Types of Insurance
And What They Mean For You

What Is Insurance? 

An insurance is an arrangement put in place to protect you from financial loss. 

The Association of British Insurers (ABI) explains that insurance protects you against the risk of loss, damage or theft, in return for the monthly amount you pay (which are called ‘premiums’) and on the understanding that the insurance will pay you compensation for that loss.

But how does insurance provide you financial protection?   

• It might be useful to think about insurance as a way of turning back the clock or writing off a loss by planning ahead for such loss by making contributions upfront for it, should it occur.
• The pooled funds contributed by everyone who signs up for that type of insurance is invested and the excess funds generated is available to help pay for a loss, should a member or subscriber fall into misfortune
• Insurance has been aptly described as an arrangement where the fortunate contributes to help the unfortunate. 

In return for the premiums you pay to the insurance company, you are assured of receiving compensation under circumstances and to the amount detailed in your insurance policy.

Most people do not think about insurance and risk coverage until they start renting (renter's insurance), buy a car (car insurance), pay into a group insurance at work (life, disability and critical health insurance), buy a home (home insurance), start a family (life insurance) or planning a wedding (wedding insurance). 

We all need some form of insurance.  

Types of Insurance

There are well over a 100 different types of insurance out there. The risk of practically anything that may lead to your suffering financial loss through some unexpected or accidental event may be insured.

Insurance is all about the risk of one of those events occurring.

The following though are the common types of insurance and situations where you may need them. 

Life Insurance

Jason was 31 years old. He moved to London with his wife and 2 year old daughter for postgraduate studies from another country. 

As he completed his master's degree, his wife became unwell suddenly and died. 

He had a life insurance policy in place for himself, and not for his wife, reasoning that since he is the main breadwinner, his wife does not require coverage. 

He had to stop working to look after their 2 year old. Mourning the death of his beloved wife was bad enough, but now he also had to contend with no income. He had to live at the mercy of friends for over 6 months before he could start working again. 

Life insurance is a form of insurance taken to pay out money to the surviving family members or estate of the life insured. 

• When you sign for a life insurance, you agree on an amount that you would like to be paid out, should you pass away. This is called the face value of the policy

• The face value or sum insured for should be at least 10 times what you earn in a year. So if your annual salary is $56,000, your life insurance policy should be for at least $560,000. This is to allow your loved ones to be able to look after themselves for at least 10 years after you are no longer here

• Your life insurance should also be able to cover the cost of your funeral, debts, mortgage and cost of education etc of surviving dependants

• Based on that amount, a monthly or yearly premium is calculated. This amount, called the insurance premium is paid by you every month for the length of time the insurance is in place. 

• There are different types of life insurance - term insurance, whole life insurance, universal life insurance, and variations of these. Be sure to discuss with your broker or financial adviser on what fits your family and your particular situation best.

Be sure to have your spouse take out a life insurance too. This can be separately or as a joint life coverage, where you pay a lesser premium in most cases and the first of the two of you who survives gets a payout. 

If Jason above had included his wife in his insurance policy, he would have had a payout. While absolutely nothing can replace the death of a dearly loved partner, not needing to worry about finances and cost of living after a loved one passes away help to cushion the pain of loss. 

Health Insurance

A health insurance is an insurance policy taken to cover cost of you seeing:

• A doctor or other healthcare providers such as 
• Physiotherapists
• Massage therapists
• Podiatrists
• Dentist
• Naturopathic doctors etc, as well as covers the cost of your
• Medicines
• Tests
• Procedures or surgery, etc.

Health insurance could also pay out for the inconvenience of staying in ER hospital bed overnight or the cost of ambulance services or transportation to a health facility. And more. 

Unless you live in The UK, Canada and a handful of other countries where there are publicly paid for healthcare system, owning a health insurance is very important.

Even in countries described above, having a private health insurance is often still important to cater for expensive procedures and medicines. 

Critical Illness Insurance

A critical illness insurance is a type of insurance taken to cover financial loss if you are unable to work because you are diagnosed with a serious illness. 

As Sun Life Insurance Company puts it, "When a critical illness strikes, the last thing you want to worry about is money".

A critical illness insurance typically list 15 to 30 illnesses if diagnosed with during the term of the insurance coverage, will trigger a pay out. 

