Insurance Needs Approach - Health and Property Insurance

HEALTH INSURANCE
Health insurance refers to the broad field of plans that provide protection against the high costs caused by illness, accidents, injury, and disability. Within the broad field of health insurance, there are three distinct categories of health coverage: medical expense insurance, disability income insurance, and accidental death and dismemberment insurance.

Characteristics
Renewability provisions- Health policies may contain any one of the wide varieties of renewability provisions, which define the rights of the insurer to cancel the policy at different points during the life of the policy. The five principal classifications are: optionally renewable, cancellable, conditionally renewable, guaranteed renewable, and non-cancellable. Simply put, the more beneficial the renawability provision to the insured, the more expensive the coverage.

Premium factors- Health premiums can be paid by several different payment modes, including annual, semiannual, quarterly, and monthly. The factors that enter into calculation for the premium include, interest, expense, types of benefits and morbidity. Morbidity is the expected incidence of sickness in a given age group during a given time frame.

Reserves- Reserves are set aside by an insurance company for the payment of future claims. Part of each premium is designated for reserves and show up on a company's balance sheet as a liability.

Participating vs. Non-participating- Health insurance may be written on a participating or non-participating basis. Most individual health policies are issued on a non-participating basis, while group health policies are generally participating and provide dividends.

PROPERTY INSURANCE
Property insurance provides protection against loss of property. This includes numerous forms of insurance, for example- fire insurance, flood insurance, auto insurance, or homeowners insurance. This type of insurance covers two major apsects of property - open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage causing events as fire, lightning, explosion and theft.

Homeowner's insurance:
Most of today's homeowner's have some type of coverage on their home to insure against the risk of loss. Not only because the homeowner has concerns, but because most home loan lenders will require it as a condition of the loan to insure them against loss in the incident of a catastrophic event.

Some of the more common coverages found in a typical policy are listed below:

Section I Coverage Limit of Liability
A. Dwelling*
B. Other Structures
C. Personal Property
D. Loss of Use

$500,000
$50,000 (10% of A)
$250,000 (50% of A)
$100,000 (20% of A)
Section II Coverage Limit of Liability
E. Personal
F. Medical Payments
$300,000 each occurrence
$5,000 each person, $15,000 each occurrence
*Note: The land is specifically excluded from coverage.

Depending on where the property is located, other risks must be addressed such as hurricane protection in Florida, flooding in Louisiana, and earthquakes in California, to name a few. Personal Auto Insurance Policies
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  4. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  7. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  8. Savings

    What Women Investors Are Doing Right

    Women's risk aversion, penchant for research – and lack of male-style "irrational exuberance" – means their investing strategies often put them ahead.
  9. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  10. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  3. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  4. Gross Exposure

    The absolute level of a fund's investments.
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  5. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!