The insurance industry refers to a collection of companies that manage risk for individual health and property by promising to reimburse policyholders for losses in exchange for regular payments. The industry is divided into three distinct segments: life insurance, health insurance, and liability insurance. Each operates on similar principles, but protects policyholders for very different reasons. There are two main types of ownership in the insurance industry.
The life insurance industry specializes in two types of policies designed around the client's life. The most common type of life insurance policy is a guaranteed sum of money to be paid out to a beneficiary after the policyholder's death. The second, and less common, type of policy rewards a policyholder if they live past a specified age. In both cases, the policyholder pays a sum, i.e., a premium, to the insurance company at regular intervals to keep the policy active. If these payment are not made, the policy is voided and beneficiaries do not collect any money.
Another kind of coverage that focuses on the well-being of a policyholder is health insurance. The primary function of the health insurance industry is to absorb some or all of the costs associated with health care. A health insurance policy covers an individual's treatment visits to doctors, hospitals, and other specialists. There are a variety of payment methods, sometimes requiring a policyholder co-pay, which is a percentage of the overall costs of medical care, in addition to a monthly premium. Health insurance is often partially underwritten by an employer. Other health insurance providers require holders to visit certain approved health care professionals.
The liability insurance industry forms the third type of coverage and provides security for physical objects. The main function of this industry is to protect automobiles, real estate, and personal property from loss. For example, if a home burns down or a car gets into an accident, the policyholder generally receives benefits under the policy for the damage or loss.
The insurance industry covers these different fields, but companies are owned primarily in one of two ways. Shareholder ownership comes in the form of a public company that is owned by stockholders and traditionally governed by a board of directors. Mutually owned insurance companies, on the other hand, are owned by the policyholders themselves and function like a private company. These two organizational approaches are vastly different and provide benefits and drawbacks to policyholders.