Sun Life Insurance lists 26 illnesses and they include:

• Acquired brain injury 
• Aortic surgery 
• Aplastic anemia 
• Benign brain tumour 
• Bacterial meningitis 
• Blindness 
• Cancer 
• Coma 
• Coronary artery bypass surgery 
• Deafness 
• Dementia, including Alzheimer's disease 
• Heart attack 
• Heart valve replacement or repair 
• Kidney failure 
• Loss of independent existence (LOIE) 
• Loss of limbs 
• Loss of speech 
• Major organ transplant 
• Major organ failure on waiting list 
• Motor neuron disease 
• Multiple sclerosis 
• Occupational HIV infection 
• Paralysis 
• Parkinson's disease and specified atypical parkinsonian disorders 
• Severe burns 
• Stroke

We would all love to think that it is not going to be us. But the chances of anyone of us having one of the above condition before the common retirement age of 65 is moderate to high. 

Disability Insurance

A disability insurance is an insurance policy taken to pay a percentage of your monthly income, if you are unable to work due to a disability. 

Many of use would think that could never happen to us. The statistics shows that at this moment, 18% of Americans are disabled and most of these persons are within the working age. 

Another statistics have it that about 30 out of every 100 Americans getting into the workforce would become disabled before they reach retirement age. 

A disability insurance is certainly one of the very important types of insurance policies to have if you are employed or self employed. 

There are largely two types of disability insurance:

• Short term disability insurance. This is often included in your work insurance for most employments. It provides you some payment amounts covering your salary or part of it for 6 to 18 week. After this period, if you are still not able to work, you will have to start drawing on your long term disability insurance if you have one. 

• Long term disability insurance. This is the actual disability insurance referred to here. If you were to become disabled and unable to work and have a long term disability insurance, depending on the start date agreed at the time of purchase, you could start getting pay out of the agreed percentage of your usual monthly income 30, 60, 90 or 180 days from when you last earned an income from your usual job. The longer the time for such payouts to start, the lower your monthly premium is. 

Common causes of disability that triggers a payout include:

• Mental health issues (depression, severe prolonged anxiety making work impossible, schizophrenia, bipolar)
• Chronic back pain (very common)
• Chronic pain
• Fibromyalgia
• Disabling Multiple sclerosis
• Loss of limb
• Loss of vision
• Epilepsy
• Arthritis
• Road traffic injuries
• Falls
• Etc - depending on the definition in your particular policy. 

Many disability insurance policies would define disability based on whether you can do any job at all or your own occupation. 

They also may define disability based on how it impacts one or more of the following:

• Vision
• Hearing
• Walking
• Dressing
• Feeding
• Eliminating (bladder or and bowel)
• Depending on life-saving machine or device 

Of course, no one of use should wait to be in a bad situation before getting a disability insurance. It pays out to you until you are able to return to work or until retirement. 

Home Insurance

For most of us, our home would be the most expensive single purchase we have.

How much does your house cost? $90,000 or $9,000,000?

Bad things happen. It can, to anyone at anytime. Suppose your house is hit by a falling tree or gets flooded and damages the building and content? You don't live in a flood plain you said? What about fire? Any house could get burnt down.

That is where a house insurance comes in. 

A home insurance is an insurance policy taken to provide protection to your home against some potentially damage or risks, such as fire, flooding, storm, water leaks, impacts (from aircraft, vehicles, drones, falling trees and the like)

• Given the potential for events like these to completely destroy a building, the insurance you arrange typically needs to cover the cost of rebuilding.

• Most home insurance usually includes content insurance to replace the cost of items - furniture and personal effects etc, should these be damaged too, unless you opt out.

• Even if you are a tenant, rather than the owner, you may still want to insure the contents you own in your rented accommodation, suggests the UK Citizens' Advice Bureau. This is often called a tenant insurance. 

• If you are buying a home, the lender would always request that you get a home insurance and include them as the first payout recipients. This is to protect their investment, should something happens to the house before you complete paying the mortgage

• Home insurance policies also typically include property owner’s liability insurance to protect against claims from visitors to your house, neighbours and members of the public who may suffer an injury or have their own property damaged because of something that occurs to your home.
  

Owning a property or home insurance is highly recommended whether you are a tenant (tenant's home insurance policy), have a mortgage on a property or even if you have completely paid for your home. 

Car Insurance

A car insurance, also referred to as auto insurance in North America is a legally required insurance in most countries, if you have a car or automobile. 

