Homeowners Tips

Homeowners insurance is a critical component of anyone's risk management planning. There may always be a threat of property loss from fire, theft or bad weather. Having an accurate home inventory of your possessions can make settlement claims a lot easier and faster. Insurance agents suggest that all homeowners keep receipts, descriptions, photos or video of the items they own. Once your list and evidence of ownership is itemized, store this in a safety deposit box or other safe location outside of your home, along with a copy of your policy.

Health Insurance
Health insurance may be the most important type of insurance you can own. Without proper health insurance, an illness or accident can wipe you out financially and put you and your family in debt for years. So what is health insurance and how does it work?

Health insurance is a type of insurance that pays for medical expenses in exchange for premiums. The way it works is that you pay your monthly or annual premium and the insurance policy contracts healthcare providers and hospitals to provide benefits to its members at a discounted rate. This is how hospitals and healthcare providers get listed in your insurance provider booklet. They have agreed to provide you with healthcare at the specified cost. These costs include medical exams, drugs and treatments referred to as "covered services" in your insurance policy.

As with any type of insurance, there are exclusions and limitations. To know what these are, you have to read your policy to find out what is covered and what is not. If you elect to have a medical procedure done that is not covered by your insurance, you will have to pay for that service out of pocket.

The range of coverage for expenses varies depending on the type of plan, as will the restrictions. You can purchase the insurance directly from the insurance company through an agent or through an independent broker but most people get their insurance coverage through employer-sponsored programs.

Additional Costs
Aside from premiums, there are other costs associated with your health insurance coverage. Let's explore what these are and how you would calculate them.


Premiums: This is the amount that you pay for coverage.

Deductible: The amount that you pay out of pocket. Like any other type of insurance, the deductible can range in amount depending on how much you would like to pay out of pocket. Generally, the higher the deductible, the lower the premiums.

Co-insurance: The percentage of covered expenses paid by the medical plan. The co-insurance amount is per family per calendar year. For example, in a co-insurance arrangement, there can be an 80/20 split between the insured and the insurance carrier in which the insured pays 20% of the cost of care up to the deductible, but below the out-of-pocket limit set forth by the policy. This is typically associated with coverage provided by a PPO.

Co-payment: Sometimes referred to "co-pay", this is a set cap amount that you will pay each time you receive medical services. This is typically associated with coverage through an HMO (which will also be discussed a little later). For example, every time you visit your doctor, you may have to pay $20 as a co-payment. These payments usually do not contribute toward out-of-pocket policy maximums. The co-payment and the coinsurance are not one in the same. (For related reading, see 20 Ways To Save On Medical Bills.)
Stop-Loss Limit: The cumulative dollar amount of covered expenses in excess of the deductible after which the coinsurance payment stops and the insurer pays 100% of covered expenses. The purpose of to the stop-loss limit is to limit the out-of-pocket costs for the insured individual. The "out-of-pocket max" is the maximum out-of-pocket expense you will incur before your insurance carrier pays 100% of covered services. At this point, all you will have to pay is your premiums. What's important to remember for out-of-pocket expenses is that not all expenses go toward meeting the out-of-pocket max. Co-payments and premiums do not apply to the out-of-pocket expense maximum. Your deductible and coinsurance do apply toward this amount. It's worth noting that this may not be a standard feature with every policy.

Let's look at an example to clarify what is meant.
Let's say your health insurance plan has the following features:
 Deductible: $500
 Coinsurance: 80/20 (you pay the 20%)
 Out of Pocket Max: $5,000


Now, let's say that you go to the hospital and incur $7,500 worth of medical expenses. How much do you have to pay? Let's do the math.

Let's start by subtracting your deductible from the total expense amount:

$7,500 - $500 = $7,000

Remember that you have to pay the deductible before the insurance kicks in.
Now you have to pay 20% of the $7,000, which would be:

$7,000 x 0.20 = $1,400

All in all, you will have to pay $1,900 out of pocket ($500 deductible + $1,400 of coinsurance).

You will have to continue paying out of pocket until your total out-of-pocket expenses reach the $5,000 max set in your policy. At that point, you will no longer pay the coinsurance or deductible.

With out-of-pocket expenses, co-payments, coinsurance and premiums why get insurance at all? The answer is simple: while these costs certainly do put a pinch in your wallet, their costs are not nearly as painful as those from a long-term illness or emergency.

