Insurance
types in the United States| All you need to know
Insurance is a
contract in which the insurer agrees to compensate or pay another party (the
insured, the policyholder or a beneficiary) for specified loss or damage to a
specified thing (e.g., an item, property or life) from certain perils or risks
in exchange for a fee (the insurance premium).
For example, a property insurance
company may agree to bear the risk that a particular piece of property (e.g., a
car or a house) may suffer a specific type or types of damage or loss during a
certain period of time in exchange for a fee from the policyholder who would
otherwise be responsible for that damage or loss. That agreement takes the form
of an insurance policy.
The US has a joint federal & state system for regulating insurance,
with the federal government ceding primary responsibility to the states under
the McCarran-Ferguson Act. States regulate the content of health insurance
policies and often require coverage of specific types of medical services or
health care providers.
As of
2018, there were 5,965 health insurance companies in the United
States, although the top 10 company account for about 53% of revenue and
the top 100 account for 95% of revenue.
Important Terms
Parties to Contract
The person responsible for making payments for a policy is the
policy owner, while the insured is the person whose death will trigger payment
of the death benefit. The owner and insured may or may not be the same person.
The beneficiary receives policy proceeds upon
the insured person's death. The owner designates the beneficiary, but the
beneficiary is not a party to the policy. The owner can change the beneficiary
unless the policy has an irrevocable beneficiary designation.
Contract Terms
Insurance Contract terms and Conditions should be clearly read
by the policy holders to avoid insurance fund claim problems.
Special exclusions may apply, such as suicide clauses, whereby
the policy becomes null and of no value, if the insured dies by suicide within
a specified time (usually two years after the purchase date; some states
provide a statutory one-year suicide clause).
Any misrepresentations by the insured on the application may
also be grounds for nullification.
The face amount of the policy is the initial
amount that the policy will pay at the death of the insured or when the
policy matures.
Although the actual death benefit can provide
for greater or lesser than the face amount.
The Insurance policy matures when the insured
dies or reaches a specified age (such as 100 years old).
Cost
The insurance company calculates the policy
prices (premiums) at a level sufficient to fund claims, cover administrative
costs, and provide a profit. The cost of insurance is determined using
mortality tables calculated by actuaries.
Mortality tables are statistically based tables
showing expected annual mortality rates of people at different age-groups.
Insurance Vs Assurance
The specific uses of the terms “insurance” and “assurance” are sometimes
confused. In general, in jurisdictions where both terms are used, “insurance”
refers to providing coverage for an event that might happen (fire,
theft, flood, etc.), while “assurance” is the provision of coverage for an
event that is certain or surely to happen.
Taxation
In USA Premiums paid by the policy owner are
normally not deductible for federal and state income tax purposes,
and proceeds paid by the insurer upon the death of the insured are not included
in gross income for federal and state income tax purposes.
History of Insurance
The first insurance company in the
United States underwrote fire insurance and was formed in Charleston,
South Carolina, in 1735.
In 1752, Benjamin Franklin helped
form a mutual insurance company called the Philadelphia Contributionship,
which is the nation's oldest insurance carrier still in operation.
The first stock insurance company
formed in the United States was the Insurance Company of North
America in 1792
Types
of Insurance
a.
Health (dental,
vision, medications, others)
b. Life (long-term care, accidental death and
dismemberment, hospital indemnity)
c. Annuities (securities)
d. Life
and Annuities
e. Property
and Casualty (P & C)
f. Property (flood, earthquake, home, auto,
fire, boiler, title, pet)
g. Casualty (errors and omissions, workers'
compensation, disability, liability)
Reinsurance
is usually treated as a separate category from the above types.
Some of them are:
Home Insurance
Home insurance, also commonly called homeowner's
insurance (Also known as real estate industry in the US as HOI),
is a type of property insurance that
covers a private
residence.
It is an insurance policy that combines various personal
insurance protections, which can include losses occurring to one's home,
its contents, loss of use (additional living expenses), or
loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen
at the home or at the hands of the homeowner within the policy territory.
In the United States, most home
buyers borrow money in the form of a mortgage loan, and the mortgage
lender often requires that the buyer purchases homeowner's insurance as a
condition of the loan, in order to protect the bank if the home is destroyed.
Anyone with an insurable interest in the property should be listed on the
policy.
Covered Perils
Home insurance offers coverage on a "named perils" and
"open perils" basis. A "named perils" policy is one that
provides coverage for a loss specifically listed on the policy; if it's not
listed, then it's not covered.
