As a business owner, full-time employee or even a government worker, during our daily activities, certain events happen unexpectedly. These events are unavoidable during these activities and to reduce the effect of these events on us, we need some protection.
Insurance policies and plans are meant to protect us, especially financially in the event of these unexpected situations. There are numerous insurance companies, plans and policies out there and to choose suitable plans, we all need a basic knowledge of how insurance works.
What is insurance?
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. In other words, it is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.
If you are new to the risk and insurance industry, it can be quite difficult to determine what insurance you need. Getting the right type and amount of insurance is determined by several factors, some of which include: lifestyle, age, employment status and benefits.
To help you choose the best insurance plans, these four types of insurance are highly recommended by financial experts: life, health, auto and long-term disability.
Four types of insurance
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Life Insurance
The major aim of life insurance is to cover your funeral expenses and also cater for those you leave behind; family, relatives and at times friends. It is important if you are the breadwinner of your family. Although not everyone can afford the recommended figure, industry experts suggest your life insurance policy should cover ten times your yearly income.
There are two types of life insurance: traditional whole life and term life. While the traditional whole life can be used as an income tool as well as an insurance instrument, the term life policy on the other hand covers you for a while. Consider the following factors before choosing a life insurance policy:
- Choose the right premium amount
- Choose a reasonable coverage amount
- Consider automatic payments
- Go for a short payment duration
- Conversion option
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Health Insurance
According to a study published by the American Journal of Public Health in 2019, most families in the world are just one sickness away from bankruptcy. You don’t have to wait before you or a member of your family falls sick before you consider obtaining a health insurance plan.
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Long-term disability insurance
Long-term disability insurance replaces part of your income each month if a serious injury or illness prevents you from working. It is always available through the workplace, and it helps you maintain your standard of living if you are unable to earn money due to a serious injury.
The cost of disability insurance is based on certain factors, including:
- The health of the applicant
- Elimination period
- Definition of disability
- Employment status (self-employed and employee)
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Auto Insurance
According to the National Bureau of Statistics, NBS, 11,072 road crashes was recorded in Nigeria in 2019. The primary cause of these deaths according to the FRSC was speed violation as it accounted for 48% of the total road crashes. 5,483 people lost their lives in these crashes with the car taking up 31% of the total crashes.
To curb these accidents, several states in the country require drivers to have auto insurance as part of their licenses. In the case of an accident either as a driver or a passenger, your auto insurance covers the expenses and help guard you against any litigation that might arise from the crash.
KEY TAKEAWAYS
- Insurance is a contract (policy) in which an insurer indemnifies another against losses incurred from specific danger.
- The core components of insurance policies are the deductible, policy limit and premium.
- Businesses require special types of insurance policies. These insurance policies are tailored to insure against specific types of risk always faced by a particular business niche.