Types of Plans

Indemnity Plan
An indemnity plan, sometimes called a fee-for-service plan, is a type of insurance that reimburses you according to a schedule for medical expenses, regardless of who provides the service. These plans cover things such as:
 Hospital stays
 Surgical expenses
 Major medical coverage

Under these plans, the insurer pays a specific amount per day for a specific number of days. The amount paid can be calculated either as a percentage (80/20) or for actual expenses.

Health Maintenance Organizations (HMO)

The HMO is the most common type of insurance policy people own and the one most frequently provided by employers. HMOs provide a wide range of comprehensive healthcare services to a group of subscribers in return for a fixed periodic payment. With this type of coverage, you select a primary care physician that acts as the gatekeeper for you to receive virtually all the medical care required during a year. The gatekeeper concept is the health insurer's attempt to control the cost and quality of care by coordinating health services with other providers. Specifically, your primary care physician is responsible for determining what care is required and when a patient should be referred to a specialist.

These policies tend to be the least expensive form of health insurance, but they do come with annoying restrictions. Aside from having a gatekeeper, you can only select doctors and hospitals approved in the insurance carrier's network. This becomes a problem if you already have a great relationship with a doctor who is not in the network. If you use a non-network provider, your HMO will not cover the costs unless it's for an emergency. Other than this, most preventive care services are covered.

Preferred Provider Organization (PPO) 
PPOs are a group of healthcare providers that contract with an insurance company, third-party administrators, or others (like employers) to provide medical care services at a reduced fee. There are two major differences between HMOs and PPOs in that:

1. The healthcare providers in the PPO are generally paid on a fee-for-service basis as their services are needed, much like a traditional doctor's visit.

2. You are not required to use the PPO's healthcare providers or facilities - you can go outside the network. That said, going outside the network usually means paying a higher co-payment or deductible.

Point of Service (POS)
A point of service plan is a hybrid plan that combines aspects of an HMO, PPO and indemnity plan. This type of plan is more flexible in that it allows you to decide at the time you need services to elect to use the POS plan's physician to arrange in-network care (HMO feature), or to go outside the network or hospital and pay a higher portion of the cost.

Types of homeowners Insurance

Our homes and their contents are our greatest assets. That is why it is so imperative that we protect their value. Homeowners insurance helps us achieve that goal. Let's break down the different concepts that encompass this area.

Coverage:
Homeowners insurance typically covers the dwelling (the structure), personal property and contents, and some forms of personal liability. The policy may cover direct aand consequential loss resulting from damage to the property itself, loss or damage to personal property, and liability for unintentional acts arising out of the non-business, non-automobile activities of the insured and members of that insured's household.

Types of Insurance:
Are you ready to decipher the codes? There are six standard forms of homeowners insurance containing personal property coverage.



1. HO 00 02 (Homeowners 2, Broad Form): This form of insurance provides broad form coverage on your dwelling and other structures and insures against loss of use. To be specific, the broad form of coverage insures against windstorm, hail, aircraft, riot, vandalism, vehicles, volcanic, explosion, smoke, fire, lightening and theft , plus rupture of a system, artificially generated electricity, falling objects and freezing of plumbing.

2. HO 00 03 (Homeowners 3, Special Form): This "special form" insurance offers coverage for more causes of loss than the HO 00 02.

3. HO 00 04 (Homewoners 4, Contents Broad Form): This is a renter's policy. Even if you don't own your home, you should consider having this type of insurance. Your landlord's insurance will not cover damage to your personal property or liability against you. Think about how much it will cost to replace all of your furniture, clothing etc. If you feel this isn't a loss you could bear, consider buying this type of insurance.


4. HO 00 05 (Homeowners 5, Comprehensive Form): This type of policy essentially combines the HO 00 03 form with the HO 00 05 endorsement into one comprehensive form to provide open perils coverage on personal property in addition to the dwelling, other structures and loss of use. The HO 00 05 rider can only be combined with an HO 00 03 policy.

5. HO 00 06 (Homeowners 6, Unit Owners Form) : This is a condominium policy. This type of policy is different from a homeowners insurance policy in that it is designed for individuals who live in a unit structure owned and insured by a condo association, townhouse association cooperative, homeowner's association, planned community or other similar type of organization. The insurance the association provides only covers the outside dwelling, not the contents of your unit, so it's important to consider purchasing this type of insurance to protect against personal property losses and liability.

6. HO 00 08 (Homeowners 8, Modified Coverage Form): This form of insurance settles losses on an actual cash value basis and is usually only used to cover older structures where the cost of replacement far exceeds the value of the structure. This type of insurance is offered when insurers are not willing to offer HO 00 02, 03 or 05 coverage because there may be an incentive to intentionally destroy the structure.

