for its existence.
2. What is Insurance
Put simply, "Insurance" is the payment of a small predictable amount of money ("premium") to protect against a larger unpredictable expense ("loss/claim").This transfers the risk from you to the insurance company for a fee. This protection comes in several ways.
Liability Insurance:
Everyone talks about our "litigious society". We all know people who are sue-happy. You could say that liability protection is for other people. Liability insurance is the protection afforded to you by the insurance company, telling you that they'll pay the amount you become legally obligated to pay. Sometimes this could mean a court case but more often the issue is "settled" for you by the insurance company. Imagine that your houseguest trips and falls on the ice on your walkway, and blames you for not putting out sand or salt. Your insurance company responds by paying for her medical bills, lost wages and maybe pain and suffering because of the accident.
Property Insurance:
This kind of insurance protection is more tangible than liability. Property insurance protects physical stuff against damage or loss of use. Most policies will include and exclude certain kinds of events, called "perils". For example War is excluded on almost every policy; which is why on 9/11, when President Bush declared war, he simultaneously voided coverage for all of lower Manhattan. Fire on the other hand is included on almost every insurance policy because fire insurance is historically where property insurance has its roots.
Professional Insurance:
You can think of this kind of insurance as liability insurance for specific professions. Doctors, Lawyers and Engineers have to have this kind of insurance in case they make a bad decision or give poor advice. This kind of insurance is expensive, especially in areas like the medical field where professionals are making judgment calls many times a day.
3. Why Do We Need Insurance?
Many of us have never had to make a claim on our insurance. Therefore when we continue to write the check month after month, we feel as if we are pouring money right down the drain. Even though you've never had to make a claim on your insurance, there is a good reason that its there. Naturally insurance is there to protect yourself and your investment, but let's face it; many of us wouldn't bother with insurance if it wasn't required by law or the bank.
Not only does insurance protect you and those around you, it is an unsung hero of America's economic success. Think about it for a second, who else has a stake in protecting your property; if you lease your car or mortgage your house, then the bank does. They want to make sure that their investment is protected. Banks wouldn't want to lend out money unless they knew that there was a really good chance that they'll get their money back. Consequently, insurance provides protection for the consumer lending process which is the backbone of the American economy. You might say that insurance greases the wheels enterprise.