An "open perils" policy is broader in the sense that
it will provide coverage for all losses except those specifically excluded on
your policy.
Basic-form covered perils:
this is the least comprehensive of the three
coverage options. It provides protection against perils most likely to result
in a total loss. If something happens to your home that's not on the list
below, you are not covered. This type of policy is most common in countries
with developing insurance markets and as protection for vacant or
unoccupied buildings.
·
Fire
·
Lightning
·
Windstorm or hail
·
Explosion
·
Smoke
·
Vandalism
·
Aircraft or vehicle collision
·
Riot or civil commotion
Broad-form covered perils:
this form expands on the "basic form" by adding
6 more covered perils. Again, this is a "named perils" policy. The
loss must specifically be listed to receive coverage. Fortunately, the
"broad form" is designed to cover the most common forms of property
damage.
·
All basic-form perils
·
Burglary, break-in
damage
·
Falling objects (e.g.
tree limbs)
·
Weight of ice and snow
·
Freezing of plumbing
·
Accidental water
damage
·
Artificially generated
electricity
Special-form excluded perils:
special-form coverage is the most inclusive of
the three options. The difference with "special form" policies is
that they provide coverage to all losses unless specifically excluded. Unlike
the prior forms, all unlisted perils are covered perils. However, if something
happens to your home, and the event is on the exclusions list, the policy will
not provide coverage.
·
Ordinance of law
·
Earthquake
·
Flood
·
Power failure
·
Neglect
·
War
·
Nuclear hazard
·
Intentional acts
Life insurance
Life insurance (or life assurance,
especially in the Commonwealth of Nations) is a contract between an insurance
policy holder and an insurer or assurer, where the insurer promises
to pay a designated beneficiary a sum of money (the benefit) in
exchange for a premium, upon the death of an insured person (often the policy
holder).
Depending on the contract, other events such as terminal
illness or critical illness can also trigger payment. The policy
holder typically pays a premium, either regularly or as one lump sum. Other
expenses, such as funeral expenses, can also be included in the benefits.
Life policies are legal contracts and the terms of the contract
describe the limitations of the insured events.
Specific exclusions are often written into the contract to limit
the liability of the insurer; common examples are claims relating to suicide,
fraud, war, riot, and civil commotion.
Term assurance
Term assurance provides life insurance coverage for a specified term.
The policy does not accumulate cash value.
Term insurance is significantly less expensive
than an equivalent permanent policy but will become higher with age. Policy
holders can save to provide for increased term premiums or decrease insurance
needs (by paying off debts or saving to provide for survivor needs).
Group life insurance
Permanent Life Insurance
The three basic types of permanent insurance are whole
life, universal life, and endowment.
Whole life.
Accidental death
Health insurance
Synonyms for this usage
include "health coverage", "health care coverage", and
"health benefits".
In a medical sense, the term
"health insurance" is used to describe any form of insurance
providing protection against the costs of medical services
"health
insurance" may also refer to insurance covering disability or long-term nursing or custodial care needs.
History
Accident insurance was first
offered in the United States by the Franklin Health Assurance Company of Massachusetts.
This firm, founded in 1850, offered insurance against injuries arising from
railroad and steamboat accidents. Sixty organizations were offering accident
insurance in the US by 1866, but the industry consolidated rapidly soon
thereafter.
Public health care Programs
Public programs provide the
primary source of coverage for most seniors and also low-income children and
families who meet certain eligibility requirements.
The primary public programs
are Medicare, a federal social insurance program for seniors (generally
persons aged 65 and over) and certain disabled individuals.
Medicaid, funded jointly by the federal government and
states but administered at the state level, which covers certain very low
income children and their families.
CHIP(Children
health insurance program), also a
federal-state partnership that serves certain children and families who do not
qualify for Medicaid but who cannot afford private coverage.
Health Maintenance Organizations
A health maintenance organization (HMO)
is a type of managed care
organization (MCO) that provides a form of health care
coverage that is fulfilled through hospitals, doctors, and other providers with
which the HMO has a contract.
The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer
federally certified HMO options.
Blue Cross Blue Shield Association
The Blue Cross Blue Shield
Association (BCBSA) is a federation of 38 separate health insurance
organizations and companies in the United States. Combined, they directly or indirectly provide
health insurance to over 100 million Americans
BCBSA insurance companies are franchisees,
independent of the association (and traditionally each other), offering
insurance plans within defined regions under one or both of the association's
brands.
Blue Cross Blue Shield insurers offer some form
of health insurance coverage in every U.S. state, and also act as administrators of Medicare in many
states or regions of the United States.
