- Life insurance is one of the few financial products where the person paying in to a policy will never receive the financial benefits. Instead it is designed to provide benefits for a designated dependent, making up for the future income lost by the policyholder dying. For this reason it is sometimes known as life assurance, as the insured event (the person's eventual death) is guaranteed to happen.
- The premiums for life insurance depend on how long the insurer expects the policyholder to live. This will be based on demographic information such as age and gender, plus medical history. In most cases, the premiums are set at the start of the policy and do not change if the policyholder's medical condition changes.
- The most basic version of life insurance is known as term insurance. This version means the policyholder only pays premiums for a set period, but the policy will only pay out if the policyholder dies during this period. Once the period ends, the policy also ends and the insurer does not pay out.
Whole life insurance means that the policyholder pays premiums for the rest of his life and the insurer pays out whenever the insured dies. Some policies have an option to cancel the coverage, which means the policyholder stops paying premiums and the insurer pays out a lump sum but no longer has to pay out upon the policyholder's death. This lump sum is usually lower than the payout would be upon death.
Universal life insurance and variable life insurance mean that some or all of the money from premiums is invested. The eventual payout depends on how well these investments perform, though there is usually a minimum payout. With universal, the insurer picks the investments, while with variable life the policyholder chooses the investments. - Health insurance is designed to cover the costs of medical care. Many employers pay for health insurance as a benefit of employment. There are also two main federal government health programs: Medicare for those aged over 65 and Medicaid for people with low-income.
Many policies do not provide coverage for health care related to pre-existing conditions: these are conditions from which the policyholder already suffered when starting the policy. - Demographic and medical history again play a role in determining premiums. There is also a variation between different plans that offer different levels of coverage and pay out for differing types of health care. Premiums can also vary depending on the level of deductibles, which is the amount the policyholder must contribute towards the cost of any medical payments before the insurer pays out the remainder.
- Fee for service (FFS) plans allow the policyholder to get treatment from any doctor or hospital without prior approval. The policyholder pays up to a deductible limit for each claim, then a set proportion of the remainder of each claim, for example 20%. This proportion is known as a co-payment. There is an annual limit on the total amount a policyholder is required to pay, beyond which the insurer pays all costs.
Health Maintenance Organization (HMO) plans usually offer the lowest premiums. In return, the insurer limits the policyholder to receiving treatment from specified doctors and hospitals. In most cases the policyholder must see a primary care physician and get an approved referral before receiving specialist care paid for by the insurer.
Variations on the HMO system include the Point of Service plan, which allows the policyholder to receive treatment anywhere but offers considerably higher payouts for treatment from approved providers, and a Preferred Payment Organization plan, which allows policyholders to receive treatment anywhere but has a much smaller co-payment with approved policyholders.
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