Common Types of Insurance

In an insurance policy, a person or business makes an agreement that states the insurance company will pay money if certain damages happen. There are many types of insurance, each of which provides different coverage for different types of hazard, or risk. Consumers often buy insurance on their homes, vehicles, and lives. Businesses often subsidize employees' health insurance, and they insure their own buildings and other property.

Casualty insurance protects people and organizations from claims of negligent acts. Liability insurance protects the policyholder against claims of damage or injury to people or property. While originally most goods were shipped on the seas and were covered by marine insurance, as the shipping, or transporting of goods, moved overland, so did the insurance coverage. Inland marine insurance sounds as if it applies to boats, but it actually covers trucks, warehoused items, equipment, computers, and many other high-value products. Life insurance includes whole life and term insurance. Term insurance costs less than whole life does, but the term policyholder gets a payout only if the insured dies during a specific time period. With whole life insurance, the money that the insured pays in becomes part of a payout after the insured's death or even (in some circumstances) during the insured's lifetime. It is also possible for individuals and companies to buy annuities, a form of insurance that pays a fixed sum of money each year. Annuities cost a great deal up front but provide payments to the beneficiary—the person or business who receives the benefit or payment from an insurance contract or policy—during his or her lifetime.

Automobile insurance provides different types of coverage. For example, collision coverage provides for repairing or replacing a vehicle that is damaged in an accident. Comprehensive coverage provides for damage resulting from fire, theft, and vandalism. Uninsured motorist coverage provides coverage for the driver or passenger of a vehicle that is injured by an uninsured driver.

Businesses also utilize insurance. Suppose that Sid is a sporting goods distributor. One night, a fire breaks out and firefighters are unable to put it out in time. As a result, all of Sid's inventory is destroyed in the fire. In addition, the building housing Sid's business was severely damaged. Fortunately, the commercial property insurance of the business owner's policy will cover Sid's losses for his inventory and any repairs to the building.

Not every potential hazard can be insured against. An uninsurable risk gets no coverage, or payout, from the insurer. Illegal drug use and terminal illnesses can be examples of uninsurable risks. Uninsurable risks are sometimes defined as risks that an insurance company will not assume. In other words, they are too uncertain. For example, gambling is typically uninsurable, given the fact that it is speculative in nature.

Self-insurance typically involves health insurance (but can also involve other types of insurance) where an employer takes the risk of providing insurance coverage to the employees. In essence, the employer is responsible for making payments for eligible claims from a designated fund that the business creates and maintains. Self-insurance can be risky if the amount of the claims is significant and exceeds the amount in the fund.