Now let's take a look at what is usually not covered under these types of insurance. These are known as "exclusions", but you may be able to get coverage in these areas with a rider or umbrella policy. Your individual policy may exclude more items than listed below, so consult with your agent.


1. Ordinance or Law: If the dwelling does not comply with local building codes, the insurer will not be liable for the cost of construction to bring the structure up to code.

2. Earth Movements: This includes two distinct types of earth movements, including shifting earth (landslides) in the foundation of a home and earthquakes. These may be considered two separate coverage areas, so being covered for one may not mean being covered for the other.

3. Water Damage: This includes flood, water backing up in sewers or drains, water seeping through basement walls etc.


4. Neglect: This excludes losses resulting from direct or indirect neglect and failure to use reasonable means to protect property.

5. War: Damage caused by any type of war or nuclear weapons attack.

6. Nuclear Hazard: This defined as any nuclear reaction, radiation, or radioactive contamination, (whether controlled or uncontrolled). Any loss caused by nuclear hazard as it is defined will not be considered loss caused by fire, explosion, or smoke, even if these perils are specifically named in your policy.

7. Intentional Loss: Any damage intentionally done to one's own property is excluded for obvious reasons.

As with any type of insurance, it is critical that you read the insurance policy so that you know exactly what it will cover. The amount of coverage you should consider should be based on the replacement cost value of your home or property. Replacement costs on one's dwelling provides that if, at the time of loss, the amount of insurance covers at least 80% of the replacement cost of the dwelling, the loss will be paid on a replacement cost basis. Keep in mind that this still leaves the homeowner on the hook for the remaining 20% in the event of a total loss.

Oftentimes, the bank or institution holding your mortgage will require that you maintain a specific amount of coverage. However, even if your home is paid off, you should still consider having the appropriate amount of insurance protection, which might include coverage for physical damage as well as liability protection for the owners.

Other Considerations
Depending on where you live and given the unpredictability of nature, specifically the weather, you should consider other types of insurance to protect your property. For example:

Flood Insurance 
Flood insurance is becoming more and more popular as places that normally would not experience floods are suddenly finding themselves suffering losses as a result of extreme weather. To the surprise of many of these homeowners, their regular homeowners insurance policy did not cover against flood. This is a separate type of coverage that you will have to purchase if you consider flood to be a risk for your business or property.

If you live in a flood-prone area and you have a mortgage, the lender will require you to purchase adequate coverage to insure the property. If you own the property, you can elect to self-insure and not buy insurance, but you have to remember that any damage caused as a result of flooding will be your financial responsibility. The cost of this kind of damage can run from the hundreds to thousands of dollars, so it's worth considering purchasing the insurance to transfer this risk, especially, if you live in a flood zone. If you don't live in a flood-prone area, you may qualify for a discounted rate, which means a lower premium for you.

Windstorm Insurance
Like flood insurance, windstorm insurance is a separate type of coverage that protects your home or business against wind damage. Wind damage may result from items flying and destroying your property as a result of a hurricane, hail, snow, sand or dust.Coverage for windstorm may be limited in states prone to hurricane and tornadoes. If you live in a state like Florida, Louisiana, Texas or the Carolinas, which are frequently barraged by tropical storms or hurricanes, this should be an integral part of your asset protection planning. Consult with your agent or broker for more details on this type of coverage.

Umbrella Liability Policies
Umbrella insurance helps you protect your assets if you are sued. If you are worried that the liability insurance coverage you have through your auto or property policies is still not enough, you can consider adding an umbrella policy. An umbrella policy is basically an additional policy that kicks in when your other insurance policies have reached their limits. The amount of coverage and types of coverage offered by these policies varies, as will their premiums. You can tag on an umbrella policy to your homeowners or auto insurance policy to protect your assets against liability or lawsuits.


Certain exclusions apply, including:
 Owned or leased aircraft or watercraft
 Business pursuits
 Professional services
 Any act committed by the insured with the intent to cause personal injury or property damage

Umbrella policies are fairly inexpensive to acquire, and coverage ranges from $1 million to $ 5 million or more. You might expect to pay between $200 to $500 for $1 million in coverage. There is no specific "umbrella deductible". Because an umbrella policy is written on top of any auto or personal property coverage you have, the benefit does not kick in until you satisfy the deductible on those policies and have used up the coverage from either the auto or property policy.

Homeowners Insurance

Definition of 'Homeowners Insurance
A form of property insurance designed to protect an individual's home against damages to the house itself, or to possessions in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.

