There are five different classes of insurance deductions: life, health, property, purchase, and risk. Insurance is a financial instrument purchased to provide financial coverage in the event of a specific event. Relatively small payments are made over a period of time to an insurance company. In exchange, the insurance company provides a promise to pay money to the policy holder if required.
Life insurance is designed to temporarily replace your income in the event of your death. The insurance deductions are taken from your bank account or payroll. Upon your death, a regular payment or annuity is payable to your beneficiaries. Alternately, a lump sum payment is made.
Health insurance deductions are usually taken from your payroll. The purpose of the deductions is to allow the health insurance company to provide coverage for medical services and products. The types of items covered and service providers are determined by the insurance company.
Property insurance covers your home, business, boat and vehicle. In the event of an accident or damage to your property, the insurance company pays for the repair or replacement of that item. There are laws regarding property insurance. Every state requires all vehicles on the road to carry a minimal amount of insurance coverage.
Purchase insurance deductions are usually taken from the credit card or method of payment. Certain credit cards provide purchase insurance for all items purchased with that card. In the event of breakage, warranty claim or other issues, the credit card insurer will repair or replace the item.
Risk insurance is provided by brokerage and investment firms. The insurance deductions are taken from your brokerage account as a regular fee. This type of insurance is to protect your investment against a specific type of loss. It is not widely available but was very popular during the 1950s and 1960s.
Insurance is very popular with lower and middle income families. For a relatively low payment, insurance provides a level of protection against unexpected costs. Life insurance is a critical benefit in a household where the majority of the income is earned by one person. The replacement of that income will take time, and the family will need money to survive in the meantime.
When purchasing insurance, think about the type of coverage plans that you need and look into purchasing them all from the same supplier. Organizing your finances in this way can result in lower insurance deductions and easier account maintenance. Select your insurance company with care, as they must be available to pay for the coverage if you need it.