Insurance Doc: Types of Insurance Policies

Going through life without insurance is like walking the tight rope without a net to catch you in case you fall.

In today's unpredictable world, carrying insurance is practically a no-brainer. However, there are so many types of insurance policies available - how do you know which ones you should purchase?

The best way to decide which types of insurance policies you should purchase is to familiarize yourself with the basics of each type of policy.

Health Insurance Policies

You never know when you or a loved one is going to get sick or injured, which is why it is so important to carry health insurance.

There are essentially two types of health insurance policies you can purchase: indemnity plans (or fee-for-services plans) and managed care.

Indemnity plans typically offer policyholders a greater degree of flexibility and choice when it comes to selecting a health care provider. However, with this choice often comes higher out-of-pocket costs.

Managed care plans typically offer policyholders lower costs compared to indemnity plans but policyholders do need to work within a plan's network of health care providers. Common managed care plans include HMO plans, PPO plans and POS plans.

Auto Insurance Policies

Another essential insurance policy to carry is auto insurance. In fact, if you own a car or truck, you are required by law to carry auto insurance.

When shopping for auto insurance, you will be able to select from several coverage options for your policy.

The most common policy options include:

• Liability Coverage, which covers costs associated with bodily injury or property damage resulting from an accident that is caused by the policyholder;
• Collision Coverage, which covers costs associated with damages to the policyholder's vehicle resulting from a collision with another vehicle;
• Comprehensive Coverage, which covers costs associated with damages to the policyholder's vehicle resulting from an incident other than a vehicular collision; and
• Uninsured/Underinsured Motorist Coverage, which covers costs related to an accident that is caused by another driver who has either no auto insurance or limited insurance that will not sufficiently cover all costs stemming from the accident.

Homeowners Insurance Policies

If you own a home, then the smart move is to carry homeowners insurance. Homeowners insurance protects a policyholder's home and personal possessions should disaster strike.

There are different levels of homeowners insurance that you can purchase. You can purchase a basic homeowners insurance policy, which covers only 10 perils, or you can purchase augmented homeowners insurance policies that will cover 16 perils. You also can purchase policies that will cover any and all perils except those specifically excluded in the policy.

Most homeowners insurance policies will not cover certain perils, such as damage caused by flooding or earthquake. Individuals will need to purchase separate insurance policies in order to cover these types of excluded perils.

There also is a certain type of homeowners insurance that is available to renters. Even though renters do not own their residences, they can purchase renters insurance in order to protect their valuables within the residence.