In the U.S. there are seven forms of homeowners insurance that have become standardized in the industry; they range in name from HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner.

Also known as "homeowner's/homeowners' insurance."

Homeowners Insurance
While homeowners insurance covers most scenarios where loss could occur, some events are typically excluded from policies, namely: earthquakes, floods or other "acts of God" and acts of war.

For people who live in certain parts of the country, adding an extra policy for earthquake insurance or flood insurance can be a good idea to offer further home protection and peace of mind. Some homeowners insurance is designed for renters, typically HO-4 or "renters insurance", and only covers possessions within the home and isolated events not covered in the property insurance held by the owner.

Life insurance

Definition of 'Life Insurance
A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.

'Life Insurance'
The goal of life insurance is to provide a measure of financial security for your family after you die. So, before purchasing a life insurance policy, you should consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your funeral costs and final medical bills? Would your family have to relocate? Will there be adequate funds for future or ongoing expenses such as daycare, mortgage payments and college? It is prudent to re-evaluate your life insurance policies annually or when you experience a major life event like marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business.

What is Insurance? ( 3 )

Risk Sharing 

Finally, you may also decide to share risk. For example, a business owner may decide that while he is willing to assume the risk of a new venture, he may want to share the risk with other owners by incorporating his business. 

So, back to our driving example. If you could get rid of the risk altogether, there would be no need for insurance. The only way this might happen in this case would be to avoid driving altogether. Also, if the cost of the loss or the effect of the loss is reasonable to you, then you may not need insurance. 

For risks that involve a high severity of loss and a low frequency of loss, then risk transference (ie. insurance) is probably the most appropriate protection technique. Insurance is appropriate if the loss will cause you or your loved ones a significant financial loss or inconvenience. Do keep in mind that in some instances, you are required to purchase insurance (i.e. if operating a motor vehicle). For risks that are of low loss severity but high loss frequency, the most suitable method is either retention or reduction because the cost to transfer (or insure) the risk might be costly. In other words, some damages are so inexpensive that it's worth taking the risk of having to pay for them yourself, rather than forking extra money over to the insurance company each month. 

The Risk Management Process

After you have determined that you would like to insure against a loss, the next step is to seek out insurance coverage. Here you have many options available to you but it's always best to shop around. You can go directly to the insurer through an agent, who can bind the policy. The process of binding a policy is simply a written acknowledgement identifying the main components of your insurance contract. It is intended to provide temporary insurance protection to the consumer pending a formal policy being issued by the insurance company. It should be noted that agents work exclusively for the insurance company. There are two types of agents:

1. Captive Agents: Captive agents represent a single insurance company and are required to only do business with that one company.

2. Independent Agent: Independent agents represent multiple companies and work on behalf of the client (not the insurance company) to find the most appropriate policy.

Underwriting Underwriting is the process of evaluating the risk to be insured. This is done by the insurer when determining how likely it is that the loss will occur, how much the loss could be and then using this information to determine how much you should pay to insure against the risk. The underwriting process will enable the insurer to determine what applicants meet their approval standards. For example, an insurance company might only accept applicants that they estimate will have actual loss experiences that are comparable to the expected loss experience factored into the company's premium fees. Depending on the type of insurance product you are buying, the underwriting process may examine your health records, driving history, insurable interest etc.

The concept of "insurable interest" stems from the idea that insurance is meant to protect and compensate for losses for an individual or individuals who may be adversely affected by a specific loss. Insurance is not meant to be a profit center for the policy's beneficiary. People are considered to have an insurable interest on their lives, the life of their spouses (possibly domestic partners) and dependents. Business partners may also have an insurable interest on each other and businesses can have an insurable interest in the lives of their employees, especially any key employees.

Insurance Contract 

The insurance contract is a legal document that spells out the coverage, features, conditions and limitations of an insurance policy. It is critical that you read the contract and ask questions if you don't understand the coverage. You don't want to pay for the insurance and then find out that what you thought was covered isn't included.

Insurance terminology you should know: 

Bound: Once the insurance has been accepted and is in place, it is called "bound". The process of being bound is called the binding process. 

Insurer: A person or company that accepts the risk of loss and compensates the insured in the event of loss in exchange for a premium or payment. This is usually an insurance company.

Insured: The person or company transferring the risk of loss to a third party through a contractual agreement (insurance policy). This is the person or entity who will be compensated for loss by an insurer under the terms of the insurance contract.

