Discuss the Types of Insurance Policies That Affect Individual Consumers

Insurance is a risk management technique used to protect individuals and organizations from risk of uncertain, sometimes catastrophic, losses. Typically, an individual or organization pays a relatively small amount of money (a premium) on a periodic basis. The parties enter into a contract, the policy, that defines the amounts of money and under what conditions an insurance company will pay out in the event the insured suffers a specific loss. There are dozens of types of insurance policies; four main ones that primarily affect individual consumers.

Health Insurance

• Health insurance covers individual consumers when they need medical treatment. Because health care costs are so high, individual consumers need health insurance even for simple things like checkups. In addition to the high cost of health care, health insurance policies are expensive. Accordingly, many people get insurance through their employers where their employer pays a share of the premium and deducts the rest from their wages. On the other hand, many people are forced to buy health insurance on the individual market for large sums of money or simply go without. Health insurance plans typically come with a certain deductible and require the policy holder to pay co-pays. Deductibles are a set amount of money the insured must pay before the insurance company will step in and pay the rest. Co-pays are a nominal amount of money the insured must pay for things like prescription drugs.

Life Insurance

• Life insurance covers the risk of death. It is often used to cover costs associated with death like the funeral and burial. In addition, individual consumers will take out policies that can be used to replace their financial contribution to other family members. For instance, if a mother is the primary earner in the family, she may take out a life insurance policy that would pay a large sum of money to her beneficiaries in the event of her death.

Auto Insurance

• Automobile insurance covers property damage to automobiles in the event the policy holder gets into an accident. Most insurance policies only pay when the policy holder is considered "at fault" for the accident. Some policies cover personal injury and medical expenses for the policy holder and any passengers in the car. Other policies only cover damage done to the other person or vehicle when the policy holder causes an accident. Typically, in 2010, car insurance policies range in the few thousand dollars per year with individuals paying monthly premiums.

Homeowner's Insurance

• Most mortgage lenders require that borrowers purchase homeowner's insurance as a condition for lending the borrower money. Homeowner's insurance covers damage to home in the event a natural disaster or other calamity causes significant damage. Homeowner's insurance does not typically cover minor household problems like electrical or plumbing issues.