What is Insurance?
Insurance is a financial protection that allows us to take risks. If you have ever purchased a home, the lender probably required that you purchase insurance. This is intended to protect the interests of all parties in the transaction. Imagine what would happen if you didn't have insurance and your house caught fire and burned to the ground. All of a sudden you would have no place to live. It wouldn't be easy to find a suitable place to live on your new budget, which now includes a rental payment in addition to the old mortgage payment. The house may be gone, but the debt isn't; the lender will expect you to continue to make your mortgage payments for the duration of the loan period. Most of us can't afford to do this, that's why we purchase insurance. Insurance allows us to do what we need to do without worrying about the "what if's".Types of Insurance
Property Insurance covers the risk of property loss in a variety of personal and commercial situations. It protects private homes and their contents, commercial buildings, equipment, furniture, business records, supplies and other physical items.
Casualty Insurance is made up primarily of liability coverages, which protect an insured against injury or damage claims made by other parties. Legal liability arises through negligence, or the operation of law or due to contract obligations. Automobile insurance, general liability insurance and workers compensation are examples of liability insurance. Casualty insurance also embraces crime (burglary and robbery) insurance, fidelity bonds, surety bonds, boiler and machinery coverages, plate glass insurance, and aviation insurance.
Life Insurance and Annuities help provide economic security for survivors when someone dies. Life insurance is often used to pay funeral costs and debts. It is available on an individual and a group basis. Annuity contracts guarantee to make payments to a certain party for a specific period of time or for life.
Health Insurance includes accident coverage, medical, dental and disability insurance. Various forms reimburse people for medical expenses, pay the providers of health care, or provide health services on a pre-paid basis.
Types of Insurers
Stock Companies
These are the leading type of insurers in the United States.
They control almost 70 percent of all property and liability insurance
premiums and about 50 percent of life insurance premiums. Stockholders
own these companies and share the losses and profits.
Mutual Companies
Policyholders are the owners of these companies, which
control about 30 percent of the property and liability insurance business
and about 50 percent of the life insurance business.
Other Private Insurers
Many health associations and health service plans provide
pre-paid hospital, medical and surgical care to subscribers. Fraternal
benefit societies provide some insurance for their members.
Government Insurers
The federal government provides insurance for certain catastrophic
risks, such as in the National Flood Insurance Program, as well as life
insurance for veterans, survivors benefits under Social Security, and
health care under Medicare and Medicaid.
How Insurance Is Sold
Agents represent insurance companies and must pass an examination to obtain a state license. Direct writers are hired by individual companies. These agents usually receive a salary, or a salary plus commission. A direct writing company has complete control and ownership of its policies and renewals. Captive or exclusive agents represent one company and are paid a salary, commission, or a combination of both. A company who uses captive agents owns and controls its accounts, policy records and renewals.
Independent agents represent more than one company and work on a commission or a fee basis. They are independent contractors who own a right to their accounts, policy records and renewals.
Brokers represent policyholders, not insurance companies. Brokers are independent contractors who examine the insurance needs of their clients and then shop around for the best coverages. They work for commission, mostly in the property casualty insurance business. They must also pass an examination to obtain a state license.
Excess and Surplus Lines is the name given to insurance for which there is no market through the agent or broker. Such business is placed through a licensed surplus lines broker.
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