Insurance Umbrella Policy: When insurance coverage is insufficient, an umbrella policy may be purchased to cover losses above the limit of an underlying policy or policies, such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies. 

Insurable Interest: In order to insure something or someone, the insured must provide proof that the loss will have a genuine economic impact in the event the loss occurs. Without an insurable interest, insurers will not cover the loss. It is worth noting that for property insurance policies, an insurable interest must exist during the underwriting process and at the time of loss. However, unlike with property insurance, with life insurance, an insurable interest must exist at the time of purchase only.

Now that you have the basics of insurance, let's discuss specific types of policies.

Property And Casualty Insurance

Property and casualty insurance is insurance that protects against property losses to your business, home or car and/or against legal liability that may result from injury or damage to the property of others. This type of insurance can protect a person or a business with an interest in the insured physical property against losses. Let's examine some of the things to look for in the different types of property/casualty insurance.

What is Insurance? ( 2 )

What Is Insurance?

Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium.

Introduction

In one form or another, we all own insurance. Whether it's auto, medical, liability, disability or life, insurance serves as an excellent risk-management and wealth-preservation tool. Having the right kind of insurance is a critical component of any good financial plan. While most of us own insurance, many of us don't understand what it is or how it works. In this tutorial, we'll review the basics of insurance and how it works, then take you through the main types of insurance out there.

Through insurance there is no guarantee against the occurrence of an event, generally not harmful. So that we can conclude an insurance contract, there must be a chance that this risk will occur and that this risk is not controlled by neither party (nor any person who intends to make sure either by the insurance company).

More precisely, we speak of the existence of unknown factors of risk (uncertain). Insurance, therefore, has the primary purpose of "transforming the risk in spending." In fact, through the signing of a contract, the insured intends to "quantify" the financial damage that it would have if the event guaranteed (risk) occurs.

Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate. We say "significant" because if the potential loss is small, then it doesn't make sense to pay a premium to protect against the loss. After all, you would not pay a monthly premium to protect against a $50 loss because this would not be considered a financial hardship for most.

Insurance is appropriate when you want to protect against a significant monetary loss. Take life insurance as an example. If you are the primary breadwinner in your home, the loss of income that your family would experience as a result of our premature death is considered a significant loss and hardship that you should protect them against. It would be very difficult for your family to replace your income, so the monthly premiums ensure that if you die, your income will be replaced by the insured amount. The same principle applies to many other forms of insurance. If the potential loss will have a detrimental effect on the person or entity, insurance makes sense.


Everyone that wants to protect themselves or someone else against financial hardship should consider insurance. This may include:

•  Protecting family after one's death from loss of income
•  Ensuring debt repayment after death
•  Covering contingent liabilities
•  Protecting against the death of a key employee or person in your business
•  Buying out a partner or co-shareholder after his or her death
•  Protecting your business from business interruption and loss of income
•  Protecting yourself against unforeseeable health expenses
•  Protecting your home against theft, fire, flood and other hazards
•  Protecting yourself against lawsuits
•  Protecting yourself in the event of disability
•  Protecting your car against theft or losses incurred because of accidents
•  And many more

Fundamentals Of Insurance

How does insurance work? Insurance works by pooling risk.

What does this mean? It simply means that a large group of people who want to insure against a particular loss pay their premiums into what we will call the insurance bucket, or pool. Because the number of insured individuals is so large, insurance companies can use statistical analysis to project what their actual losses will be within the given class. They know that not all insured individuals will suffer losses at the same time or at all. This allows the insurance companies to operate profitably and at the same time pay for claims that may arise. For instance, most people have auto insurance but only a few actually get into an accident. You pay for the probability of the loss and for the protection that you will be paid for losses in the event they occur.

Risks 

Life is full of risks - some are preventable or can at least be minimized, some are avoidable and some are completely unforeseeable. What's important to know about risk when thinking about insurance is the type of risk, the effect of that risk, the cost of the risk and what you can do to mitigate the risk. Let's take the example of driving a car.

Type of risk: Bodily injury, total loss of vehicle, having to fix your car 

The effect: Spending time in the hospital, having to rent a car and having to make car 

payments for a car that no longer exists 

The costs: Can range from small to very large 

Mitigating risk: Not driving at all (risk avoidance), becoming a safe driver (you still have to contend with other drivers), or transferring the risk to someone else (insurance)

Let's explore this concept of risk management (or mitigation) principles a little deeper and look at how you may apply them. The basic risk management tools indicate that risks that could bring financial losses and whose severity cannot be reduced should be transferred. You should also consider the relationship between the cost of risk transfer and the value of transferring that risk.

