Insurance is a way of managing risk by sharing the monetary damages of catastrophic events among a large number of parties. Various types of entities can purchase insurance policies, including LLCs, corporations, professional associations, non-profit organizations and individuals. Insurance policies can cover damages incurred on virtually any type of property. Personal insurance is insurance for individuals rather than companies or organizations.
How Personal Insurance Works
When you purchase any personal insurance policy, you pay regular premiums in exchange for an agreement of financial protection on the part of the insurer. The insurance company takes all of the money it gathers from policy holder premiums and uses it to pay whatever it owes to clients who actually do incur losses that their policies cover. Whatever money is left remains with the insurance company, which uses that money to pay for normal operating costs, pay dividends to owners or shareholders or make investments.
One common type of personal insurance is life insurance. Life insurance covers the risk associated with the death of a loved one--typically a wage-earner. For instance, if a husband earns $50,000 per year and his wife and dependent children do not have wages, the family would probably be in a dire financial situation if he were to die. In this case, this family can protect itself against poverty as a result of the father's untimely death by purchasing a life insurance policy. As long as payments are made, this policy would then pay a large sum to the family if the father were to die. Life insurance comes in two basic types: whole and term. Whole life insurance covers the insured for the rest of her life regardless of deteriorating health, and it also has a savings aspect to it. Term life insurance typically gives the same amount of coverage for lower premium payments, but it only covers the insured for a set period of time.
In the United States, every state except for New Hampshire requires motorists to carry automobile liability insurance. When you have automobile liability insurance, it protects other people from any damages you might cause while driving your vehicle.
In addition to liability insurance, auto insurance companies also provide other types of insurance that are not usually required by law. For example, collision insurance covers damages to your vehicle caused by a collision with another object (usually when you are at fault), while under-insured motorist insurance pays for damages to your vehicle caused by another motorist who does not have the insurance necessary to cover the damages. Comprehensive auto insurance covers any other damage done to your vehicle not covered by collision insurance, while personal injury protection helps pay for medical costs related to automobile accidents in which you or your passengers receive injury.
Health insurance helps to pay for costs related to medication and medical care. Health insurance is a necessity for most people due to the high costs of almost any type of medical care. Depending on the plan you have, if you become ill or injured, health insurance companies could help you to pay for hospital stays, surgeries, medication, rehabilitation and psychiatric therapy. In the United States, some people purchase health insurance on their own, while others do it through their employer or a professional association. For people who cannot pay for health insurance or who cannot qualify for it due to preexisting conditions, the federal government provides the Medicare and Medicaid programs.
Other Personal Insurance
Other types of personal insurance give coverage similar to what auto insurance covers. For instance, various types of liability insurance protect you from lawsuits in a manner similar to how auto liability insurance protects you from having to pay for damages that you cause with your vehicle. Home insurance, like comprehensive auto insurance, protects you against losses incurred on your home by vandalism or natural disasters. Other policies can insure you against theft, unemployment and business losses.
Personal Property Insurance Definition
If you own a home, you probably know it's necessary to buy insurance to protect your home. However, having a personal property...