And also provide coverage to state government
employees as well as to federal government employees under a nationwide option
of the Federal Employees Health
Benefit Plan.
Health Care Markets & Pricing
The US health insurance market is highly
concentrated, as leading insurers have carried out over 400 mergers from the
mid-1990s to the mid-2000s (decade).
In 2000, the two largest health insurers (Aetna and UnitedHealth Group) had
total membership of 32 million.
By 2006 the top two insurers, WellPoint
(now Anthem) and UnitedHealth, had total membership of 67 million. The
two companies together had more than 36% of the national market for commercial
health insurance.
In 90% of markets, the largest insurer controls
at least 30% of the market, and the largest insurer controls more than 50% of
the market in 54% of metropolitan areas.
Most provider markets (especially hospitals)
are also highly concentrated—roughly 80%, according to criteria established by
the FTC and Department of Justice.
Health benefits are also provided
to active duty service members, retired service members and their dependents by
the Department
of Defense Military Health System (MHS).
The MHS consists of a direct
care network of Military Treatment Facilities and a purchased care network
known as TRICARE.
Vehicle Insurance
Vehicle insurance, in the United
States and elsewhere, is designed to cover the risk of financial liability or the
loss of a motor vehicle that the owner may face if their vehicle is involved in
a collision that results in property or physical damage.
States that do not require the vehicle owner to carry car insurance include Virginia, where an uninsured motor vehicle fee may be paid to the state, New Hampshire, and Mississippi, which offers vehicle owners the option to post cash bonds.
Insurance Provider in USA
In the United States in 2017, the largest private passenger
vehicle insurance providers in terms of market share were State Farm (18.1%), GEICO (12.8%), Progressive
Corporation (9.8%), Allstate (9.3%), and USAA (5.7%).
Insurance is secured either by working with an independent
insurance agent or with an insurance broker who is authorized to
sell insurance policies. Some can represent from several agencies, or a
growing number of online brokers who provide policy purchases through online
sites.
Liability
coverage
Liability coverage,
sometimes known as Casualty insurance, is offered for
bodily injury (BI) or property damage (PD) for which the insured driver is
deemed responsible. The amount of coverage provided (a fixed dollar amount)
will vary from jurisdiction to jurisdiction
An example of property
damage is where an insured driver (or 1st party) drives into a telephone pole
and damages the pole; liability coverage pays for the damage to the pole. In
this example, the drivers insured may also become liable for other expenses
related to damaging the telephone pole, such as loss of service claims (by the
telephone company), depending on the jurisdiction. An example of bodily injury
is where an insured driver causes bodily harm to a third party and the insured
driver is deemed responsible for the injuries.
Combined single
limit
A combined single limit
combines property damage liability coverage and bodily injury coverage under
one single combined limit.
For example, an insured
driver with a combined single liability limit strikes another vehicle and
injures the driver and the passenger. Payments for the damages to the other
driver's car, as well as payments for injury claims for the driver and
passenger, would be paid out under this same coverage.
Split limit liability
A split limit liability coverage policy splits the coverages
into property damage coverage and bodily injury coverage. In the example given
above, payments for the other driver's vehicle would be paid out under property
damage coverage, and payments for the injuries would be paid out under bodily
injury coverage.
Bodily injury liability coverage is also usually split into
a maximum payment per person and a maximum payment per
accident.
The limits are often expressed separated by slashes in the
following form: "bodily injury per person"/"bodily injury per accident"/"property
damage". For example, California requires this minimum coverage:
·
$15,000 for injury/death to one person
·
$30,000 for injury/death to more than one person
·
$5,000 for damage to property
This would be expressed as "$15,000/$30,000/$5,000".
Collision Coverage
Collision coverage provides coverage for vehicles involved in
collisions. Collision coverage is subject to a deductible.
This coverage is designed to provide payments to repair the
damaged vehicle, or payment of the cash value of the vehicle if it is not
repairable or totaled.
Collision coverage is optional, however if you plan on financing
a car or taking a car loan, the lender will usually insist you carry collision
for the finance term or until the car is paid off. Collision Damage Waiver (CDW)
or Loss Damage Waiver (LDW) is the term used by rental car companies for
collision coverage.
Impact with a pedestrian has been ruled in prior court cases as
a collision with an object and is considered a collision claim.
Comprehensive Coverage
Comprehensive coverage, also known as other-than-collision
coverage, is subject to a deductible and covers cars damaged by incidents that
are not considered collisions.
For example, fire, theft (or attempted theft), vandalism, damage
from weather such as wind or hail, or impacts with non-human animals are types
of comprehensive losses.