Risk Control 

There are two ways that risks can be controlled. You can avoid the risk altogether, or you can choose to reduce your risk.

Risk Financing

If you decide to retain your risk exposures, then you can either transfer that risk (ie. to an insurance company), or you retain that risk either voluntarily (ie. you identify and accept the risk) or involuntarily (you identify the risk, but no insurance is available).

What is insurance? ( 1 )

Put simply, insurance is a financial product designed to make sure that you are protected in the event of an accident or disaster (such as a flood or burglary).

There are many different types of insurance, from insurance that you have to take out by law (such as car insurance); to policies that it's a good idea to have (such as household contents insurance and travel insurance) to those that are 'nice to have' rather than necessities. 

Figures from the Association of British Insurers show that, during the recession, one in four people cancelled their home insurance. While it's a good idea to make sure you're not paying for insurance you don't need, you should always think about what would happen if disaster were to strike before cancelling any insurance policies.

How does insurance work?
When you take out an insurance policy, you pay a premium to the insurance provider. If you never make a claim, you never get any of the money back; instead it's pooled with the premiums of others who have taken out insurance with a particular firm.

The idea behind insurance is that everyone pays into a pot of money, knowing that only some of them will ever need to make a claim. If you have to make a claim (perhaps because your washing machine has flooded your kitchen and damaged your floor), the money comes from the pool of policyholders premiums.

How are premiums calculated?
Insurers are professional risk calculators, which means they can work out the probability of different types of events happening and how much each one is likely to cost. They calculate the premiums based on the risk you are insuring against.

Clearly, only a proportion of policyholders will make a claim in any one period. So, an insurer will take two important factors into account when calculating the premium it will charge. Firstly, how likely it is in general terms that someone will need to claim and secondly, whether the person who wants to take out the policy is a bigger or smaller risk than the 'average' policyholder.

Take three examples. In motor insurance, a young person with a high-powered car, or a driver with a long history of accidents will usually pay a higher premium than a mature and experienced driver with a car with a smaller engine who has not had an accident before.

Similarly, the owner of a fish and chip shop may need to pay a higher premium for his or her fire insurance than, say, the owner of an office. The risk is greater, so the premium is higher.

Someone who is young, fit and in a risk-free job will normally pay lower premiums than someone who is older, has a heart condition or is in a risky occupation.

Two kinds of insurance
There are two different kinds of insurance - life insurance and general insurance.

General insurance pays out:

• If a car has an accident or is stolen
• If a house catches fire or is burgled
• If a holiday has to be cancelled

Most life policies, on the other hand, pay out when an event happens, such as when someone dies.

Anyone can buy life insurance but, the amount you pay in premiums will depend on your age, your health, and the type of work you do. The younger and healthier you are, the cheaper the premiums for life insurance. But if you work in a risky job, you'll normally have to pay more for life insurance.

Most types of insurance are annual policies. That means that the amount you pay can change every year and, if you've made a claim in the previous year or your circumstances have changed, it could affect your premiums.

However, some types of insurance, such as life insurance and insurance that pays part of your income if you cannot work because you're seriously ill, are long-term contracts. That means you don't get renewed quotes every year as the premium is set when you first sign up.

If you have a joint mortgage with your husband, wife or partner, you can take out life insurance that will pay out if they die before the mortgage is paid off. However, you can't take out insurance on someone unless you'd be financially worse off if they died.

What is the excess?
With many general insurance policies, you have to pay the first part of any claim - called the excess - if something goes wrong. The level of the excess can vary widely. For a travel insurance policy, it may be £25 - £50 while for a car insurance policy it could be £100 or more.

Sometimes insurers will impose a large excess if you've already claimed for something and you're likely to do so again, such as for flood damage or subsidence (which is when a building develops cracks because the foundations have moved).

General principles
Other principles apply to all kinds of insurance:

• Insurance can provide compensation only for the actual value of property. It cannot cover the loss of sentimental value, for example.
• There must be a large number of similar risks so that the likelihood of a claim can be spread among other policyholders. It must be possible for insurers to calculate the chance of loss so that a premium can be set which matches the risk.
• Losses must not be deliberate and not inevitable. Clearly, you could not buy fire insurance for a house which was already burning or life insurance for someone on his or her deathbed.
• Lastly, there are some risks which have financial implications so vast that they can be dealt with only by the state. These risks (mainly those arising from war or the major escape of nuclear or radioactive material) are normally not insurable.

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