What Is Insurance Coverage?
Insurance coverage is the amount of risk or liability that is covered for an individual or entity by way of insurance services. Insurance coverage, such as auto insurance, life insurance—or more exotic forms, such as hole-in-one insurance—is issued by an insurer in the event of unforeseen occurrences.
Understanding Insurance Coverage
Insurance coverage helps consumers recover financially from unexpected events, such as car accidents or the loss of an income-producing adult supporting a family. Insurance coverage is often determined by multiple factors.
For example, most insurers charge higher premiums for young male drivers, as insurers deem the probability of young men being involved in an accident to be higher than, say, a middle-aged married man with years of driving experience.
The Two Main Types of Insurance Coverage
Auto Insurance Coverage
Auto insurance premiums depend on the insured party's driving record. A record free of accidents or serious traffic violations typically results in a lower premium. Drivers with histories of accidents or serious traffic violations may pay higher premiums. Likewise, because mature drivers tend to have fewer accidents than less-experienced drivers, insurers typically charge more for drivers below age 25.
If a person drives his car for work or typically drives long distances, he generally pays more for auto insurance premiums, because his increased mileage likewise increases his chances for accidents. People who do not drive as much pay less.
Because of higher vandalism rates, thefts and accidents, urban drivers pay higher premiums than those living in small towns or rural areas. Other factors varying among states include the cost and frequency of litigation, medical care and repair costs, the prevalence of auto insurance fraud, and weather trends.
Life Insurance Coverage
Life insurance premiums depend on the age of the insured party. Because younger people are less likely to die than older people, younger people typically pay lower life insurance costs. Gender plays a similar role. Because women tend to live longer than men, women tend to pay lower premiums. Engaging in risky activities increases insurance costs. For example, a racecar driver faces an increased risk of death and, as a result, may pay high life insurance premiums or be denied coverage.
A person's medical records help determine insurance rates.
A history of chronic disease or other potential health issues with an individual or family, such as heart disease or cancer, may result in paying higher premiums. Obesity, alcohol consumption, or smoking can affect rates as well. An applicant typically goes through a medical exam to determine whether he has high blood pressure or other signs of potential health issues that may result in premature death for the applicant and increased risk for the insurance company. People in good health typically pay lower life insurance premiums.
A person pays more for insurance coverage for a longer policy term and a larger death benefit. For example, the risk of dying for a person with a 30-year policy is greater than the risk of dying for a person with a 10-year policy.
- Insurance coverage refers to the amount of risk or liability that is covered for an individual or entity by way of insurance services.
- The most common two types of insurance coverage are for auto and life insurance.
- Insurance coverage helps consumers recover financially from unexpected events, such as car accidents or the loss of an income-producing adult supporting a family.