After a house, your car is perhaps the next most expensive single personal item you own. With over 165,000 car accidents in the UK every year (160,000 in Canada and over 6 million in the USA), it is easy to see why you need a car insurance. 

Popular types of insurance for cars include:

• Third party insurance which is the most basic and often least expensive. It covers the other person's car repair or replacement cost and injury claims, but not yours. It doesn't cover your car loss from theft or fire either. 

• Third party with fire and theft is a mid-way between the basic third party car insurance and the comprehensive insurance. It will pay out, should you car be stolen or gets caught up in loss from fire. 

• A comprehensive car insurance covers your car as well as the other person's if you are involved in an accident. It also covers damages from fire, storm, hail, malice and well as theft. It may also come with a range of optional extras, such as windscreen replacement and roadside assistance and breakdown services. Comprehensive car insurance often also provides you cover for rental cars within or outside your country of resident. 

Car insurance premium price is highest for new drivers. Your previous accident-free driving record and sex (men tends to pay higher premiums than women), would determine your premium rate. 

The make, model, age and value of the vehicle and the use to which it is put (for business or for social, domestic and pleasure purposes, for example) would also influence your premium. 

Car insurance, just like other types of insurance could set you back by a few hundred dollars a month, but they are worth the peace of mind they bring. 

Travel Insurance

Travel insurance is another type of popular insurance policy worth having if you travel even within your country, but certainly if traveling outside your country. 

A travel insurance covers your financial risk if you were to:

• Fall sick while away
• Experience flight delays
• Loss your luggage or baggage
• Cancel your trip at last minute or even during a travel for emergencies
• Be involved in an accident while travelling

Depending on the level of coverage you purchased, things like overseas ambulance service and air evacuation in case of serious illness, hospitalizations, prescription drugs are all included in travel insurance. 

The UK government advice is that anyone travelling abroad is urged to arrange travel insurance. 

One Australian website puts it, “if you can’t afford travel insurance, you can’t afford to travel”. Does that not underscore the importance of travel insurance? 

Sports Insurance

Sports insurance is an insurance many of use may not have even thought of. 

It is an insurance policy taken to cover you against financial risks that may arise due to your participation in sports, coaching or provide a venue for sporting activities or training. 

A sports insurance therefore could cover the following scenarios:

• Injury to yourself or others during sports or coaching
• Injury from instructing or lack of instruction to sport participants
• Sexual harassment claims during sporting activities
• Unintentional breach of confidentiality during a sporting activity 
• Dissatisfaction with sport or coaching outcome
• And more. 

Clearly, sport insurance is not just for those participating in sports as players, but it is also for sporting coach, gym owners, personal trainers and instructors, training studios and more. 

Sport insurance may also pay for a membership fee reclaim, if you paid for an annual membership but due to illness, you are unable to continue to attend. 

Pet Insurance

Pet insurance is insurance taken to protect yourself from financial loss from providing veterinary care to your pet as well as injuries to yourself or others arising from your pet. 

Pet insurance could also cover for cost of cremating your pet etc. 

The cost of vet care for pets is on the rise. If you have a beloved fur friend, get a pet insurance if you can afford it to prepare for those times things would not go well for your pet. 

Wedding Insurance

A wedding insurance is an insurance taken to protect yourself from financial loss as a result of events out of your control during a wedding. 

If for example, you have perfected the plans for your big day, spent all those time and preparations, rentals etc and then you get to the wedding venue and it is closed or not available for any reason, with a wedding insurance, you could put in a claim for the loss incurred. 

Other risks a wedding insurance covers include:

• Injury to yourself or guests during your wedding
• Loss of wedding gifts
• Damage to items at your wedding venue
• Damage to venue 
• Wedding dress damage
• Severe weather condition leading to cancellation

For only a few hundred dollars in insurance premium for a wedding insurance, you could get coverage of up to $2,000, 000. Why not include a wedding insurance cost in your wedding budget and enjoy the peace of mind that comes with knowing that should anything happen out of your control during your big day, you are covered. 

Business Insurance

Business insurance covers your risks arising from running your business. 

A business insurance typically covers the following:

• Business building and equipment
• Public liability insurance should someone gets injured in the premises
• Professional liability, should a customer puts in a claim dissatisfied with your services or goods  
• Product liability
• And more. 

A business insurance often also include a Worker's Compensation Board (WCB) insurance.