Full coverage
Full coverage is the term commonly used to
refer to the combination of comprehensive and collision coverages (liability is
generally also implied.)
Fire Insurance
The term fire insurance refers to a form of property
insurance that
covers damage and losses of property caused by the fire.
Most policies come with some form of fire
protection, but home owners may be able to purchase additional coverage in case
their property is lost or damaged because of fire.
Purchasing additional fire coverage helps
to cover the cost of replacement, repair, or reconstruction of
property above the limit set by the property insurance policy.
Fire insurance policies typically contain
general exclusions such as war, nuclear risks, and similar perils.
Mutual Fire Insurance
The first fire Insurance Company in USA
When fire insurance first appeared in Britain after the Great London
Fire of 1666, mutual societies, in which each policyholder owned a share of the
risk, predominated. The earliest American fire insurers followed this model as
well.
In 1735 Charleston residents formed the first American mutual
insurance company, the Friendly Society of Mutual Insuring of Homes against
Fire. It only lasted until 1741, when a major fire put it out of business.
1871-1906
Chicage-Boston Fire
The Great
Chicago Fire of October 9 and 10, 1871 destroyed over 2,000 acres (nearly 3½
square miles) of the city. With close to 18,000 buildings burned, including
1,500 “substantial business structures,” 100,000 people were left homeless and
thousands jobless. Insurance losses totaled between $90 and $100 million. Many
firms’ losses exceeded their available assets.
About 200
fire insurance companies did business in Chicago at the time. The fire
bankrupted 68 of them. At least one-half of the property in the burnt district
was covered by insurance but as a result of the insurance company
failures, Chicago policyholders recovered only about 40 percent of what they
were owed.
Some Other Insurance
Employer Sponsored
Employer-sponsored health insurance is paid for by businesses on
behalf of their employees as part of an employee benefit package.
Most private (non-government) health coverage in the US is
employment-based. Nearly all large employers in America offer group health
insurance to their employees.
Typically, employers pay about 85% of the
insurance premium for their employees, and about 75% of the premium for their
employees' dependents. The employee pays the remaining fraction of the premium,
usually with pre-tax/tax-exempt earnings.
Small employer group coverage
According to a 2007 study, about 59% of employers at small firms
(3–199 workers) in the US provide employee health insurance.
The percentage of small firms offering coverage has been
dropping steadily since 1999. The study notes that cost remains the main reason
cited by small firms who do not offer health benefits.
The types of coverage available to small
employers are similar to those offered by large firms, but small businesses do
not have the same options for financing their benefit plans.
States regulate small group premium rates, typically
by placing limits on the premium variation allowable between groups (rate
bands).
Insurance brokers play a significant role in helping small employers find
health insurance, particularly in more competitive markets. Average small group
commissions range from 2 percent to 8 percent of premiums. Brokers provide
services beyond insurance sales, such as assisting with employee enrollment and
helping to resolve benefits issues.
College-sponsored health insurance for students
Many colleges, universities, graduate schools, professional
schools and trade schools offer a school-sponsored health insurance plan.
Many schools require that you enroll in the school-sponsored
plan unless you are able to show that you have comparable coverage from another
source.
COBRA Coverage
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
enables certain individuals with employer-sponsored coverage to extend their
coverage if certain "qualifying events" would otherwise cause them to
lose it.
Employers may require COBRA-qualified individuals to pay the
full cost of coverage, and coverage cannot be extended indefinitely.
COBRA only applies to firms with 20 or more employees, although
some states also have "mini-COBRA" laws that apply to small
employers.
Cyber-Insurance
Claims process
After a loss, the insured is expected to take steps to reduce or
lighten the loss. Insurance policies typically require that the insurer be
notified within a specific and resonable time period. After that, a claims adjuster will investigate the claim and the
insured may be required to provide various information.
Filing a claim may result in an increase in
rates, or in non renewal or cancellation. In addition, insurers may share the
claim data in an industry database (the two major ones are CLUE and A-PLUS),
with Claim Loss Underwriting Exchange (CLUE) by Choice point receiving
data from 98% of U.S. insurers.
Insurance Institution
Various associations, government agencies, and companies provide
insurance to peoples of USA serve as the insurance industry in the United
States. The National Association of Insurance Commissioners provides models for standard state
insurance law, and provides services for its members, which are the state
insurance departments or divisions.
Many insurance providers use the Insurance Services
Office, which produces
standard policy forms and rating loss costs and then submits these documents on
the behalf of member insurers to the state insurance departments or divisions.
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