A good insurance program has the resources you need to help protect your life, property, and earnings. Insurance is a method of transferring the risk of financial loss from one person or organization (the “insured”) to another party (the “insurer”). It enables people to manage risks that could potentially be economically devastating such as job layoffs or illness-related medical costs by spreading them over a larger group. The insured typically pays an insurance premium for this protection in periodic installments during their lifetime; these may take the form either of level payments made on certain dates pegged back at least partly by age or attained income levels; alternatively, they might resemble progressive premiums graded according to some combination therein: all three types are common with different kinds of the insurances.
The best insurance program protects you against loss due to health or accidents. The program should provide the benefits of insurance at the lowest cost possible. The problems of insurance are so well known that it is the negative aspect of the business that most people notice, not what happens when you need the protection as well as keeping yourself safe.
Self-insurance or mutual-fund insurance are loose forms of insurance programs. The goal of a self-insurance program is to spread risk by dividing it among individual policyholders rather than providing single coverage. With a mutual fund, for example, you pay for a stock portfolio administered by an insurance company and split risks among other investors who belong to this fund. To reduce costs and improve efficiency, self-insurance programs often provide a small level of coverage at a minimal cost. On the other hand, this level may be just enough to cover the costs of catastrophic losses and not enough for routine needs. A comprehensive plan which provides benefits ranging from accident benefits to coverage for hospital outpatient expenses requires more spending power per person for its members than do stock portfolios or mutual funds. In addition, low-cost self-insured programs have few features found incomplete plans such as minimum levels of benefit or limits on premiums paid as a percentage of earned income. Other problems include fragmentation – each policyholder has to carry an array of small policies – and limited selection available since only one insurer may service any one state.
Related to Self-insurance is Mutual Reinsurance where two groups of people each insure against risks faced by their own members. The key benefit of mutual reinsurance is that it can be used for both financial and non-financial (i.e., cover medical expenses) risks. For example, a group of mortgage holders are able to join together in order to provide themselves with healthcare coverage as well as to hedge against the risk of losing their homes in a fire – all at a less than competitive cost due to economies of scale (several companies will have fewer claims per person than any single individual). Finally, consider the Health Benefits Association where group purchasing provides medical services for a substantial portion but not all of the members.