Insurance - All The Basics
Insurance is a type of financial protection that provides a sum of money to the insured person in the event of certain events. The insurance may be used to replace property that has been lost or damaged, or it can provide reimbursement for expenses.
In many cases, these sums may be quite large and some policies will allow for significant benefits over time, but there are also insurances designed to protect against specific risks that are not very costly to purchase. A variety of different types exist: auto insurance, homeowners insurance, life insurance and so on.
Insurance typically covers a risk such as physical damage (e.g., fire) or accidental injury (e.g., hit by a car), death (e.g. death benefits for a life insurance policy), or damage to property, possessions, or business assets. Some policies may provide coverage for specific events (e.g., workers' compensation) while other financial instruments provide insurance against risk of default on debts (e.g., bonds). The insured may be individuals or businesses and the coverage may be provided as a benefit of employment by a group planholder by an employer-sponsored self-insured plan, or purchased directly from an insurance provider.
While insurance can protect against many major losses and expenses, it does not cover everything and often there are exclusions associated with the policy in the case of loss.
In the United States, there are more than 6,500 insurance companies selling different types of insurances. In comparison, there are about 2.5 million employers offering employer-sponsored insurance plans to their employees.
The type of risk an insurer protects against varies depending on the type of policy being purchased and the insurer involved. For instance, one insurer may have policies for automobile accident injury protection and another may have policies for personal property coverage; a given policy can cover one or the other but not both. Some insurers may deny coverage to some applicants due to previous claims history or other factors related to past events that may have resulted in lawsuits or some loss to the insured in the event of a claim under a given policy (e.g., certain types of automobile insurance may not cover damage caused by hail; however, one insurer may issue a policy to a car owner who experiences hail damage).
Auto insurance refers to the protection provided under a contract for physical damage or bodily injury to a vehicle. It does not cover non-vehicular property damage; consequently, it is an important aspect of personal automobile insurance. (See personal auto insurance.) The value of coverage typically varies depending on the type of vehicle being insured and its value.
The definition of an "auto" in Japan is not limited to cars for transportation purposes. It includes all motorized means of transport, which are not otherwise defined. This broad definition is identical in Brazil, but the word "automobile" is used rather than "car".
In the United States and Canada, automobile insurance is usually subject to a state mandatory-insurance requirement. In most states possession of proof of insurance for the vehicle is legally required. In some cases this may be in the form of an actual card which the owner must keep available for viewing by law enforcement officers when driving or may be presented electronically via pay-by-phone systems such as OnStar (GM) or Alarm.com (Daimler AG). Some U.S. and Canadian auto insurance policies offer limited coverage for garage keepers and independent mechanic shop employees, but only when performing work on the insured vehicle.
Most states have a similar property liability insurance requirement covering medical bills for other persons injured in an accident, or compensation for damage to other persons' vehicles or property. Some require that proof of insurance be carried at all times; others require it only when driving. Proof of liability insurance coverage may be requested by law enforcement in the case of a traffic accident; those who cannot produce this evidence may pay higher damages out of their own pockets if they are determined to be at fault in the accident. However, laws vary from state to state and there are situations when a driver is not required to carry liability insurance. This can occur, for example, if the owner of a vehicle is a business entity. Additionally, if the owner obtains liability insurance and then lend the vehicle to another person who causes a traffic accident while driving, that other person may be held liable for damages under his/her own insurance policy.
Property liability coverage (also called "comp" or "contingent comprehensive") is not required in all U.S. states. In the state of New York, liability insurance is compulsory (although it is restricted to $50,000 for most vehicles in New York City) and the minimum amount of coverage for all drivers is $100,000. This measure was passed in 1994 as a result of lobbying by the New York Association of Personal Injury Lawyers.
In some cases, compulsory motor vehicle insurance may be required in other countries as a condition of a driver's licence or driving test. In other countries such as France and Italy (excepting some within-city areas), motorists road tax or a similar tax which invariably means insurance must be paid.
Conclusion of a contract of motor insurance is made with the insurer who will issue a policy declaration page to the insured person or his representative. The contract may involve the insurer in certain obligations, such as parting with its money, which might come from its own funds, from those of its customers who agree to pay premiums when they make contracts of life insurance or from those of other people (which may be received by way of investments in securities). If an individual wishes to acquire insurance for his own protection and benefit and that person's contract provides for payment to be made directly out of his own resources and on the basis of his promise to pay, then he is not buying a contract but only insuring himself.