In insurance, generally the insurance policy is simply a legal contract between the policyholder and the insurance company, which define the various claims that the insurance company is legally obligated to cover. In return for an initial fee, commonly called the premium, the insurance company promises to cover certain damage caused by perils mentioned in the policy document. The premium paid by the customer is deductible from any claim made against the insurance policy, and the coverage provided is limited to that which is stated within the coverage document and agreed to by the customer and the insurance provider. Insurance policies are generally based on a host of factors, including the type of insurance being purchased, the age and health of the insured, the risk of the insured’s injury or damage, and the amount of the insurance premium paid by the customer.
Insurance policies can be structured to suit a person’s individual needs. For example, in the case of term insurance policies, the premiums can be paid over a certain length of time and in several regular payments, with the insured guaranteed to receive payments for the term of the policy. The term life insurance policies are more costly initially but have a level premium that remains constant for the life of the policy, or until it expires, whichever comes first. Whole life insurance policies are usually very expensive because of their commitment to large sums of money, but they provide an insurance policy that lasts indefinitely, unlike the term life insurance policies.
There are also several different types of deductibles and limits on insurance policies. Deductibles are simply the amount that a customer or policyholder has to pay out of pocket before receiving any benefits from an insurance policy. These amounts can vary widely among insurance policies, depending on the insurance provider and the needs of the insured. For example, there may be a high deductible on a policy that covers a large number of expensive procedures, such as cosmetic surgery. On the other hand, a low deductible on a health savings account may make sense if the insured knows he or she will be able to use the account to cover unexpected medical expenses.