Insurance Objectives

Many people buy insurance, but usually because they have to. This is especially true with car insurance since 49 of the 50 state require car insurance to operate a motor vehicle on the road. The same can said of other types of insurance in that many people buy health and life insurance without a real understanding of why they do so. Many people recognize the fact that insurance provides "peace of mind," but not everyone recognizes why this is the case. Understanding the objectives of different forms of insurance can provide some insight as to why insurance is an important product.

Auto Insurance Objectives

• Auto insurance, like other forms of insurance, protects people against unexpected loss. With auto insurance, this loss is the loss of property, health or life in the case of an accident. Insurance allows the owner of the policy to spread out risk over a long period of time through the payment of premiums. The insured driver agrees to pay a minimum out-of-pocket expense called a deductible in the event that he experiences unexpected loss. The insurance company agrees to pay the remainder of the expenses. Motorists carry liability coverage to protect against damage they may cause to someone else's property as well. Some auto insurance protects the policy owner in the event of hospitalization caused by a motor vehicle accident.

Health Insurance Objectives

• Health insurance, like auto insurance, provides protection in the event of unexpected loss, but due to reasons associated with health care costs. The rising costs of health care continue to make health insurance important for many people. Expenses in medical care can include doctor visits, hospitalization, prescriptions and expensive diagnostic tests. Because many health insurance policies make routine checkups possible at a lower cost, health insurance can also be said to be a means for protecting health as well. Because you are more likely to pay a small fee for a routine checkup, you will be less likely to let undiagnosed problems arise. Health insurance coverage can cover many different aspects of health care arising from sickness, but the overall objective of the health insurance company is to keep you in good health so that they do not have to pay excessive expenses on your behalf. Likewise, because you will be responsible for certain out-of-pocket expenses, your objective in purchasing health insurance will also be the maintenance of good health.

Life Insurance Objectives

• Life insurance is probably one of the more difficult types of insurance to understand in terms of its purpose and objectives. Life insurance can provide protection to your family in two primary ways. First, it can provide your family with an inheritance in the event of your unexpected demise. This money can be used to pay off existing bills and relieve any financial stress that may be caused by your passing. Some life insurance policies provide a large lump-sum benefit, while others may be purchased only to cover the largest of your expenses such as your mortgage. Term life insurance typically provides the greatest benefit for the lowest premium.

  On the other hand, some life insurance policies can also be purchased as an investment vehicle. These policies contain both a death benefit and an investment account. The money that you pay in premiums goes toward the cost of the policy and toward providing you with a savings account that can be invested in various types of securities like stocks, bonds and mutual funds. Instead of covering you for a certain "term," or period of time, however, these policies cover you for your "whole life," which is where whole life policies derive their name. Investment accounts within a whole life policy can be cashed in, borrowed against or provide you with a secondary retirement account if saved until then.