Have you ever asked yourself why by any type of insurance (Life, Health, Disability, Auto, Liability etc)?
By buying insurance whether it is Life or Health the insured is transferring the risk to the insurance company. But transferring the risk cost the insured small monthly premium. In case of life insurance the insured is transferring the risks of his or her sudden death of loss his or her life income which affects the family lifestyle and the burden of paying debts owed by the insured. Thus insurance is basic protection against lifestyle and gives security to the family members.
In case of Health insurance by transferring of risk of getting ill with sickness or getting hurt in an accident and loss of income. The insured is protecting him or her for expense of say for example bypass heart surgery. The insured pays for annual deductible & co pay but majority of the expenses are paid by the insurance company. Again if the insured had chosen not to insured himself or herself with health insurance then the hospital will come after the insured assets, IRS refund check, and will report to the credit beaurea for unpaid expense. Thus health insurance is necessity to protect one’s life style & family.
Another type of insurance that most people do not think about is Disability insurance. This type of insurance protects the insured against disability. Here care should be taking to understand how the insurance company defines disability. Whether disability is defined has inability to perform one’s current occupation or any type of work. This type of insurance can be bought in terms of long term or short term time limit. The monthly premium protects against disability of the insured.
In case of Life insurance it is protection against current or future expenses that the insured may have incurred. The life insurance replaces the loss of income suffered by the family member. Life insurance proceeds are exempt from IRS taxes. Insured can buy Term Life insurance which is buying protection for the insured with monthly premium increase. Here the insured has a choice of buying ten year level term, 20 year level term, and 30 year level term. This means that the monthly premium will not increase for the specified term of 10 or 20 or 30 years. This option works for a young growing family. The other option is buying whole life insurance which the word implies the monthly premium is higher compared to term insurance but the premium stays the same for the entire life of the insured. This type of insurance builds up cash value which gives the insurance an option to borrow against the cash value at zero interest. There are other options available in life insurance like in Universal life insurance which offers the insured to invest part of the premiumin investment instruments to grow at faster rate than whole life cash value.
One basic fact to remember is insurance is transference of risk to the insurance company. The cost of transferring the risk is the premium the insured is willing to pay.