Insurance

• Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies and/or perils.
• There many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.
• The core components that make up most insurance policies are the deductible, policy limit, and premium.

In order to select the best policy for you or your family, it is important to pay attention to the three critical components of most insurance policies—the deductible, premium, and policy limit

Insurance Policy Components

  Premium

A policy's premium is its price, typically expressed as a monthly cost. The premium is determined by the insurer based on your or your business's risk profile, which may include creditworthiness.

  Policy Limit

The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Maximums may be set per period (e.g., annual or policy term), per loss or injury, or over the life of the policy, also known as the lifetime maximum. Typically, higher limits carry higher premiums. For a general life insurance policy, the maximum amount the insurer will pay is referred to as the face value, which is the amount paid to a beneficiary upon the death of the insured.

  Deductible

The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim. Deductibles serve as deterrents to large volumes of small and insignificant claims. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy. Policies with very high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.