Types of Insurance

Private Insurance – Life and Health – Property and Liability Government Insurance – Social Insurance – Other Government Insurance

Private Insurance Life and Health Insurance – Life insurance pays death benefits to beneficiaries when the insured dies – The benefit pay for funeral expenses, uninsured medical bills, estate taxes and other expenses. – The death proceeds can also provide periodic income payments to the deceased beneficiary. – Health insurance covers medical expenses because of sickness or injury – Disability plans pay income benefits

Property and Liability – Property insurance indemnifies property owners against the loss or damage of real or personal property caused by various peril such as fire, lightning, wind storm or tornado – Liability insurance covers the insured’s legal liability arising out of property damage or bodily injury to others – Casualty insurance refers to insurance that covers whatever is not covered by fire, marine, and life insurance – Causality lines include auto, liability, burglary and theft, workers compensation and health insurance

Private insurance coverages can be grouped into two major categories Personal Lines: refer to coverage that insure the real estate and personal property of individuals and families or provide them with protection against legal liability Commercial Lines: refer to property and causality coverage for business firms, non profit organizations and government agencies

Property and Casualty Insurance Coverages

Government Insurance Numerous government insurance programs are in operation in present time. Government insurance can be divided into social insurance programs and other government insurance programs.

Social Insurance Programs Social insurance programs are government insurance programs with certain characteristics that distinguish them from other government insurance plans. – Financed entirely or in large part by contributions from employers and/or employees – Benefits are heavily weighted in favor of low-income groups – Eligibility and benefits are prescribed by statute – Examples: Social Security, Unemployment, Workers Comp

Other Government Insurance Programs – Found at both the federal and state level – Examples: Federal flood insurance, state health insurance pools

Social Benefits of Insurance Indemnification for Loss Reduction of Worry and Fear Source of Investment Funds Loss Prevention Enhancement of Credit

Indemnification for Loss Indemnification permits individuals and families to be restored to their formal financial position after a loss occurs. Individual can maintain their financial security The indemnification function contributes greatly to family and business stability and therefore is one of the most important social and economic benefits of insurance.

Reduction of Worry and Fear The second benefit of insurance is that worry and fear are reduced. This is true both before and after the loss. If family heads have adequate life insurance, they are less likely to worry about financial security of their dependent Worry and fear are also reduced after a loss occurs, because the insured know that they have insurance that will pay for the loss.

Source of Investment Funds The insurance industry is an important source of fund for capital investment and accumulation. Premiums are collected in advance of the loss and fund not needed to pay immediate losses and expenses can be loan to business firm. These funds are invested in various investment avenues

Loss prevention Insurance companies are actively involved in various loss prevention programs and also employ a wide variety of los prevention personnel, including safety engineers and specialist in fire prevention occupational safety and health and products liability

Enhancement of Credit A final benefit is that insurance enhances a persons credit. Insurance makes a borrower a better credit risk because it guarantees the value of borrowers collateral or give greater assurance that the loan will be repaid

Cost of insurance to Society Although the insurance industry provides enormous social and economic benefit to the society, the social cost of insurance must also be recognized. The major social cost of insurance include the following. Cost of doing business Fraudulent Claims Inflated claims

Cost of doing business Insurers consume resources in providing insurance to society such as land, labor, capital and business enterprise An expense loading is the amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit

Fraudulent Claims Second cost of Insurance comes from the submission of fraudulent claims. Examples of Fraudulent claims include Auto accidents are faked or stages to collect benefit Dishonest claimants fake slip and fall accidents False health insurance claims are submitted to collect benefits

Inflated claims Another cost of insurance relates to the submission of inflated or padded claims. Although the loss is not intentionally caused by the insured, the amount of claim may exceed the actual financial loss. inflated claims results in higher premiums to all insureds, thus reducing disposable income and consumption of other goods and services