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Types of Insurance Policies

Insurance is the best way of protection from potential financial loss in case of some disaster. It’s also a good type of risk management, mainly utilized to offset the danger of an unforeseeable or contingent monetary loss. Insurance companies are highly regulated by government authority to provide protection to both insurance owners and policyholders. Insurance policies are usually backed by the power of assets and property that the insurer owns.

The main types of insurance are life insurance, automobile insurance and health insurance. Life insurance offers income tax benefits and is mandatory for all those who are above 65 years of age. Life insurance policies are usually purchased to cover burial expenses and funeral costs incurred during the lifetime of an insured person. Auto insurance is required for all drivers upon purchase of car. This insurance serves as a safety net in case the vehicle gets stolen. It is also required for drivers of sedans.

Life insurance is purchased to compensate for financial losses that occur due to premature death. Term insurance provides policyholders with an agreed amount of money based on the stated tenure. A typical term insurance plan will pay the death benefit and a specified percentage of the total premiums, which is equal to the face value of the policy. In the event of the insured person’s premature death, the policy holder receives the balance amount, which is generally paid by the lender at the time of death.

Auto insurance, otherwise known as liability coverage, is designed to protect policyholders from losses resulting from automobile accidents. Liability coverage is generally not available to policyholders who own their cars outright. Automobile liability coverage is intended to cover financial losses resulting from collisions with other automobiles. If the insured is at fault in causing the accident, the insured’s liability coverage will pay the costs that result from any medical expenses and legal fees.

Tax benefits are one of the reasons that people buy insurance policies. Premiums are deductible from gross income and can be deducted from a tax return. Premiums may also be tax-free benefits if they are paid for in advance and in full. Policyholders must understand that premiums and tax benefits do not always go hand in hand. Premiums are deductible from a policyholder’s gross income and premiums may be taxed as ordinary income.

One should not confuse deductible and policy limit with each other. A policy limit is the maximum premium that will be charged for a particular deductible. Deductibles, on the other hand, are the amount you pay up front before the insurer pays a portion of your claim. The deductible may affect your ability to reduce your premiums or increase your deductible.

Author

Peter Conley

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